TUESDAY, 16 AUGUST 2016
SUBJECT/S: Dairy crisis
HOST: Joel Fitzgibbon is the Shadow Minister for Agriculture, Fisheries and Forestry, he is the Shadow Minister for Rural and Regional Australia and he is the Member for the Hunter, which is a pretty significant dairy area in New South Wales. Mr Fitzgibbon good morning, welcome to Tasmania Talks, how are you going?
JOEL FITZGIBBON, SHADOW MINISTER FOR AGRICULTURE, FISHERIES, FORESTRY AND RURAL AND REGIONAL AUSTRALIA: It is great to be with you Brian, I am very well.
HOST: That’s the way, what did you make first up of Four Corners last night, I assume you saw the program?
FITZGIBBON: Well your own [earlier] summary was a very precise and good one, and of course I wasn’t shocked by last night’s program because I have been down amongst the farmers, including in north west Tasmania with Justine Keay. I have seen the pain and the impact Murray Goulburn’s decisions have had on so many farming families. And what has been most extraordinary about this whole affair is the reluctance on the part of Barnaby Joyce and Malcolm Turnbull to utter a word of criticism of Murray Goulburn. By contrast, many months ago I called on the resignation of the Chair and the Board. I don’t believe we can move forward on this matter while ever the people who are responsible for this outcome are still sitting around that Board table.
HOST: Do you believe the farmers who were contracted to Murray Goulburn, in effect owned the Co-op, do you believe in any way that they were misled by the terms of that partial float, the partial privatisation?
FITZGIBBON: Well there are certainly questions about what we call continuous disclosure, and that is what ASIC will be looking at, at the moment. Did the Board know well before the final outcome, that things were turning south, and should they have informed both the investors and the farmers? The first question you asked is a rather objective one, because the price is based on a whole range of assumptions, including what is happening in the global market. So it is very difficult to say they got those assumptions wrong. However it is right to say, that it was in the interest of the CEO, the Chair and the Board to err on the up-side on those assumptions because they wanted the farmers to agree to the proposition of raising money on the market and they sort of encouraged them to agree by convincing them that they were going to get this high price. And of course they wanted the investors to give over their money and they did so by offering on a good return based on a high price. So certainly it was in the interests of the Board and the CEO to err on the up-side in terms of those assumptions.
HOST: Was there any guarantee amongst all that, that the dairy farmers themselves would benefit? What was the ultimate benefit to, sorry let me rephrase the question, what was the proposed benefit to the farmers, based on the float? What was the direct flow- through to them? Other than this fairly complicated economic argument that’s being waged?
FITZGIBBON: Basically they went to the farmers and said, we have a fantastic idea: we are going to raise $500Billion on the market; we are going to use that money to invest in all this new infrastructure and processes; and in turn we are going to make a squillion dollars in Asia with these new value-added products. As a result we are going to be able to pay you around $6 per kilo of solids of milk because we are going to be making so much money. So the farmers all put their hand up and said yah! Yeah, I’m in – go and raise the money. And of course the rest is history.
HOST: Yes indeed, it did leave the Board of Murray Goulburn I guess in a somewhat difficult position given those competing interests that the dairy analyst David Williams mentioned on the show, the grab I played just a minute ago. So ASIC should be actively investigating the prospectus, the way the float was sold to dairy farmers? They need to be going through this in some detail don’t they?
FITZGIBBON: A whole range of disclosure issues, including as I said, when they knew the plan was going pear-shaped and whether they should have informed their producers and investors. You see, many farmers would have made expenditure decisions in that period. Just say there were six months between when the Board first knew that things weren’t going well and when they eventually made their public announcement. In that six months, a farming family may have borrowed a million dollars for a new piece of machinery based on the idea that they were going to continue to receive almost $6 per kilo, so they went into more debt, that is a decision they would not have made if someone had told them earlier that things were not going well.
HOST: Worse Joel, even worse – some of the farmers are alleging when they did go back to Murray Goulburn to seek their advice, they were told - knock yourselves out - go for it - everything’s fantastic! So it is even worse. The allegations are worse than just not telling them but actively misleading them.
FITZGIBBON: That’s right, obviously I am being a bit cautious while the investigations, that is investigations plural, because the ACCC is having a look at some market power issues as well, so I need to be a little bit careful.
HOST: No I understand..
