17 Aug 2016

Fonterra faces legal action from Aus farmers

6:36 pm on 17 August 2016

Farmers in Australia have joined forces to launch a class action against Fonterra and another dairy company, Murray-Goulburn, which have slashed the price they pay farmers for milk.

Fonterra building in the Waikato

Photo: RNZ / Claire Eastham-Farrelly

Two Victorian law firms have teamed up, with about 200-300 farmers registering to take part in the court case.

Fonterra said it had not asked farmers to return money already paid to them for the season in question, but the principal of law firm Adley Burstyner, David Burstyner, said there had been an attempt in April and May,

"The factory has said 'we're going to take back from you money we've already paid for milk already supplied - we're going to keep the milk'."

Mr Burstyner said it was obvious that wasn't allowed.

"I've looked through the contract, it doesn't say we can take back money we've already paid."

The firms' behaviour amounted to a clawback, he said.

"On 29 June 2015, Fonterra announced that it would start the Australian financial year paying $5.60. It also forecast ultimately adjusting to $5.80 to $6. That is a signal to farmers that the price would be increased later in the year.

"In August, October, December 2015, January, February, March, 4 April 2016, Fonterra issued written statements maintaining the $5.60 price. In August 2015, Fonterra warned of the possibility of a future drop, but as far as I am aware did not repeat that warning after August 2015 in its newsletters."

Mr Burstyner was critical of Fonterra's talk of a rise again in the payout price.

"The February 2016 newsletter even mentioned a possible price recovery. The fourth or fifth of April 2016 'March Price Review' demonstrates what Fonterra was saying shortly before it slashed the price.

"Then in the first week of May 2016, Fonterra reduced the price to $1.91 for May 2016, announcing a full season price of only $5.

"This means that in order to achieve a $5 average year price, when $5.60 has previously been paid, a clawback is necessary, hence an artificially low price of $1.91 in May."

Regardless of whatever Fonterra called the calculations behind the May 2016 price, it was such a dramatic reduction it could not be justified as the independently correct price for milk in that month, he said.

"It was so low at least in part because it was effectively clawing back money Fonterra paid in previous months.

"That is what we will claim to a court: we are yet to run that court case and obtain all the available evidence and get a judge's determination. But, there doesn't seem to be any other market forces explanation for a jump from $5.60 in April 2016 to $1.91 in May 2016.

"The concept of paying a milk price which is far lower than what it would independently be based on market forces can only be explained by trying to fix a deficit created over past months. Let's call it what it is - a clawback.

"It to me seems disgusting and adding insult to farmer's injury if a processor is even trying to deceive about that."

In a statement, Fonterra said it had been working closely with farmers in Australia to help them with the impact of last season's revised milk price and, contrary to some reports, Fonterra had not asked farmers to return money already paid to them for that season.

The ABC had revealed previously that Murray Goulburn executives were concerned that parts of the business were making losses eight months before it slashed its milk prices.

Murray Goulburn and Fonterra cut their milk prices in April to less than $5 per kilogram of milk solids but, up until the cuts, Murray Goulburn was still saying it had no problems.

The co-operative was being investigated by the corporate regulator, ASIC, and the competition watchdog, ACCC, over the price cuts.

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