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How the MG dairy dream turned sour

by
May 01, 2018

Murray Goulburn factory in Rochester. Photo Luke Hemer.

WHAT was once the pride of Rochester has ended in financial ruin and tears.

Murray Goulburn, a fixture in town since 1963 after the merger with the Rochester Butter and Canning Company, recently saw its shareholders overwhelmingly vote to sell the besieged business to Canada’s Saputo.

Thus ending the dream of an Australian owned, grower run co-operative. Possibly forever.

MG was once a jewel in the crown of the local dairy industry, but suppliers were happy to see the end of a dark patch in Aussie dairy.

Handing the reins to a foreign buyer was no surprise to the remaining suppliers, who have battled for years to stick with a mismanaged and underperforming co-operative.

Saddled with an unassailable mountain of debt, the dairy giant pushed suppliers to the brink as it dragged its name through the mud towards an inevitable fate.

The co-operative began in Cobram 68 years ago and was the brainchild of seven local farmers.

It became an industry juggernaut; it supported more than 3,000 dairy farming businesses at its peak, had factories across the country and handled billions of litres of milk.

The story began at a humble public meeting held by the Murray Valley Soldier Settlers League in Katunga.

After a unanimous show of support, the new co-operative dairy factory began accepting applications for shares in 1950.

Throughout the 1950s, 60s and 70s dozens of smaller dairies were taken over, adding to the company’s momentum.

The first factory opened in 1951 in Cobram and shipped its first batch of butter to the UK the year after.

Production charged ahead in 1958 to 2500 tonnes of cheese, butter and casein and more than one million gallons of milk for local and Melbourne markets.

Two 5000-gallon-an-hour milk driers were ordered from the United States in 1964 and the co-op by then had 1360 farmers on its books, with supplier payments up a massive 61 per cent on the previous year.

A profit of just under $3 million and turnover of $30 million was reported in 1974, up 14 per cent on the previous financial year.

A Gouda plant opened at Cobram in 1975, primarily to service Japanese joint venture Murray Goulburn Snow. That was followed by the opening of a Rochester cheese plant in 1978.

Turnover rose to $181 million a year later as MG surged forward and established itself as the premier dairy processor in Australia.

By the mid-1980s milk had smashed through the billion-litre ceiling, collected annually from around 3000 farms in 1986.

Then Victorian Premier Jeff Kennett opened the co-op’s $20 million global distribution centre at the Port of Melbourne in 1995 and the following year turnover soared through the $1 billion barrier.

The $50 million Meiji-MGC infant formula manufacturing plant was officially opened in Cobram in 1997, the same year dairy exports reached 242,000 tonnes — and a $40 million cheese plant was also opened in Cobram the following year.

After riding the waves of drought in the early 2000s and the global financial crisis in 2008, MG was listed on the Australian Securities Exchange in 2015.

It would be the beginning of the end.

By 2016 the rot was setting in; it all turned sour and the whole operation began its slow and painful fall from grace.

Turmoil engulfed the processor as the milk price fell below production costs, prompting calls for the board to be sacked or the co-operative to be sold.

Managing director Gary Helou bailed out in early 2016 after concerns were raised internally about large losses being made followed by a profit downgrade and subsequent slashing of the farm-gate milk price.

MG then shocked many of its producer clients – and shareholders – by invoking a $200 million clawback on milk that had already been acquired. It meant suppliers would have to pay the company for its revenue shortfall.

It was the last straw and within months the company had all but collapsed as suppliers abandoned it.

The sale to Saputo, if approved by the Foreign Investment Review Board, is expected to be completed today.

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