FITZGIBBON: [inaudible] Malcolm Turnbull would have been very happy to criticise the Board, because they have lost their CEO, their Chief Financial Officer, two Board members, the price has gone south, the whole business strategy has fallen over, farmers are in debt, and the Board is still sitting there. I mean it is just ridiculous, whatever the legal niceties are – the Board should go. It’s a disaster.
HOST: What’s more and this is the interesting thing, when phone calls are being made, and we have made several to Murray Goulburn over the past few months, unsuccessfully I might point out, we tend to get directed back to Gary Helou, the now ex-Managing Director and as you saw when 4 Corners bailed him up last night, his response was: no, no you have got to go talk to Murray Goulburn. So it appears both parties, Helou, the former MD and the current management and Board don’t particularly want to talk about this in any detail at all. OK, let’s move through to the second part before we get to the claw-back, as this is affecting two companies. I mentioned the grab from the Chief Executive of Fonterra. Have you heard that before Mr Fitzgibbon – that direct quote from the Chief Executive, Theo Spierings, it was reported in the Mercury and it has not been contradicted by anyone. So the comment was made back in May, reported on May 21 – quote- What we are doing is driving every cent of money out of Australia back to New Zealand shareholders in this extremely low milk price environment- end quote. How do you react to that?
FITZGIBBON: It is not new to me and it doesn’t surprise me either. They have a responsibility to their shareholders and he would argue he was discharging his obligation to his investors. But my god, it must be a slap in the face for dairy farmers here in Australia, in particular Murray Goulburn suppliers and indeed Fonterra suppliers here in Australia. You have got to remember when the M-G price collapsed, of course Fonterra which has its price pegged or linked to the M-G price - that’s a long story and I could go into it if we have time - it immediately reduced their price. So this is why I have been saying it is so important for the Government to join with me in putting pressure on the M-G Board to change their profit sharing mechanism to send more money back to the farmers. That would be give them immediate cash relief; it would reduce the debt created by the claw-back provisions; and would help Fonterra farmers as well because their prices is linked to that of Murray Goulburn.
HOST: When you said that, the term “cartel” flashed into my mind Joel, I know they are not but I mean when one company, an independent operator in an industry is pegging their pricing against their competitor, I mean that is something the ACCC should be looking at, apart from anything else.
FITZGIBBON: Can I just say on that Brian, the irony is that it was a protection mechanism when Fonterra took over a number of Australian players. The concern over competition issues were addressed by insisting that Fonterra linked to Murray Goulburn. In other words, the link was about not playing with the market, you know, being held to ransom by the prices of others - and not to manipulate, to use their market power, that’s the irony.
HOST: The power of good intentions I guess at play there,. OK now the claw-back issue, let’s have a look at that. Is what the processes have done in terms of – right for the first 10 months of the last financial year we paid you too much and we are going to claw it back over the next couple of months and then off into the future a bit. Is that legal in any way – let me put it this way – is it illegal?
FITZGIBBON: Well apparently it is [legal], but it is certainly not morally right and I haven’t spoken to anyone who hasn’t been shocked by this deal. I mean, I have never heard of it before, none of us can believe…
HOST: It is absolutely outrageous! It is a little bit like if I am working here for Grant Broadcasters, the radio station, and we agree on a contracted amount they are going to pay me over the course of say 12 months and we get through to the 10 month period of that contract and they say look I’m sorry mate, we told you we would be paying you this much per month, but we are not going to be paying that anymore and we are going to claw the difference back from you over the next few months- so indeed of getting x you are going to 4 bob. It is ridiculous.
FITZGIBBON: It is ridiculous and the only people who have not expressed concern about it or amazement over it, are Barnaby Joyce and Malcolm Turnbull. Who at the eleventh hour, just before election date, Malcolm Turnbull, in a radio interview, finally said that he found some of the actions of Murray Goulburn “troubling” – he has become the master of the understatement. But yet, six weeks after the election we still have seen no action from the Government other than we’ve got a meeting with Murray Goulburn today which might be ok, but arguably is inappropriate because ATSIC and ACCC investigations are underway. I am a bit concerned the Government is sending a signal to the regulators that - don’t worry- we have it in hand and we will deal with it. Now that’s just the wrong signal.
