Parmalat puts ultimatum to WA suppliers

The Brisbane-based arm of the global dairy processor has also told farmers the alternative is it only wants 90pc of the volume of milk produced by its current Harvey Fresh supply base – believed to be 64 farms.

Parmalat WA milk supply manager Malcolm Fechney, who replaced Paul Lorimer in January as head of WA operations, and national field service manager Mark Linton from Brisbane, delivered the ultimatum to dairyfarmer suppliers at closed meetings in the past fortnight.

They presented suppliers at meetings with a form outlining a range of new proposals related to contracts and achieving desired reductions in supplier numbers or overall milk volume.

They also asked each supplier to indicate on the form which of the proposals they would be prepared to accept.

The forms were collected at the end of the meetings and farmers were told Parmalat’s decisions in relation to the future of some suppliers would depend on its interpretation of the responses provided.

Earlier this week three Harvey Fresh suppliers on temporary six-month contracts to June – Mike Norton, Capel, Tony Practico, Bridgetown and Kieran Chapman, Busselton, were expecting to hear whether they would be dropped.

They were told their futures as Parmalat suppliers and whether they were offered new contracts from June would be decided in Brisbane before the end of the week and would depend on the responses of the rest of the suppliers to the proposals put to the meetings.

As previously reported, they were among five suppliers who decided not to take up volume growth incentives offered by Parmalat after it took over Harvey Fresh in March, 2014 and stuck with their Harvey Fresh contracts until they ran out.

Parmalat withdrew new contract offers last year but continued to collect their milk.

It told them their milk would not be collected after mid-January this year but relented and offered short contracts.

Two of the five chose to leave the dairy industry.

Ironically, proposals understood to have been put to suppliers included allowing Parmalat to drop a growth incentive payment for May – the last growth payment in the three-year contracts offered to suppliers after it took over Harvey Fresh.

At the time Harvey Fresh was processing high-volume, low-margin private brand $1-a-litre milk for Coles supermarkets and was looking to secure milk supply for that contract.

But Coles used the Harvey Fresh change of ownership to get out of the contract and shifted its private brand processing to Lion Dairy & Drinks for a lower price, leaving Parmalat with a contracted supply of more milk than it needed.

A farmer asked Mr Fechney and Mr Linton at one of the meetings what guarantee he or other suppliers had that favourable responses to proposals put to the meetings would prevent them from being dropped.

He was told there were no guarantees.

Mr Fechney and Mr Linton indicated to the meetings the company believed the oversupply situation experienced last spring, which was behind the move to drop suppliers or reduce milk volume, was “temporary”.

They also indicated the company was progressing with promising plans to increase exports into South- East Asia and had lifted domestic market share.

But farmers, who asked not to be named, questioned the long-term wisdom of dropping suppliers when there were prospects of export and domestic market growth.

They also pointed out confused market signals from processors to producers was one of the issues dairyfarmers had raised with the Australian Competition and Consumer Commission dairy inquiry at a hearing at Bunbury, WA, last month.

Farmers said they believed up to seven Harvey Fresh suppliers could ultimately be dropped unless all suppliers agreed to cut production volumes.

Statements made by a Treeton, WA, farmer at a meeting led to widespread industry speculation he had already received a termination notice from Parmalat effective from October, but that proved not to be the case.

One farmer said he believed the number of suppliers to be dropped by Parmalat and by Brownes Dairy combined would total 16 before the restructuring of the WA dairy industry was completed.

If he is correct, the number of dairy farm enterprises in WA could drop below 140.

Brownes has dropped four suppliers without acknowledging their flat production curves, milk volumes or milk quality, and another supplier retired to allow a fifth farmer proposed to be dropped to continue as a supplier, albeit on reduced volume and price.

Some farmers said they came away from the Parmalat meetings with the impression the company was not prepared to take individual supplier history, production curves, or milk quality into account when deciding if or which suppliers would be dropped.

They said they believed Harvey Fresh had been ordered to reduce overall milk volume or, if necessary to achieve that, the number of suppliers quickly and the most important criteria appeared to be volume and when contracts could be terminated by Brisbane head office.

Parmalat's head office in Brisbane was asked several times for information and clarification but declined to comment.

Some dairyfarmers, including Mr Norton and WAFarmers dairy section president Michael Partridge, have organised to meet with new Agriculture Minister Alannah MacTiernan today, Thursday, to discuss the situation regarding Parmalat and Harvey Fresh.

A spokesman for Ms MacTiernan confirmed she will attend today’s Western Dairy’s Dairy Innovation Day 2017 at the Lammie family farm in Lyle Road, Ruabon, near Busselton, and then meet with the farmers afterwards between Busselton and Bunbury.

“At least she (Ms MacTiernan) might have a better chance of taking the issues up with Parmalat than any of the last three (agricultural ministers) we’ve had,” said one of the farmers hoping to be involved in the meeting with Ms MacTiernan.

Unacceptable

“Individual farmers should not have their contracts dropped by processors,” Mr Partridge said.

“Dropping contracted suppliers is totally unacceptable and as a long-term participant in the dairy industry Parmalat should recognise the impact those decisions will have on the future of dairy farmers and their industry,” he said.

Dropping individual contracted suppliers would have a flow-on effect right across the industry in terms of general confidence and willingness to invest in dairy herds and equipment and infrastructure, Mr Partridge predicted.

“It will influence the relationships between farmers and their banks and how future investors view the industry,’’ he said.

“Parmalat should continue talking to its supply base to resolve its issues.”

Mr Partridge confirmed he planned to meet with Agriculture Minister Alannah MacTiernan today but declined to speculate on what action might be discussed.

South Australian expansion

Parmalat announced the decision on April 26, proclaiming it was “reinforcing its commitment to jobs and growth in South Australia”.

“These new capital expenditure investments will allow Parmalat to significantly increase production in the State, including state-of-the art machinery for our flavoured milk brands, which will ultimately see us sourcing more milk from South Australian dairies,” said Parmalat’s Oceania regional chief executive officer Craig Garvin.

“In addition, a new processor, which we have already installed, has allowed us to start exporting three fresh milk brands from South Australia to China.”

Parmalat said the $12 million investment came on top of $18 million already invested in the site since 2011.

Harvey Fresh last year trialled processing and packaging one-litre plastic bottles of fresh milk directly air freighted into China as part of a three-way collaboration with Perth-based Chinese entrepreneur Sha Yi and WAFarmers.

The WAFarmersFirst milk sold for between $10 and $11 in gourmet food outlets in the Chinese port city of Dalian but exports ended when it was decided to replace fresh milk with less time critical ESL (extended shelf life) and UHT (ultra high temperature) milk.

Parmalat has not responded to a Farm Weekly question about whether the Clarence Gardens upgrade will make it the centre of the company’s drive for fresh milk exports to China at the expense of Harvey Fresh.

Also last year surplus fresh milk was trucked from Harvey Fresh to South Australia.

In March at the Parmalat global annual meeting in Milan chief executive officer Yvon Guérin told shareholders “the group is in a delicate transition phase”.

“In 2017, we will continue to develop our consolidation plan in the (23) countries where we operate, while increasing the efficiency of our processes,” Mr Guérin said.

“A major effort, in capex terms, is under way to revamp production facilities and develop new production capacity in the product categories where demand is increasing.”

In Australia last year Parmalat retained leadership of the pasteurised milk segment and second place in the UHT, flavoured milk and yoghurt markets, the annual report said.

It led the dairy dessert market segment.