With the acquisition of Murray Goulburn (MG) under its belt, Saputo is now out to bring former MG suppliers “back home.”
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And Saputo chief executive Lino Saputo Junior is telling them not to worry too much about the opening season milk price of $5.75 a kilogram milk solids (kgms) it’s currently offering.
It’s the retrospective milk price at the end of the 2018-2019 milk year that’s important, he says.
Mr Saputo is on a charm offensive to current and prospective suppliers and spoke to about 300 in Warrnambool on Thursday night as he seeks to lift milk supply to the former MG plants by another 600 million litres.
He spoke to suppliers in Cobden earlier on Thursday with the same message.
Mr Saputo aims to principally get the additional milk by persuading suppliers to switch from their current processor.
While Saputo’s underwhelming opening price is unlikely to persuade many, Mr Saputo is hoping the company’s track record of “doing the right thing” will be the carrot.
“At the end of 2015 and early 2016, our two large competitiors (MG and Fonterra) brought in price step downs and claw backs when the markets collapsed.
“We chose not to do it and maintained our price,” Mr Saputo said.
Mr Saputo said he could understand that some Saputo suppliers were disappointed the company, now Australia’s largest milk processor, had not shown some leadership to instill confidence in the struggling industry by setting an opening price of $6 a kilogram milk solids (kgms).
But Saputo would review its milk price on a quarterly basis and its closing milk price would lead the industry, he said.
It aimed to take on the price benchmark role previously played by MG but also make substantial changes to how prices were set.
It wanted to eliminate practices such as price step downs that it believed had damaged the Australian dairy industry, he said.
The current 300 million litre milk supply to MG’s Koroit plant, soon to be sold by Saputo, is likely to quarantined from the company’s expansion plans in the short-term because it has agreed that milk will continue to supply the new owners.
But Mr Saputo said the company still wanted to lift MG’s milk supply from the 1.6 million litres after Koroit was sold to 2.2 million over three years.
The extra milk will be processed at other former MG plants and not Saputo’s Warrnambool Cheese and Butter plant that was already operating at 98 per cent capacity.
Former MG plants were only operating at an average 58 per cent capacity, he said.
