As legal teams jostle to file claims against big dairy co-operative Murray Goulburn, the wider co-op sector is rallying to quell a backlash against farmer-owned collective enterprises.
“It seems a general lack of understanding about co-operatives in Australia sees media coverage painting them in a rather poor light, inflating difficult situations like the Murray Goulburn experience,” said the head of peak co-op organisation, Melina Morrison.
Ms Morrison, chief executive officer of the Business Council of Co-operatives and Mutuals, said big and small proprietary businesses were just as vulnerable to similar business setbacks, yet co-ops tended to attract more critical scrutiny if things did not go to plan.
MG and its directors are now being sued by investors who bought unit shares in the company’s newly floated trust when it raised $500 million in a stock market float.
Investor advocate Mark Elliott’s class action claim in Victoria’s Supreme Court alleges the farmer co-op misled investors ahead of last July’s float.
Melbourne law firm Slater and Gordon has also talked of a class action suit since Australia’s biggest dairy business slashed profit expectations last month.
The milk price revision retrospectively slashed 2015-16 southern farmgate payments from $5.60 a kilogram (milk solids) to $4.75/kg, sending unit trust share values tumbling from $2.10 each in late April to 86 cents this week.
“MG is a classic case of not being able to deliver on a business plan because market conditions - notably Chinese demand and our exchange rate - turned against them,” Ms Morrison said .
“Agricultural commodities are volatile.
“What’s happened at MG largely occurred because of a turnaround in commodity markets - it can, and does happen to any business.”
She said co-operatives had a proven record as major and trusted agribusinesses worldwide.
Big names such as Rabobank; NZ dairy giant, Fonterra; US-based multinational CHS,and Western Australia’s grain kingpin CBH were all successful co-ops.
Many overseas co-ops had institutional investors and “all manner of hybrid investment structures” not dissimilar to MG’s model which allowed for 40 per cent ownership by non-farmer shareholders.
“In MG’s case its farmer shareholders now have ultimate decision making power to manage themselves out of any difficult situation,” Ms Morrison said.
“Farmers supplying other overseas-owned milk companies have far less access to the levers and decision makers when management decisions turn against them.”
However, being in a farmer-owned co-op does not shield you from harsh market realities said group CEO with WA-based sheepmeat co-op WAMMCo, Coll MacRury.
“You still have to be disciplined about what you spend, and manage the business with a tight commercial focus on the end game,” he said.
“Murray Goulburn’s situation is very sad at the moment, particularly for farmers burnt by price cuts, but being a co-operative doesn’t make the problem different to what any other business would be going through.”
WAMMCo has more than 800 staff processing about 2 million sheep at abattoirs in Katanning, and Goulburn in NSW.
Mr MacRury conceded rural co-op profitability in Australia and NZ was often constrained by low margin commodities and limited access to fresh investor capital when upgrades and expansion were needed.
However, careful long-term management planning was likely to deliver rewards, including membership security, in the long run.
Successful co-ops also tended to foster a powerful co-operative business culture in their region, notably the NSW North Coast - home to Norco, the Casino abattoir, and Macadamia and fishing co-ops.
NSW South Coast dairy farmer, Paul Timbs, felt co-operatives could still deliver as much value to their community and shareholders as ever.
He chairs the small 104-year-old Berry Co-operative which is soon opening a milk bottling plant processing up to 30,000 litres a day.
Berry Co-op’s seven farm members previously had a bulk contract to supply the former Dairy Farmers Co-op, but moved to create their own South Coast Milk brand after Dairy Farmers became part of beverage and beer giant, Lion.
“We felt the writing was on the wall for our own sustainability once Dairy Farmers sold,” he said.
“Berry co-op can take advantage of being relatively close to Sydney markets, and the current consumer mood which is fairly supportive of local businesses staying Australian-owned.
“We’ll take our time, not trying anything too risky like selling into export markets, and we always learn from mistakes made by other co-ops and businesses.
“There’s been lots of outside interest - including people wanting us to send fresh milk to Asia.
“Our manager doesn’t think we’ve built the plant big enough to cope with the potential demand.”
