Market price

Freedom Foods’ milk supply contract “at market price”

The family, which has made their wealth in property and dairy farms, also owns 37.2% of Orange-based Australian Fresh Milk Holdings Pty Ltd. The Perich family is invested in the country’s largest dairy producer, which supplies milk to Freedom Foods through Leppington Pastoral. Society.

Freedom Foods also owns 10 percent of AFMH, which is also backed by one of China’s biggest agricultural players, New Hope Group, and dairy farmers Moxeys.

In response to questions that Freedom Foods pays a higher price for milk to AFMH ​​compared to other dairy farmers, and that the dairy operator is also granted a longer term contract to guarantee that price not disclosed, new chairwoman Genevieve Gregor said an independent review of the arrangements concluded that the AFMH ​​contract was at market price.

“We have adopted a thorough review of this by an independent consultant,” she said. “And the independent directors are happy, it’s done on an arm’s length business basis. We are under an NDA [non-disclosure agreement] under this agreement not to disclose the [milk] the price.”

The average dairy farmer produces around 1.8 million liters per year. A large dairy can produce 5 million liters or more per year. Moxey Farms, based in New South Wales, has 3,700 dairy cows that produce around 50 million liters of milk per year.

Ms Gregor added that the pricing of milk is complex and therefore she hired an expert to review this contract.

“These are big volumes and they get a bonus for it,” she said. “There are a number of factors that come into play, including delivery to the farm, quality, consistency, protein and fat content of the butter. “

A farm gate price is the price farmers receive from processors for the milk they produce. Farm-gate prices for milk will vary by processor and region.

According to Dairy Australia, a typical factory price paid to farmers in Victoria is 53.6 ¢ per liter, or $ 7.01 per kilogram of milk solids, in 2019-2020. In NSW, it is higher at 62 per liter or $ 8.55 per kilogram of milk solids.

Longer contracts provide “security”

Freedom Foods chief executive Michael Perich recently resigned as a director of all Perich-related parties that do business with Freedom, except Arrovest, the family’s investment vehicle.

He said The Australian Financial Review that due to longer-term contracts, the price of milk was more secure, which allowed farmers to invest in their farm and create a better relationship with all suppliers.

“I’ve talked to some farmers, they really appreciate it because it helps them work with their lenders, work with what they want to do at the farm level,” Mr. Perich said.

According to accounts filed with the Australian Securities and Investments Commission, AFMH’s net profit after tax for fiscal 2020 was $ 3.4 million, down from just $ 13,782 the year before. Raising costs increased significantly, as did the cost of producing milk, while contract sales rose to $ 107.4 million from $ 71.6 million. The group sold $ 14.7 million worth of milk to Freedom Foods.

Other Freedom Foods related party agreements with the Perich family include: the leases of the Ingleburn and Shepparton sites, the sale and hire-purchase of certain shelving equipment at the Shepparton plant and the head office lease from Taren Point.

Freedom Foods will also pay Leppington Pastoral nearly $ 500,000 in fees in the first quarter (which may be ongoing) for limited directors’ compensation because the ASX-listed company was unable to secure sufficient insurance. for directors and officers. Due to financial pressure from Freedom Foods, the Perich family also provided a $ 1 million rent break on a land lease.