Claims by the head of Canadian dairy giant, Saputo, European and New Zealand co-operatives were responsible for ongoing volatility in the sector have been dismissed as too simple, by Victorian farmers.
Saputo chief executive Lino Saputo has called on co-operatives to “right size” (adapt to market conditions) the amount of milk they produced, to help iron out fluctuations in supply and demand.
He said milk production should not outpace market growth of one and a half to two per cent a year.
But Fonterra’s Australia milk supply general manager Matt Watt said while Mr Saputo was entitled to his views, co-operatives helped create sustainable growth, right across the value chain.
““I think co-operatives straddle both farm-gate, production and markets,” Mr Watt said.
“Demand for dairy is growing at a couple of per cent a year.
“One of the things we want to make sure is that farmers, as well as processors, participate in that growth.”
In October last year, Saputo entered an agreement to buy Australian dairy co-operative, Murray Goulburn (MG) for nearly $1.3 billion.
The transaction is subject to an ordinary resolution of MG’s voting shareholders and other customary conditions including Australian Competition and Consumer Commission (ACCC) and Foreign Investment Review Board (FIRB) approvals.
Bega Cheese executive chairman Barry Irvin agreed that there were many factors, behind market volatility.
“I think there are lots of things driving volatility in the market,” Mr Irvin said.
“I am very fond of saying the rules of business don’t really change and the rules of supply and demand don’t really change.
“It’s very rare, in life, for there to be a single factor, to either success or failure,” Mr Irvin said.
“There are a number of factors, that’s why books are written, rather than paragraphs.”
He said the sudden release of 30 years pent up growth in Europe made the current environment very difficult to predict.
“It was fairly clear it was going to jump up and when you look at predictions for the next year, around global supply and demand, most people are talking about a significant leap in supply, in Europe.
“It may take another 12-months to two years to settle and for a true response to market signals,” he said.
But Mr Irvin said there were also local factors, at play, when it came to market volatility.
“While I am not precisely aware of his thinking, there is no question there are examples of co-operatives eroding margins.”
But he said co-operatives had failed to display appropriate business practices, in recent years.
“I think it is fair to say, and I suppose the best example was those milk price clawbacks, by the two big co-operatives (Murray Goulburn and Fonterra), that were pretty disappointing from a business perspective.”
Mr Irvin said he understood Mr Saputo’s claims about the Canadian company’s strong heritage and family values.
“This is about business practice, culture and values and some of those things haven’t been well displayed by the co-ops, in recent times.”
Bega elected to become a listed company in 2011, “and we would say the same things - we understand the supply chain, we are respectful of our heritage.
“The values we espouse, we demonstrate.
“It’s more important to demonstrate those values, instead of just speak to them,”
Fonterra supplier Kirsti Keightley, Heywood, has a herd of 1100 cows and said singling out sector of the industry seemed simplistic.
“The reality is we have to look at the industry as a whole,” Ms Keightley said.
She said such comments only caused division, within the industry.
“I think the most important thing for the dairy industry in Australia is to work together, with one voice, and be clear about what our objectives are.
“We are in a period of massive change and we need to get in front of that change.
Ms Keightley said she welcomed Fonterra’s plans to form an Australian co-operative.
“I think that’s a good idea.
“I support farmers having a share in the equity and the dividends and a share in the say in what happens.”
United Dairyfarmers of Victoria president Adam Jenkins said while he found the comments “interesting”, private companies also wanted to grow milk supply.
“If they had the chance, they would try and take another billion litres, if it was there,” Mr Jenkins said.
‘But I think what Lino has identified, quite clearly, is that we have such volatility in the system, overlaid with seasonal volatility, and that is causing the world dairy market some serious challenges.
“And that is causing challenges right from the farm gate, right through to the processing sector.
“He is right in that some of the elements of that need to be worked through.
“Now whether to pin it on the co-operatives, as such, is a big call.”
Buffalo Murray Goulburn supplier, Peter Young, said Mr Saputo was right in saying when the price went up, everyone tried to take advantage of it.
‘The co-operatives aim is to maximise profits for farmers,” Mr Young said.
“I can’t see how Lino is going to do much else - if he is going to try and restrict flow, he is going to be in trouble for uncompetitive practices.”
Quotas were not the answer, either.
“I can just see the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) going off their nut, over that.
‘I just can’t see it happening.”
He said it was possible Mr Saputo was viewing supply and demand from a Canadian perspective, where extreme fluctuations were not the norm.
“In Australia, seasonal production can really fluctuate a great deal, I am well up on last year,” Mr Young said.
Mr Jenkins agreed producers could do more to send better signals, to processors.
“As farmers, we should send that signal that if it’s not profitable to send it, we shouldn’t be sending it,” he said.
‘We do get fixed on trying to do the same thing, year in year out.”
