My takeaways 1. 5% of farmer shares to call egm= possible 2. 75%...

My takeaways
1. 5% of farmer shares to call egm= possible
2. 75% support to change constitution = unlikely
3. I don't like bullying tactics used by Mgc if true.
4. "Difficult to move suppliers" processors aren't taking on more milk
5. Farmers get special deals with Mgc - not sure if I see this as a positive or negative. I like it that Mgc can offer such things.
6. Mgc says "strong support and majority want stability at the board" (can we trust this statement?)
7. Letter written by govt challenging the dividend.
8. Farmgate 2016/17 price in three weeks.

My extra takeaway - unit investors have been hit, and the payout/dividend is much lower than expected. Contrary to reports - It is tied to financial conditions hence the lower dividend. On top of that, 66% of shareholders/unit investors are farmers.

My extra extra takeaway is this - large suppliers are most likely large shareholders. So if the AFR is correct and it's only small shareholders requesting changes then it may be difficult for them to garner the 5%.

Thoughts welcome

Farmers gather support for Murray Goulburn EGM

Sunday, June 05, 2016 11:47 PM
by Jemima Whyte
June 5 (Financial Review) -- Farmers who sell milk to Murray Goulburn are rallying numbers to call an extraordinary general meeting to challenge, and potentially spill, the board of the country's largest dairy processor.

The plans, which The Australian Financial Review understands are advanced and have been conducted in secret because of fears Murray Goulburn will blacklist "troublemakers", require support from at least 5 per cent of shares.

The AFR has spoken to two farmers - on condition they will not be identified - who say MG field officers and directors have consistently talked about the need to "maintain stability", "keep calm" and generally not question Murray Goulburn's strategy.

One supplier said when he publicly questioned MG's strategy and board in supplier forums, MG responded with "bullying tactics".

The farmer says MG stopped buying his milk for a period and, on a separate occasion, MG dropped the price it was prepared to pay because it said milk quality had dropped. The farmer claims independent testing did not back this up.

'Very difficult to move suppliers'

"Once you're labelled a troublemaker it can be very difficult to move suppliers," said another farmer, adding that most processors weren't taking on more milk at the moment because of the tough conditions in the dairy industry.

The farmer added Murray Goulburn often has different contracts with different suppliers, including interest-free or low interest loans to help expand the business, or even selling discounted water to farms, giving the company significant power over its suppliers.

Most of the support is believed to have come from smaller farmers. A farmer source said MG directors were fending off EGM attempts by contacting large milk suppliers - mainly in Gippsland, Western District and Tasmania - to"smooth them over" by urging them not to create further disruption for the company and the dairy industry by questioning the board's strategy.

A Murray Goulburn spokesman said the board was aware some farmers were seeking to call an EGM.

"The board considers that the right to call a general meeting is a fundamental right of all shareholders but is not concerned on the basis that the board believes it continues to enjoy strong support from supplier-shareholders," the spokesman said.

She added that after completing a round of supplier meetings in Victoria, NSW, Tasmania and South Australia, the board was confident it enjoys "strong support and that the majority of suppliers want stability at board level so that the co-op can focus on continuing to move through the very difficult trading period we are currently in."

'Serious allegations'

In response to questions about bullying farmers or exerting direct or implied pressure on farmers, the spokesman said: "These are very serious allegations. They amount to serious misconduct and go against everything the co-op stands and our 'Code of Conduct'." She added farmers could report behaviour to a confidential hotline or the authorities.

Murray Goulburn, which listed a unit trust on the ASX just over a year ago to raise $500 million, slashed the farmgate milk price it pays to suppliers in April, citing weak global conditions. Others, including Fonterra, followed, sparking fears many dairy farms will be unable to survive and predictions up to 5 per cent of milk production needs to be stripped out of hte industry to restore better conditions.

Murray Goulburn is now the subject of an ASIC investigation, a number of potential class actions and severe industry criticism for failing to recognise earlier it was paying an unsustainably high milk price, and failing to inform the market iin a timely fashion.

"We are calling this meeting with as broad as view as possible, and simply want to ask the questions. We need some accountability for actions," said one farmer.

Possible outcomes include director resignations, particularly chair Philip Tracy and audit committee chair Peter Hawkins; installing an administrator to run the company temporarily and a new constitution.

Pressure on management

There is also pressure to remove more senior management, including Fiona Smith, who is credited by the company with overseeing much of the structure and related corporate governance, and acting CEO David Mallinson, who was a key executive under departed chief executive Gary Helou.

Any constitutional change requires 75 per cent approval.

Farmers contacted by the AFR said the board's decision to slash the milk price and maintain the dividend had incensed them, questioning why the "abnormal circumstances" clause had not been used.

The AFR has obtained a letter written by shadow agriculture minister Joel Fitzgibbon to Mr Tracy challenging the board appoint an independent expert to determine whether deviation from the profit sharing mechanism is in the best interest of suppliers.

"Murray Goulburn suppliers are wearing a disproportionate and unfair share of the burden of the board's poor decisions," Mr Fitzgibbon wrote in a letter dated May 30.

There are also persistent questions about how the board can juggle the competing interests of unitholders and farmers under the structure, where the board represents MG Unit Trust, supplier shareholders and non-voting shareholders.

Gavin Solomon, executive director of Primary Markets, says the Murray Goulburn board has a "conflict of interests" and said the existing structure failed to take into account "fluctuations in rural commodity pricing which happens virtually every season".

Murray Goulburn has said it will announce its milk payment level for the start of next season in about three weeks.