Clawing back good will at Murray Goulburn

March 15, 2017

Murray Goulburn has announced Ari Mervis as their new managing director and chief executive officer.

On future challenges

I think the industry itself does face some significant challenges: from a macro perspective we are, as an industry, largely dependent on global commodity prices of dairy products, so your cheeses, fats, powders, etc.

That will always remain a challenge and out of our control, as are climatic conditions, as are exchange rates and the other macro factors we need to be aware of and understand, as driving forces that we need to contemplate.

The country itself: there are challenges with water availability, the price of water, electricity, gas, the price of that and the costs that increase generally. But the revenue is linked to commodity prices which fluctuates.

Hopefully coming out of what has been slightly over two years of depressed commodity prices; since last August they improved and are sitting now just slightly below the 10-year average, but still not at levels that are really attractive or impressive.

From global to industry, from industry to Murray Goulburn, I think the primary challenges are well articulated: the first one is to restore supplier-based confidence in the co-op.

They own the co-op, we know what has happened over the course of the last year and obviously there is still some anger and angst in that area.

As a fresh management team, we need to take the opportunity to set in some stability, set in calmness and hopefully restore that pride in their co-op.

For us, delivering on our commitments and promises, being transparent, being open, being engaging and equally the suppliers understanding they are owners: it’s their business and the business is there for their best interests.

It’s easy to say, I appreciate it’s going to take a long journey and overnight success normally takes about 10 years, so I do expect there is going to be a journey and I’m comfortable with that.

On opportunities and excitement

The dairy industry and Murray Goulburn are incredibly important and I think they’re very iconic and fantastic.

When I left my last job, I’d been with SAB Miller for 27 years, and the company had been taken over. About a year before the takeover when the courting started, I decided I was going to exit.

It was a terrific career but I was content to move on and I decided for the next four months I wasn’t going to make any decisions or get involved in any discussions around next steps. I was going to take a good four-month summer break and in February, I’d start looking and considering options.

There was a soft knock on my door one day: it was a head hunter, and I was flattered. He presented me with the opportunity for that role, and on the 13th of February I started working, so I never really got that full break.

For me, I just look at it — it’s so important, it’s so iconic, it’s got so much opportunity, it’s a very intriguing and complex industry. To have the opportunity to try and navigate through its next phase ticked every box and I said I’d be delighted to have the chance.

On the Cobram facility

I can’t speak about the specifics of individual sites and it has been well-reported since October when the board announced it was going to embark on a footprint or asset review.

That is still very much in progress, we have to show that we are competitive, that we’ve got the right facilities in the right areas.

It’s a journey and we’re still working through that, there’s no definitive time on the horizon. We’re going to do it properly, we’re going to do it thoroughly.

I have been impressed by the degree of progress that has been made to date, but it still is very much work in progress.

With regards to Cobram, I’ve just come from the facility there where I had an opportunity to speak to and meet all the staff, to see the new cut and wrap and slice and shred facility, which is magnificently impressive and is certainly state-of-the-art.

Something I think that really stands us in good stead going forward in terms of being able to improve is our efficiencies, our quality, innovation in packaging.

Subsequently to the cheese processing area, which I haven’t been through prior, so I haven’t seen the physical process of making cheese: my mind just started jumping to opportunities on how best to leverage what is a fantastic facility; and as I understand, the largest cheese processing or manufacturing facility in Australia/New Zealand.

It makes a fantastic array of differently maturing cheddars, mozzarella, parmesan cheese that stands for 18 months before we even give the consumer an opportunity to engage with it.

I just think there’s so much opportunity for differentiating our products in a relevant way to our consumers and communicating it, which starts in a factory.

So if we make that different product there, that’s relevant and appropriate and applicable to consumers, translated through good communication and have a delightful offering, I think the future looks very bright.

On the volume decline

Dairy Australia reported that for the six months ended December 2016, total volume produced was down 9.9 per cent and that that was on the back largely of a particularly wet September, I think it was the wettest recorded September in 50 years, so it had a very adverse impact on the spring calvers and the milk quantity.

Coupled with the fact that there were quite depressed commodity prices, a lot of farmers took the decision not to invest more in feed, but to have a lower volume because the price being paid didn’t justify the incremental investment.

MG’s volume intake for that same period was down by slightly over 20 per cent.

Basically everyone was down 10 per cent, we were the ones who suffered the decline because many of our competitors then went to restore their volume they’d lost by contracting some of our farmers.

Having said that, I think some of our suppliers believed it was appropriate for them to move on because they felt they’d been treated inappropriately by MG in terms of the MSSP (Milk Supply Support Package).

What we saw over that six-month period, which was very unique I understand historically, was of that 20 per cent decline, about 12 per cent went to our competitors.

(The other) went to climatic conditions and retirements, so we also saw additional farmers exiting dairy, to beef or other forms of agriculture or exiting entirely and retiring.

On the short term future

The strategy is still evolving and it’s still very much a work in progress, which is why this road trip is so beneficial.

I think the very first component of the strategy is to ensure some degree of stability and trust and confidence and that will be an ongoing journey.

It’s not a sequential strategy, it will run in parallel and that will be central.

We intend to be very open, engaging, deliberate, transparent, accessible to all stakeholders but specifically our suppliers who we can’t do without and hopefully they can’t do without us.

We still remain by far the largest processor in Australia and process approximately one billion litres more than the next largest processor.

And fortunately for us, the next largest processor’s reputation also isn’t that great: while I understand we’ve given people reason to leave, I believe they also haven’t been as well perceived as they’d like to be.

I think we need to get our asset review conducted and completed and then we need to look for our growth opportunities.

I think the value-add opportunity is a particularly good strategy, I think we need to, in consumer goods and commodity processes, move up the value chain, create differentiation in the factory that is relevant to the consumer.

If we’re able to do that there will be a greater benefit for the suppliers.

The final part of the strategy that’s evolving is looking at those export opportunities and I’m convinced, that particularly a market like China, lends itself to Australian dairy and agriculture and if we can have the right market, right distribution network and the right degree of patience to get there, then we can look forward to success in that area.

●For more, see Country News inside today’s edition of the Courier.

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