Dairies say milk deals turned sour

Suppliers of WA dairy group Brownes say they have grown weary of "hollow promises" as the State-based brand talks up a better milk price in the future.

Frustrated milk suppliers confronted the company's new chief executive Tony Girgis during a locked-door meeting a fortnight ago, demanding a commitment from Brownes to lift its milk price, which is on average about 10 cents a litre lower than its competitors.

Adding to their concern was the news that Brownes' owner, Archer Capital, had hired a contractor to sell the WA dairy company, fuelling speculation Brownes was interested only in consolidating profits for a quick sale.

Brownes still collects the majority of the State's milk from its dwindling list of contracted dairy farmers in the South West, before selling it as milk, flavoured milk and yoghurt under the Brownes and Chill brands.

Market sources have said there has been "recent significant interest" from local and overseas buyers in the purchase of Brownes, with a sale process expected to be running within weeks.

It is understood Brownes, under its recent shedding of milk supply and internal cost-cutting, is now making more than $15 million in annual earnings before interest, tax, depreciation and amortisation, which points to a possible $130 million to $150 million sale for Archer.

Speaking at last week's WAFarmers diary conference in Busselton, Mr Girgis denied the milk price disparity was about 10 cents, while admitting the struggling company's profits were up 40 per cent under his tenure.

"Milk contracts are a distorting factor for the milk industry and create unfair comparisons that aren't necessarily apples for apples," he said.

Mr Girgis said his company was confident of being able to secure supplies in the future.

"To secure new milk we intend on changing the milk pricing model away from prices that are based on the milk-fat and protein solids to a volume-in-litres system for the content of the milk supplied off farm," he said.

"The current system that was designed by Fonterra before us drives all the wrong behaviours and incentives and generates excess milk at the times you don't want it, and then the times you do want the milk it's not available.

"We explained to our suppliers at the meeting that we are undertaking an extensive exercise at the moment to understand the WA milk footprint."

Mr Girgis said this would include the quality of protein and milk fat and create a structure that would be accepted by its suppliers.

"Everybody hates our current model because it is too complicated for everybody to understand," he said.

"If somebody says his neighbour is getting 10 cents a litre more than them, it's because they are able to produce more high fat and protein milk, because that is the way it was designed for ice cream.

"If someone is making higher volume they will get a higher average price in that season."

Meanwhile, Busselton dairy farmer Ruth McGregor, who was at the supplier meeting, said she believed Brownes was playing "a time game" with no genuine desire to give a better deal to suppliers.

Mrs McGregor and husband Ian milk about 300 cows to supply Brownes with about 2.6 million litres a year and are locked into a contract for another two years.

She said her farm was paid the bottom rate of 42.5 cents a litre by Brownes, which was 13 cents a litre less than the top local industry rate offered by competitor Lion.

"Mr Girgis gave us no confidence our supplier meeting and even threw out a ridiculous comment like: 'Hang with us and we'll share the profits.'"

"As a supplier I signed up to Brownes on a five-year contract and I was promised I would not be disadvantaged. With my current 2015 production I could be at least $150,000 ahead with another processor. It's not a difficult calculation. I'm terribly disappointed in Brownes".