Sector News

Fonterra makes bid for Australian processor Murray Goulburn

September 27, 2017
Food & Drink

Fonterra has bid to buy struggling Australian dairy processor Murray Goulburn, although a Murray Goulburn supplier says it will have an uphill battle because 90 per cent of shareholders will have to agree.

Karinjeet Singh-Mahil, who used to be with Fonterra, said the proposal was “like picking at a scab” after the way she and other farmers had been poorly treated.

President of United Dairyfarmers Victoria, Adam Jenkins, said Australian farmers would remember Fonterra chief executive Theo Spierings’ words from last year when they considered the bid.

“He said Fonterra was taking every bit of cash out of Australia to give back to shareholders, so that will very much be on the minds of Australian farmers.”

Fonterra’s Australian managing director René Dedoncker said it had made an indicative, non-binding proposal to Murray Goulburn.

“We will not be discussing details of our proposal publicly – MG’s Board and its shareholders are entitled to have time to consider what we have proposed,” he said.

Poor dairy prices in 2014-16 hit the Australian dairy industry hard, forcing processors to lower returns to farmers.

Last year Fonterra reduced its payments for the 2015-16 season from $5.75 to $5 per kilogram of milksolids, but in order to make an average payout price of $5 for the whole season, it reduced its payout to $1.91 for the last two months.

Murray Goulburn also drastically reduced its payout and initially tried to claw back payments until it later softened its stance.

Since 2015 Fonterra Australia has overtaken Murray Goulburn as the country’s largest milk processor, collecting more than 2 billion litres a year. Over the same period MG’s share has dropped from 3 to 2 billion litres.

If Fonterra took over Murray Goulburn, the company would collect between 40 and 50 per cent of the milk produced in Australia, raising concerns about competition.

Jenkins said the Victorian dairy industry wanted a good economic return but also someone who would put value into the supply chain, particularly for farmers.

He raised the prospect that the new entity could become a co-operative. At present in Australia Fonterra is not a co-op, but Murray Goulburn is. There had been hopes when Fonterra took over Bonlac in 2005 that it would have become a co-op.

“Back then there had been a feeling from Australian farmers that they would have liked to be part of the business in some way or shape. That didn’t come to fruition, so I think there might be an opportunity now,” Jenkins said.

Australian farmers would not be happy at the prospect of a large percentage of processing being foreign owned.

“They won’t be if there’s no co-operative structure involved in that. If Fonterra continues to operate as a corporate, there will be ill feeling towards that because then every processor would be a corporate.”

“The actions they took seriously damaged a proportion of our farming base, so that could be a big hurdle to get over. That showed a lack of understanding of the Australian dairy industry,” Jenkins said.

Mahil-Singh said the proposal had brought up unhappy memories.

“He [Dedoncker] had the cheek to say they had a lot in common with Murray Goulburn. No they don’t, Murray Goulburn borrowed money to look after their farmers, Fonterra still haven’t paid us back.

“We knew we would have been better off with Murray Goulburn but we stayed because we thought there might have been benefit in our loyalty,” she said.

Last year Fonterra Australia posted a $62 million before tax profit and said Australian assets were generating an 11 per cent return on investment.


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