ACCC chair Rod Sims says that Murray Goulburn had been too optimistic
about what the farmgate milk price (FMP) for its southern region would be
at the end of the 2015-16 season. This led to farmers making business
spending decisions based on bad information.
"The farmers relied on Murray Goulburn's representations and were not
expecting a substantial reduction in the farmgate milk price, particularly
so close to the end of the season when it was not possible for them to
practically readjust their expenditure," Mr Sims says.
Fibs at the farmgate
The FMP is a weighted average price, which changes throughout the financial
year (called a season in the dairy industry). The opening FMP is usually a
conservative minimum estimate, with 'step-ups' increasing the price
throughout the year. In 2015-16, the opposite occurred.
At the start of the 2015-16 season Murray Goulburn predicted that its final
FMP would be $6.05 per kilogram of milk solids (kgms). Between February and
April 2016 the company maintained a revised likely price of $5.60/kgms.
The ACCC alleges the company had no reasonable basis for making either
claim. In court filings the consumer watchdog claims that Murray Goulburn
did not revise its FMP in the wake of turmoil in the global dairy market.
The final price fell to $4.80, causing consternation among dairy producers,
who were forced to pay back money they had been "overpaid" by Murray
However, many had relied on the company's earlier predictions to invest in
their business. Sims has slammed the lack of transparency from Murray Goulburn.
"Many farmers are in a relatively vulnerable trading position, and rely on
transparent pricing information in order to budget effectively and make
informed business decisions," he says. "In these circumstances, farmers
were entitled to expect Murray Goulburn to have a reasonable basis for
determining its pricing, and to regularly update farmers if there was any
change in forecast prices."
In a statement the ACCC says that it will not be pursuing financial
penalties for the company, saying that any fines levelled at the
farmer-owned cooperative would simply hit already struggling producers.
Instead it is seeking orders against the company that "include
declarations, compliance program orders, corrective notices and costs". The
ACCC will also seek fines and disqualification orders against former
managing director Gary Helou and former chief financial officer Bradley
At the same time, the ACCC has confirmed that it will not be pursuing New
Zealand processor Fonterra over its own FMP cuts to local farmers, saying
that it had been more transparent with suppliers over the risks to prices
during the last season.
Industry still in crisis
In the wake of the dairy crisis many pointed the finger at cheap
supermarket brand milk. Many consumers switched from dollar-a-litre milk to
more expensive brands in a bid to support struggling dairy farmers.
However, this change in behaviour did not have the intended effect, since
fresh milk sales account for only about one tenth of Australia's dairy
A rapid shift in shopping patterns saw the market share of supermarket
branded milk fall from almost two thirds to less than half in just one
month. However, one year on from the beginning of the milk crisis, some
consumers are returning to one dollar milk, with supermarkets clawing back
most of their market share losses. Meanwhile, dairy farmers are still
struggling, with Australian milk production at a 21-year low.
The ACCC is currently conducting an inquiry into the dairy industry, and will deliver its report in November.