The dairy industry has declared war on New Zealand processor Fonterra after it refused to repay suppliers the money it took from them during the 2016-17 season.
Landing many of them with unexpected – and unbudgeted – debts of more than $100,000.
In May 2016 Fonterra dropped what it paid farmers by 70 per cent per kilogram of milk solids.
In plain English it had paid the suppliers and then demanded the repayment of huge claw back claims.
It followed a similar decision by the besieged Murray Goulburn.
Poor business acumen and extreme mismanagement by the board was behind Murray Goulburn’s decision, while Fonterra did the same thing in a year it went on to post an $800 million profit – making the demands for cash a bitter pill for producers to swallow.
Fonterra suppliers were faced with the option of accepting a rock-bottom milk price well below the cost of production (just $1.90/kg with the average cost around $5.30) or continue with the same milk price and take out a Fonterra Australia Support Loan (FASL).
Or leave the company altogether.
Fast forward 12 months and it seems Fonterra is still upsetting the industry.
It was forced to amend its original offer after Murray Goulburn pulled the rug out from under it by ‘forgiving’ its version of FASL and cancelling farmer debt.
Fonterra’s decision to continue with the FASL but pay an additional 40c/kg of milk solids to anyone who supplies milk for the 2017-18 financial year has been slammed by the industry.
Current suppliers are calling for the FASL to be scrapped while former suppliers are angered the New Zealand giant is using money, which should have been paid back, to prop up the 2017-18 Australian milk price.
Girgarre farmer Chris Blackberry, who left Fonterra in October, said he didn’t take out a FASL because he wanted to keep his options open.
“There was no outright hostility in the Kyabram meeting but you got the sense people felt trapped. It was a sombre atmosphere,” he said.
“I’m disappointed that they have decided to keep the loans. It should never have got this far – they should be forgiving the loans like Murray Goulburn have.
“The people who have been loyal to the company are the ones getting stung. I don’t think fair is in Fonterra’s vocabulary after seeing what has happened.
“New suppliers are getting the extra 40 cents but they haven’t had to endure the claw back like the existing suppliers.
“I would never go back to supplying Fonterra, even if they gave the money back. It shouldn’t have got this far.”
Former supplier Chris Jones added there was no room to move in the industry and the current risks far outweigh any reward.
“Picture a situation like what Fonterra did to us in a different work environment. It would be illegal to take money back from someone after they have already been paid for supplying goods,” Mr Jones said.
“It’s just a nasty industry to be involved in and no-one knows what direction we are heading in.
“It’s like we are all on a reckless out-of-control train ride. If you can hang on until the next stop to lick your wounds and catch your breath, you might just make it, or you might not,” Mr Jones said.
United Dairyfarmers of Victoria (UDV) has also raised concerns over Fonterra’s move to not reimburse farmers, claiming the decision made the industry inequitable.
President Adam Jenkins said farmers who were financially forced to leave their processors should not be forced to continue to bear the cost of processor actions.
“Serious questions must be answered about the fairness and equity of the treatment of those who have left through no fault of their own, ” Mr Jenkins said.
The UDV has been working to implement a code of conduct for the dairy industry in a bid to avoid a milk crisis like this happening again.
Fonterra maintained the primary purpose of the additional payment was to do what’s right and there was no truth in rumours that it was using capital from the FASL to prop up this year’s milk price.
Australia Milk Supply general manager Matt Watt said Fonterra recognised there were mixed views, but on balance, the majority of its farmers were comfortable with the additional 40 cents/kgMS.
‘‘In consultation with the Bonlac Supply Company, we worked hard to determine the fairest and most equitable way forward, ’’ Matt said.
‘‘Unlike the MSSP, our FASL was optional. Around 40 per cent of our suppliers took out a loan, and there was significant variation in the amount borrowed among that 40 per cent. There are farmers who did not take out a loan – some borrowed externally, others self-funded – and they were just as affected by last year’s milk price revision. If we forgave the loan, only the 40 per cent of farmers that took out the FASL would benefit from that decision and it would be inequitable for our total supply base.’’
Fonterra is the first processor to announce a forecast closing price for the 2017-18 season of $5.30–$5.70 per kg of milk solids.
The additional 40 cents brings their full year forecast to $5.70-$6.10.
Source: Shepparton News