HOST: I guess the other thing that is a concern too, one of the signals being sent out of the PM’s Office, and indeed Barnaby Joyce’s office is that they will be seeking to try to find solutions to the problem from the Murray Goulburn Board which I find an interesting concept given the context of the investigations underway.
FITZGIBBON: There is only one solution and that is for the Board to send more money back to the farmers, rather than retaining profits and sending money to the Collins Street investors. The Collins Street investors don’t win if there are no farmers left. Now if Barnaby Joyce can’t walk out of that meeting and say the M-G Board have agreed to send more money back to the farmers that meeting will have been a failure.
HOST: Ok, so you would have to argue then that the partial float of Murray Goulburn has been an absolute disaster. How do we get out of that? How do we back to a position where Murray Goulburn is a fully farm owned co-operative. Is that possible?
FITZGIBBON: Well the irony of that question Brian is that co-operatives have their strengths and there is a bit of a sentimental affection for co-operatives in Australia on an historical basis. I suspect you will find some of the things Murray Goulburn has done to farmers is only made possible by the co-operative structure. So we shouldn’t just pretend that co-operatives are the fit for every circumstance. And big co-operatives like CBH in Western Australia, they are currently working toward mutualising and not being a co-operative. So that’s the first point.
HOST: But you can’t have the sort of oscillating benefits rolling in and then they get whacked with a big stick for a couple of years and there’s a few more benefits rolling through then a couple of years of whack. You can’t run your business like that.
FITZGIBBON: The point there is the $M40 that the M-G Board is sitting on belongs to the farmers – it is a co-operative so why are they holding it? I mean the farmers need this money now, and they need it much more than these people who decided to invest in the sector. So there is a profit sharing mechanism in the prospectus which raised the funds which allows the Board to send more money back to the farmers, at the expense of the investors in inverted commas – abnormal circumstances. Now I have written to the Chair of Murray Goulburn saying well if these are not “abnormal circumstances” what are? Yet he still maintains they are not – now that is ridiculous. And my view is that if Malcolm Turnbull, Joel Fitzgibbon, Barnaby Joyce and Bill Shorten are all saying you have got to deviate from that profit sharing mechanism the Murray Goulburn Board will have no choice. But until now, Malcolm Turnbull and Barnaby Joyce have not been prepared to say so.
HOST: Now companies in all sorts of industry sectors have a pretty strong record of resisting calls from government to do pretty much anything or any political thinks for one. Where is the compulsion for Murry Goulburn to do as instructed?
FITZGIBBON: I have been around politics, well in Federal Parliament for 20 odd years, and involved in politics longer than that and I have no doubt, no doubt in my mind that if both of the major political parties are putting the appropriate pressure on the Murray Goulburn Board they will have no choice but to deviate from that profit sharing arrangement and send some money back to the farmers. That is the best thing Malcolm Turnbull and Barnaby Joyce could do today is to join us and put pressure on Murray Goulburn.
HOST: But it doesn’t fix the on-going issues with the low gate-price – that’s an on-going thing and clearly that gate-price for Murray Goulburn anyway is going to need to rise to get Fonterra to lift their pricing as well. So how do we achieve that?
FITZGIBBON: One of the great ironies again about this event is Gary Helou was actually on the right track with his business strategy; but got all the assumptions wrong and stuffed it up along the way. But if we are going to get out of this commodities cycle, that is, where all of our farmers, not just dairy farmers, but farmers generally, are subject to the whims of the global market we need to concentrate on shifting to a value-added situation where we have got a product, this sort of niche which people are prepared to pay a higher price. That was what Halou was actually trying to do, shift them up what I call the value curve but unfortunately…
HOST: So this was, just in plain language Joel, turning the milk solids that were being provided by the farmers into various powder products that were supposed to be exported in great numbers to China. There was a lot of noise around at the time of baby formula walking off the shelves in large numbers and being exported. So there was certainly an environment where there was a perception of this massive demand for powdered milk product from China. What happened to that?
FITZGIBBON: And a perception driven largely by Barnaby Joyce, who loves to claim credit when prices are high but never heard from when prices are going south. He was standing in the Parliament talking about milk into China at $11 a litre. Now farmers aren’t fools by any stretch, they are very smart, but you can understand why people get caught up in that hype and politics is largely about expectation management. And Barnaby Joyce shouldn’t be running around telling people the world is going to be their oyster when one plane load of milk went to China at a high price – that was never sustainable – there were many elements in that story that m