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Suppliers see red at Brownes

Rueben HaleThe West Australian

Suppliers of WA dairy giant Brownes say they have grown weary of "hollow promises" as the State-based landmark brand talks up a better milk price for 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 10c a litre behind 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 only interested in consolidating healthy profits for a quick sale.

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

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

It's 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 with _Countryman _at last week's WAFarmers diary conference in Busselton, Mr Girgis denied the milk price disparity was around 10c, while at the same time 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 supply 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 designed by Fonterra 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 so we can understand the WA milk footprint.

"This will include the quality of protein and milk fat and make sure we come up with a structure that will be accepted by our suppliers.

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

"If somebody says his neighbour is getting 10c 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."

But that explanation has not satisfied Busselton dairy farmer Ruth McGregor, who was at the supplier meeting. She said she believed Brownes was simply a playing "a time game" with no genuine desire to give a better deal to its suppliers.

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

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

"Mr Girgis gave us no confidence at our supplier meeting and even threw out a ridiculous comment like 'hang with us and we'll share the profits'," Mrs McGregor said.

"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."

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