Wry & Dry

W&D is crying for dairy farmers, but that doesn't mean a bail-out

This is a sad story.   

Murray Goulburn is a public company, which issued a prospectus, changing from a co-op to a company.  92% of dairy farmer co-op members voted in favour of the structure.  It was a sound and large business, with just over 40% of the national market for milk powder.  Over 50% of its revenue comes from exports.

But in moving from a co-op to a company, inevitable conflicts arise.  With a co-op, the members' interest come first.  With a company the shareholders' interest come first.  

Well, actually, third.  W&D suggests that there is enough evidence, certainly in the case of Murray Goulburn, to suggest that the pecking order is:

  1. senior executives
  2. directors
  3. shareholders
  4. employees
  5. suppliers (formerly members)

The board and senior executives of Murray Goulburn have faffed up with a display of extraordinary incompetence, whilst lining their own pockets.

Work with W&D on this.

In short, and looking at this as dispassionately as possible, dairy prices are determined globally.  Dairy farmers are price-takers.  

But, there is a global glut.  Prices had to come down.  

Twelve months ago, in the face of knowledge of (not then disclosed) declining export prices, the company still promised farmers a 'guaranteed' high farm-gate price and share-price.

Farmers relied on those undertakings to continue to invest in what is a capital intensive and cash-flow sensitive business.

But, but, but having given those undertakings, the company retrospectively lowered the price paid to farmers.  And no doubt the fine folk at ASIC, the corporate Labrador, will investigate to see if this was a failure of 'continuous disclosure'.  

Murray Goulburn

So, through little fault of their own, many farmers might be ruined.

This is a really complex mess.  And it is stupid of anyone to try to resolve it with simple solutions.

But those:

  1. suffering RDS (Relevance Deprivation Syndrome) e.g. former Victorian Premier Jeff Kennett;
  2. seeking re-election e.g. Nick Xenephon and Barnaby Joyce; or
  3. who are blatant publicists for their own ego e.g. populist media performer Waleed Aly

have turned this mess into a media circus for their own ends.  

There are no easy solutions.

But those in the above three bleating groups are seeking easy solutions.  The easiest is, of course, OPM: Other Peoples' Money.

W&D's concern is that there is a suggestion that we-the-taxpayer should bail-out these farmers.  Or that milk buyers should pay a 'milk levy'.

Just because of a populist campaign. 

Let's be clear, there is no industry-wide crisis.  Only of suppliers to Murray Goulburn.  Make no mistake, W&D feels for any small businessman duped and possibly ruined by a big company.  Or government.  And knows enough dairy farmers to know of the pain.

But that doesn't mean that we-the-taxpayer should hand out the rescue funds.

This mess is because of monumental incompetence by Murray Goulburn.  And there are a lot of dairy farmers who are supplying Murray Goulburn's competitors that are still running profitable businesses.

W&D hopes that ASIC will have something to say.  But W&D senses that ASIC will probably disappoint.  Leaving it to lawyers to chase the dairy ambulance.