Updated: Murray Goulburn (MG) has changed its controversial Milk Supply Support Package (MSSP) in a bid to stem the loss of milk supply from the company.
It also announced step up payments of 26 cents a kilogram milk solids (MS) – half immediate and half at the end of the financial year.
“This is our stake in the sand, we are here to support our suppliers,” MG chairman Philip Tracy said. “We have to do everything we can to support them.”
The changes mean no single milk supplier will be forced to repay more than the amount of support they received under the MSSP and that the repayments will be spread across six years, reducing the impact in any single year to no more than one cent a litre plus interest.
This means remaining suppliers will not have to fund the MSSP of those suppliers who have departed the co-operative.
The step-up payments would take MG’s available farmgate milk price to $4.85/kg MS and its forecast 2016-17 available farmgate milk price to $4.95 per kg milk solids.
A 13c/kg MS step-up will be paid immediately for all milk supply from July 1, 2016, to June 30, 2017.
An additional 13c/kg MS step up will be paid to all current and new suppliers as at June 30, 2017. for all milk supplied from July 1, 2016, to reward continuity of supply, paid as part of the June 2017 milk proceeds.
MG said it expected its cost-reduction program would offset the repayments from 2018. The MSSP package was introduced in April after MG cut its farmgate milk price late in the season.
It provided a $183 million advance to suppliers, which was to be clawed back across the following three years through a reduced milk price to all suppliers.
MG said the program was intended to support suppliers’ cash flow and protect its milk supply in the long term. But milk supply slumped – with the company forecasting last week a likely 20 per cent drop in supply and a hit to its profit. The milk intake slide was attributed to a wave of farmer retirements and suppliers swapping to other processors.
Last week MG suspended the scheme for 2016-17, citing the wet conditions experienced by many dairy farmers in Victoria and southern NSW since August.
The changes to the MSSP and step ups will see MG take an $81.8 million impairment on its profit sharing mechanism. But the dividend/distribution to unit shareholders will be paid as 100 per cent of underlying net profit after tax, excluding the impact of the deviation.
“We believe the announcement today will improve the MSSP impact for our suppliers,” Mr Tracy said.
“During the review process, the board and I were very conscious of ensuring a successful future of the co-operative, a very important element of which is our planned investments in nutritional powders and dairy beverages.”