A defiant Gary Helou insists a $6 a kilogram milk price is still achievable for dairy farmers as he confirmed his pay packet would have taken a hit if Murray Goulburn cut prices earlier than its shocking April downgrade last year.
In his first public grilling since being dumped as Murray Goulburn (MG) co-operative chief executive in April last year, Mr Helou told the Senate economics committee inquiry into the dairy industry in Perth he had done nothing wrong.
"We didn't mislead. I didn't mislead," Mr Helou said.
"We acted on the best information that was available at the time.
“There were extraordinary external regulation event in China in early April 2016 that…effectively removed our two best selling lines from the e-commerce lines that were basically driving our profitability," he said.
"No one could foresee that external event. We acted as soon as we had information."
MG shocked the dairy industry by slashing the price it would pay farmers in April last year – far later in the season than usual.
Just 48 hours earlier Mr Helou had publicly professed his confidence that farmers could get paid $6 per kilo of milk solids despite competitors suggesting it was unrealistic.
Farmers were hit with retrospective price cuts that forced many to cull herds and some to quit the industry despite MG's "milk supply support package" which provided loans to farmers to cover their cash flow.
The loans were to be recouped via lower milk payments over three years.
In an often tense exchange, Mr Helou eventually told senator Chris Ketter, who also dialled in to the hearing, he had not been approached by any relevant authorities over his involvement.
Initially he said: "I always co-operate with authorities. I'm not sure I'm in a position to comment on this matter".
Asked by acting committee chair senator Glenn Sterle if he would prefer to go to Canberra to answer Senator Ketter's question, Mr Helou responded by saying "I have not been approached".
Mr Helou told the inquiry he had never promised farmers he would pay $6/kg regardless of moves in commodity markets.
"I said the $6 is an aspirational number,” he said.
“The $6 is really is what I think our farmers deserve to have irrespective of the volatility."
He said his comment made 48 hours before the profit downgrade in April was made in the context of $6 being attainable to farmers regardless of commodity markets "if you have the right business model".
"I still do believe it is [achievable]," he said.
He said if the business had value-added products sold to multiple markets around the world "of course you can deliver $6".
To repeated questions about what the board knew or did to manage the business in the face of lower commodity prices – all the while keeping its bullish milk price target – Mr Helou insisted it was working on a "sound strategy" to make more profit from high margin value-add products such as infant formula and cheese.
He insisted this strategy helped the co-operative deliver a $6/kg milk price to farmers in 2015 in the face of weaker markets.
"The strategy was working and we were getting the right result," Mr Helou said.
He said the business was factoring in the impact of declining global milk prices and had built in conservative forecasts.
In response to questions about why MG could keep paying higher prices when the chief executive of New Zealand co-operative Fonterra warned in August 2015 that Murray Goulburn's milk price target was unrealistic Mr Helou said "he doesn't know our business".
He said critics said similar things the prior year but MG was able to pay a higher price because of good performance from its value-added dairy food business.
Senator Ketter asked Mr Helou if he had any incentive to deliver a higher milk price.
Mr Helou said he had an obligation to deliver a good result, because as a co-operative it was his job to maximise farm gate price.
According to MG prospectus – used to raise $500 million from investors to fund its expansion – its senior executives including Mr Helou were paid short term incentives to keep the milk price high.
Mr Helou received remuneration totalling more than $12 million since joining the processor in 2012.
He said any impact on his pay was not a consideration in setting milk prices.
"Is it a fact that your remuneration arrangements were linked to the farmgate price?" Senator Ketter asked.
Mr Helou conceded the farm gate price was one of the measures in determining incentive payments to senior management including himself.
"The farm gate price is the equivalent of profit in a commercial business," Mr Helou said.
He admitted there would have been an impact to his overall remuneration if MG had cut prices earlier in the season but said it was not a reason why management would keep prices higher.
Mr Helou had stepped down before the decision by the board to make the support payment scheme and so he could not comment on it.
Asked if he considered what impact a price change would have on members of the co-op prior to his departure, Mr Helou said that it was obvious.
"So yeah that was obvious."
The inquiry is in Shepparton in Victoria today.
Mr Helou, who lives in Sydney, agreed to be available to go to future committee hearings if required.
- This story first appeared in The Australian Financial Review