In our submission we concentrated on comparing what has happened in Gippsland to what could happen in the west. We have excessive competition in Gippsland. As an example, Itichou corporation control Burra Foods. They, like Saputo plan to, are in expansion mode.
The problem is, given Itichou is not a philanthropic society they only pay what they have to for milk, and that is a slight margin above Murray Goulburn.
Itichou, like many of the other players such as Indian backed Longawarry Food Park are successful in this strategy. They simply wait for MG to announce a price, and match it with a small margin.
The effect this has is to draw milk out of co-operative factories such as MG Leongatha and Maffra. Maffra, as a result of this runs at about 50% capacity.
Management of MG are quite clear in that if Maffra was to run at capacity with its high value powders, all MG farmers would be earning an extra 2 cents per litre.
As MG pays the same price all around the state, competition in Gippsland is infact lowering prices paid to farmers in Western Victoria!
So by aiming to weaken MG, other competitors have a very lucrative long term strategy of having to pay less for milk down the track.
At the moment MG Koroit in the west runs over capacity. As Saputo has deep pockets it could potentially lose money for a few years, pay a margin above MG (which WCB has struggled to do) and replicate the disaster of Gippsland.
We would all suffer again.
Gary Helou is the only executive of a milk processor in Australia who's bonus is linked to his ability to pay the highest price for his raw product. Milk.
Name me another company who has that aim.
Snowy, don't get me wrong there needs to be a degree of competition to drive the co-op, but God knows we already have more than enough.
As MG pays the same price across the state, competition in Gippsland provides more than enough incentive for efficiency at MG.
I have a big debt to service, but when a Fonterra rep recently visited to offer me an extra cent/litre above MG to leave the co-op - I showed them the gate.
Wish everyone would do the same, because at the end of the day, MG is the last bastion for farmers getting an honest return for their product.
Saputo could build the best wiz bang factory and supply every person in China with the most expensive dairy product in the world. But guess what the farmers will get out of it.
MG's PRICE AND LITTLE MARGIN!!!!!
Sorry, I am just really frustrated.
WCB Price at posting:
$9.20 Sentiment: None Disclosure: Held
