MG lifts price to re­main com­pet­i­tive with ri­vals

Dairy News Australia - - NEWS -

MUR­RAY GOULBURN has raised its open­ing price by 50c/kg milk solids to $5.20/kg barely two weeks af­ter its ini­tial of­fer­ing of $4.70/kg.

The co-op has changed its end of sea­son fore­cast price from a range of $5.20-$5.40c/kg to $5.20$5.50c/kg.

Sup­plier anger at the open­ing price of $4.70/kg was com­pounded when MG com­peti­tors sub­se­quently opened at $5.30/kg or higher.

MG’s price rise was an­nounced eight days af­ter Fon­terra an­nounced its open­ing price of $5.30/ kg MS, with a fore­cast clos­ing range of $5.40$5.80/kg MS.

When cou­pled with Fon­terra’s 40 cents/kgMS ad­di­tional pay­ment, it means Fon­terra farm­ers can ex­pect to re­ceive $5.70/kg MS, with a fore­cast clos­ing price range of $5.80-$6.20/kg MS.

The ad­di­tional pay­ment was an­nounced in May and will be avail­able to all cur­rent, re­tired and recom­menc­ing sup­pli­ers, who were forced to take a pay cut at the end of the 2015/16 sea­son af­ter Fon­terra se­verely and un­ex­pect­edly dropped their prices.

Un­like Mur­ray Goulburn, which re­im­bursed money to ex­ist­ing and re­tir­ing sup­pli­ers clawed back from its ill-ad­vised ‘Milk Sup­ply Sup­port Pack­age’, Fon­terra sup­pli­ers that took money un­der the ‘Sup­port Loans’ pack­age will have to re­pay this.

MG has lost sig­nif­i­cant milk sup­ply in the past 12 months – with es­ti­mates over 20% - and an open­ing price well be­low the cost of pro­duc­tion of its sup­pli­ers was seen as the fi­nal straw by oth­ers.

MG’s ri­vals have been ag­gres­sive in their pur­suit of their sup­pli­ers since the open­ing price was an­nounced.

In a let­ter to sup­pli­ers, MG CEO Ari Mervis said the price was changed as MG “have had the op­por­tu­nity to re­view the 2017/18 bud­get as­sump­tions, which in­clude dairy com­mod­ity prices, ex­change rates and achiev­ing cost out ini­tia­tives, as well as achiev­ing milk in­take of ap­prox­i­mately 2.5 bil­lion litres”.

“The up­dated FMP has also taken into ac­count im­proved com­mod­ity prices re­flect­ing an­tic­i­pated mar­ket re­turns, to­gether with ad­di­tional sales that have been con­tracted.”

He also said: “We recog­nise that in the cur­rent com­pet­i­tive en­vi­ron­ment we need to main­tain our milk sup­ply and pro­vide im­proved cash flow for sup­pli­ers.

“Our de­ci­sion to re­vise our open­ing price to $5.20/kg MS is in­tended to as­sist in main­tain­ing our com­pet­i­tive­ness and sup­port our sup­plier base.”

Fon­terra Aus­tralia Man­ag­ing Di­rec­tor René De­doncker said Fon­terra had taken a re­spon­si­ble view in set­ting its open­ing price and fore­cast clos­ing range, which re­flects Fon­terra’s Aus­tralian im­proved prod­uct mix and the cur­rent commodities mar­ket.

“This is a re­spon­si­ble price in the cur­rent mar­ket. World dairy prices have strength­ened, re­flect­ing the strong fun­da­men­tals sup­port­ing global dairy mar­kets,” Mr De­doncker said.

“We’ve made sig­nif­i­cant in­vest­ments in Aus­tralia and achieved a num­ber of mile­stones for our busi­ness, in­clud­ing our multi-mil­lion dol­lar cheese plant at Stan­hope, ex­panded ca­pac­ity at our Cob­den and Wyn­yard plants, and com­menc­ing our joint ven­ture with Be­ing­mate at Dar­num.

“This has helped to re­bal­ance our prod­uct mix, un­der­pin­ning the price we can pay to our farm­ers.

“To sup­port our Stan­hope in­vest­ment and en­sure we fully op­ti­mise the new plant, we need to grow our milk pool, and we be­lieve that, when com­bined with our ad­di­tional 40c/kgMS pay­ment, our open­ing price will en­able farm­ers to plan ahead and po­si­tion their busi­nesses to grow if they choose.”

Sup­plier anger at the open­ing price of $4.70/kg was com­pounded when MG com­peti­tors sub­se­quently opened at $5.30/kg or higher.

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