Murray Goulburn, is facing stiff resistance from a group of dairy farmers after it, along with Fonterra, sharply reduced the prices for raw milk. The farmers believe that this reduction in prices might push farmers off the land, while herds are being culled and there could be a total switch to farming beef. The company reduced its prices from an average of $ 5.60 to between $ 4.75 and $ 5 after it has announced that it would be difficult to meet even half the profit forecast in the prospectus for its partial float less than one year ago. The downgrade was the result of the overestimate of sales in China of adult milk powder leading to the exit of managing director Gary Helou and CFO Brad Hingle, as well as the departure of two directors of the board. Though price cuts in the industry are rare, prices may go still lower, leaving farmers with losses. The company has announced a support package for farmers to help them cope with the price cuts and will borrow between $ 95 million and $ 165 million to help raise the average price to $ 5.47. The cost will be recouped from farmers together with interest over the next three years.
 
Meanwhile, the supermarket chain Coles is kicking off a milk fund driven by consumers to help dairy farmers in Victoria and New South Wales affected by the reduced payments. This is very much like the initiative in South Australia 2012, in which the dairy industry launched a new milk brand and collected $ 0.20 per litre for farmers. The supermarket will now launch a new brand that will disperse $ 0.20 per litre to an independent fund with the aim of supporting the 2600 dairy farmers affected by the latest price move. However, it could take a couple of months for the new brand to be launched and the money raised will go to support the long-term future.
 
A recent supplier update from the company notes the strength of the impact of the price announcements and states that it is disappointing for farmers, especially so late in the season. It clarifies that the Milk Supply Support Package is specifically designed to spread the impact of the reduced milk prices in the future in the best interest of all stakeholders. The company announced that the budget for 2016/2017 would be presented to the board at the end of June and the prices for the forthcoming season would be announced at that time. Looking ahead, the company has implemented the new capital structure to raise capital for the manufacturing upgrade and the balance sheet is strong with acceptable gearing levels.
 
Following the complaint by the Victorian Government about the insufficiency of the initial $30 million allocation with regard to about 3,000 farmers directly affected by dairy price cuts, Agriculture Minister Barnaby Joyce has now confirmed about providing loans for Murray Goulburn and Fonterra suppliers who have been affected by price cuts.
 
On market penetration aspect, both Murray Goulburn and Blackmores are finding it hard to enter the $600 million local infant formula market in China at the back of the fact that personal shoppers have started sending Australian products to China. Each of the companies now has a very low share (<0.1%) of the market, as per the Aztec Data, obtained by The Australian Financial Review. In fact, Murray Goulburn could only sell 46 units of its NatraStart infant formula in chemists and supermarkets for the week ended May 8, 2016. This implies that Murray Goulburn may have to reduce its value of infant formula inventory and investments made in the brand.
 
The company seem to get battering from many sides. Murray Goulburn Co-operative Co. Limited (MG) and MG Responsible Entity Limited, as responsible entity of the MG Unit Trust (ASX: MGC), have been notified that a group proceeding has been filed against them and a number of current and former directors in the Supreme Court of Victoria. Primarily, a class action was filed against the company by its investors on allegations related to giving out misleading information ahead of its float last year. The class action was filed in the Supreme Court of Victoria following the news that it withheld the information about the company not meeting its targets. The company gave the revised profit forecasts between $39 and $42 million which was below the $85 million figure given in the product disclosure statement released before the float. The stock price of MGC has plunged 50.74% in the last three months (as at May 31, 2016).
 

MGC Chart (Source: Financial Times)
 

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