Milk processor Murray Goulburn has dumped its unpopular support package for dairy farmers in a bid to shore up its milk supply and lure back farmers who abandoned it after last year's shock cut to the farmgate milk price.
Murray Goulburn will also axe up to 360 jobs, close three older processing facilities and suspend dividend payments as it endeavours to improve its financial performance.
The co-operative will take a $410 million hit from writedowns and restructuring initiatives.
Murray Goulburn announced on Tuesday it will forgive debts owed by farmers under its controversial Milk Supply Support Package (MSSP), introduced at the same time the co-op cut the price it paid farmers for their milk in April, 2016.
Under the MSSP, Murray Goulburn made payments above the reduced farmgate milk price but required farmers to repay it from their future milk payments, causing some to switch to other processors.
Murray Goulburn will also make a special payment to continuing and retired suppliers who made MSSP repayments between July and September 2016, and to any suppliers who start supplying it with milk again by July 31.
Chief executive Ari Mervis, who took charge of Murray Goulburn in mid-February, was critical of the MSSP.
"Not only had it created a financial burden on the farmers, perhaps more importantly it created an emotional burden or disconnect between the suppliers and their co-op," Mr Mervis said.
"The board had recognised that this had caused a significant outflow of milk and had the potential to incite further milk outflows."
Murray Goulburn will close its Edith Creek manufacturing facility in Tasmania by December, while the Rochester plant in northern Victoria will shut in March, 2018, followed by the Kiewa facility, also in Victoria, in September.
The closures will cost about 360 jobs, saving the co-operative between $40 million and $50 million a year.
Mr Mervis said Murray Goulburn this year would have a milk intake of about 2.7 billion litres, which was not sufficient to warrant the current 11 processing facilities.
Campaspe Shire councillor Leigh Wilson said the loss of about 100 jobs at the Rochester factory would affect other businesses in the town.
"A lot of people in the community expected bad news but this is the worst news we could hear," Cr Wilson said.
Murray Goulburn also said that, due to weaker trading conditions, the forecast farmgate milk price for 2017 had been downgraded from $4.70 per kilogram of milk solids to $4.60, but the co-operative remains committed to paying an average of $4.95 which it promised in October 2016.
The difference may be funded by debt.
Independent expert Graeme Samuel said the initiatives undertaken by Murray Goulburn should help it in retaining milk supply and improving profitability, but would have a material impact on debt and result in a value transfer from equity holders to suppliers.
Units in Murray Goulburn's listed entity, the MG Unit Trust, closed down 14.5 cents, or 14 per cent, at 89 cents.
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