Australian dairy sector in turmoil

Published 9 May 16

The Australian dairy sector has been thrown into turmoil following revelations that Murray Goulburn (MG), Australia’s largest co-operative, has paid too much for its milk over the last 10 months. The overpayment is estimated at £100m, and MG is looking to claw back the money from its farmers over the next three years.

As a result, four members of the co-op’s senior management team resigned and the coop has been forced to downgrade its profit forecast by more than half.

Prior to the announcement, MG had continued to hold its milk price up despite falling global commodity prices. Fonterra Australia, which had initially forecast a milk price of $3.90/kgms (15.2ppl) had been forced to match MG’s price of $5.60/kgms (21.8ppl) to satisfy benchmark obligations. However, more recently, both processors have cut their prices by the equivalent of about 2-3ppl. In order to soften the blow to their suppliers, Fonterra Australia is offering loans to suppliers to make up the difference. MG has announced a support package to farmers, which will be deducted from milk payments over the next three years.

The situation has led to concerns over the future of the Australian dairy industry with some farm lobby groups calling for an independent review.