Murray Goulburn debate down to markets not business structure

20 July 2016

What started as a sharp reduction in farmgate prices for the co-operative’s dairy farmer suppliers has snowballed into an ASIC investigation, a class action brought by plaintiff law firm Slater and Gordon, and a general attack on co-operatives and mutuals as business structures.

It’s the last point I particularly want to address, as it seems every time a co-operative or mutual hits the news critics start lining up to argue that co-operatives and mutuals are ­dinosaurs, not suited to a modern business environment and the dem­ands of global trade. Everyone from radio host Alan Jones to Mr CowBank to various people in Australia’s finance press has waded into the debate and offered their two cents’ worth.

We saw this last year with the unsolicited takeover bid for that other agricultural co-operative grain giant CBH, although, to its credit, CBH silenced its critics in the best possible way: with a healthy balance sheet and strong profits. The business plan of Murray Goulburn’s now ex-chief executive, Gary Helou, appears to have depended on continual increases in gross income.

But milk is a globally traded commodity and, as anyone knows, commodity markets are volatile.

It’s worth remembering that the volatility in milk prices was aided and abetted by the EU’s imposition of sanctions on Putin’s Russia, forcing EU dairy farmers — who are heavily subsidised in ways Australia’s are not, thanks to the EU’s Common Agricultural Policy — to start looking for markets in Australia’s Asian back yard.

For Murray Goulburn to have seen this coming would have required psychic powers. Co-operatives and mutuals are owned by their members and not by shareholders. However, they’re still commercially focused — several of the structures widely used in the sector provide excellent profit-making opportunities.

Their relationship with customers and clients is identical to that of any limited liability company. The real differences are under the hood, with a business structure that resembles a really big partnership and cuts out the middle man. Co-operatives and mutuals embody the idea of social ownership, empowering ordinary citizens and providing benefits to the community.

Market forces — even questionable business judgment — do not mean that the co-operative structure is at fault. Co-operatives and mutuals enable a form of intensely participatory capitalism, but what they do is still capitalism and vulnerable to the vicissitudes of the market.

Anyone with a share portfolio understands that share investment is a risk. Indeed, if you know of any shares one can buy where I’ll be compensated for a drop in the share price, please tell me, because I want those shares.

If people are unwilling to view co-operatives and mutuals through the same lens as they do limited liability companies, then those people are the dinosaurs, because they don’t understand capitalism.

This opinion piece by Melina Morrison, BCCM CEO, first appeared in The Weekly Times.