MGC 0.00% 43.0¢ mg unit trust

Farm Gate Price 2017-2018

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    An article on the farmgate price paid by major processors in Australia.

    Between 2016-2017,
    WCB paid $4.80
    Bega paid $5.00
    Murray Goulburn paid $4.31 (after recoup of MSSP)
    Fonterra paid $4.75

    It is obvious that MG is not paying its farmers enough, thus loosing its trust and milk supply.

    At the moment, MG raises its FMP to $4.95 (after step-up payment), while Fonterra has increased its payment to $6 NZD ($5.74 AUD) .

    As an investor, I am comfortable with MG paying $4.95 for milk supply, because a worthy company should drive its internal cost efficiency and increases its value proposition through high-margin products, instead of having our farmers taking the burden and blaming on them.
    The recent debacle with farmgate price and MSSP is actually good for MG to realize how much money is wasted in its supply chain, administration and operational expense, before realizing they could save up to $55 to 80 millions a year, by 2018.
    For me, making MG deal with their inefficiency and seeing the company trying hard to find a solution is a good thing.
    That's how MG will grow and get better, just like the same way people can learn from mistakes.

    In opinion, investors should not focus on how much money MG is paying its farmers, because it is fairly priced, definitely not overpaying, but should instead keep an eye on MG's internal initiatives to create profit and value for customers and investors, which eventually will benefit farmers in the form of higher FMP, (resulting in MG's higher share of milk pool = higher profit )
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