Australia’s Second Largest Co-Op Taken Over
2 May 2018 at 8:57 am
Canadian dairy giant Saputo has officially taken over Australia’s second largest co-operative, leaving “a huge hole” in cooperatively owned agriculture.
Members of the Murray Goulburn Co-operative, which owns the iconic Devondale brand, voted to sell the co-operative last month in a $1.3 billion takeover.
The deal, which Australia’s largest dairy processor said was key to its survival, was approved by the Australian Competition and Consumer Commission after Saputo Dairy Australia (SDA) agreed to sell its milk plant in Koroit, in western Victoria.
SDA assumed ownership of MG’s operating assets and liabilities on Tuesday, marking the first time in the history of the Australian dairy industry that the largest company is foreign-owned.
In a letter to suppliers, MG chairman John Spark said it was “a significant day in the history of MG”.
“Saputo has demonstrated itself as a credible and trusted processor in Australia, providing us with confidence that it will honour its commitments to suppliers going forward,” Spark said.
“I would like to thank you for your milk supply to MG over the period of your association with the cooperative and your contribution to the development of its operations. In many cases this is a multigenerational relationship and I realise that you may be feeling a mixture of emotions with these developments.
“This is undoubtedly a significant day in the history of MG – a time to reflect not only on the achievements and successes of the past, but to look to the future with hope and excitement for the opportunities ahead on joining one of the world’s largest and most successful dairy companies.”
The co-operative was established in 1950 by a group of Australian dairy farmers, seeking a better deal for their milk.
Since then it has grown to support approximately 2,200 dairy farming businesses across south eastern Australia and until now had remained 100 per cent dairy farmer controlled.
However the Melbourne-based company has struggled since 2016 after it was forced to cut milk prices due in part to unfavourable changes in the exchange rate and lower than expected milk powder sales in China.
With its milk production falling to under 2 billion litres and difficulties in matching competitors’ price the MG board said it had no option but to sell.
In statement on Tuesday, SDA said the acquisition of MG would add to and complement the activities of the company’s dairy division in Australia.
“By acquiring a well-established industry player, Saputo reinforces its commitment to strengthen its presence in the Australian market,” SDA said.
“The company intends to continue to invest in its existing Australian platform and contribute to the ongoing development of its domestic and international business.”
Business Council of Co-operatives and Mutuals CEO Melina Morrison told Pro Bono News it marked the beginning of a new era in co-operative dairy.
“Murray Goulburn is Australia’s second largest co-operative so its demutualisation leaves a huge hole in co-operatively owned agriculture,” Morrison said.
“It’s also Australia’s largest domestically owned food processor, a scale it reached, ironically because of its success as a co-op, so transfer of ownership of processing and manufacturing from Australian to foreign ownership is perhaps more pertinent.
“With the board room in Canada rather than Melbourne priorities will inevitably change. However it is also potentially the start of a new era in co-operative dairy. There are new supplier co-ops arising already from the ashes of the former giant.”
She said the “great tragedy” of demutualisation was splitting the international equity that has built up over the years.
“Co-operatives are not only member-owned rather than investor-owned businesses, they are intergenerational in the sense that the dividends are built up over time and invested in the business for the current and future users of the co-op,” she said.
“That intergenerational equity is now split and no longer available to future dairy producers. It is the great tragedy behind all demutualisations. The raiding of the wealth built up by past and current members with the ethos of perpetuity.”
But Morrison said the cooperative sector was very resilient.
“Dairy giants like Norco are proof of concept. At the same time as MG is demutualising this legacy dairy co-op is posting record growth,” she said.
“Rather than becoming an argument for why co-ops don’t work, MG has become a cause celebre for why co-ops matter. A strong chorus of support for co-ops is being heard from farmers, to politicians, to unions and industry.”
She said other co-ops needed to learn from MG experience and “pay attention to [their] co-op principals”.
“There are seven internationally accepted principles that all co-ops subscribe to. They include education of members and cooperation amongst cooperatives. If you benchmark performance against the principles you can test the strength of member engagement,” Morrison said.
“Never stop talking and thinking about why you became a co-op in the first place. And celebrate success.
“Lest we forget what dairy farmers did collaboratively in Australia – building our biggest home grown food processor. Victoria’s largest exporter. What an achievement of like-minded farm people.”