Northern Victorian dairy farmer Andrew Leahy's first reaction was anger when the nation's biggest milk processor Murray Goulburn slashed the long-held milk price it planned to pay to farmers by up to 15 per cent.
It was the first mid-season cut to a milk price since the global financial crisis.
Murray Goulburn's profit forecast was also cut, sending its stock tumbling nearly 40 per cent on the Australian Securities Exchange and its bombastic chief executive Gary Helou walked out the door, alongside his chief financial officer.
As the dust settles on Murray Goulburn's shock announcement on Wednesday, Mr Leahy, like his neighbours, is despondent.
"The price drop on its own wouldn't haven't been the end of the world but the lack of rain and high water prices has made it very difficult," Mr Leahy said.
The dairy farm he operates with his parents in Murrabit in northern Victoria was already facing a loss. Now, it will be a substantial one.
"I don't really want to run the numbers to be honest," Mr Leahy said. "It'll be a huge loss."
There are concerns that the malaise will spill over to other farmers who don't supply Murray Goulburn, the country's largest milk processor, accounting for 38 per cent of national milk intake and 54 per cent of Victoria's milk intake, buying milk from more than 2500 farmers.
"Two other processors [Bega and Warrnambool Cheese & Butter] are holding their price but what are the ramifications for next season?" Mr Leahy said.
"I reckon Fonterra were drinking a glass of wine on Wednesday night. I reckon they may drop their prices. They can't afford not to."
Across Victoria, Murray Goulburn's dairyfarmers are not just ruing this year's season but contemplating what lies ahead for the next three years.
To cover the cash-flow pain of Murray Goulburn's shock about-face on milk prices the processor is borrowing money to pay its farmer suppliers $5.47 a kilogram for the rest of this financial year, down from the promised $5.60 and the hoped for $6.05. But farmers will then "repay" this money in the form of lower milk prices for the following three years.
"I reckon we could lose 10 to 15 per cent of dairyfarmers in northern Victoria," Mr Leahy said.
"I hope it doesn't happen but the pressure on northern Victoria is so huge. The water allocation is zero and the price for water is so high."
Another Victorian dairyfarmer, who declined to be named, said she was stunned.
"We weren't getting a step-up in price but never in my dreams did I think we would get a step-down," the farmer said.
"We have never had it [cut price] so close to the end of a season. This has been bad management as far as I can see."
The dairyfarmers aren't alone in asking whether the blame lies with Murray Goulburn's management team.
Investors and class-action lawyers are also asking: was it bad management or an unworkable capital structure that brought the country's largest milk processor to this point?
When Murray Goulburn raised $500 million through listed notes from investors and farmers in May last year, Mr Helou and his chairman, Philip Tracy, claimed they had forged a new paradigm.
Using a convoluted formula disclosed in the prospectus, they claimed the co-op could pay higher-than-market milk prices because the capital raising would allow them to expand into higher margin products. Along the way, unitholders would also benefit, with management incentivised to keep the milk price high and the vehicle paying a higher yield when the milk price was up.
As far back as June last year, investors and industry experts were sounding warnings. As management pulled millions of dollars out of the company, was MG was being placed in a precarious position with a growing debt and a dwindling ability to pay farmers after saddling itself with a structure that only really worked when dairy prices and demand was strong?
Kidder Williams' David Williams was among those who raised concerns. He said that when a co-operative decides to raise capital from non-farmers it almost always ended in tears. The reason was that the farmers want the highest possible milk price and lowest profits whereas investors wanted maximum profits and constrained milk prices.
"When someone tells you they can solve this natural conflict by linking the two; milk price and yield ... be very, very scared," Mr Williams said.
SunRice, the nation's monopoly rice exporter, has modelled its own plans to list on the ASX on structures similar to Murray Goulburn and Fonterra to allow its grower-owners to retain voting control.
The restructure needs support from 75 per cent of both A class and B class shareholders who vote at a meeting, which was expected in March, but was delayed because it needed to finalise documentation with regulators and other "stakeholders".
CBH, the West Australian grains co-operative, is again revisiting its corporate structure and how it can compete into the future after rejecting a listing bid led by a group of its growers.
Mr Tracy says there is no problem with Murray Goulburn's partially listed structure, which leaves ownership with its farmer suppliers but dividends and capital growth with equity investors.
"The strength of our structure is the embedded alignment in the structure linking the interests between suppliers and investors," he said.
"Positive or negative, they enjoy the good days together. Unfortunately at the moment, they are sharing some very bad days."
But he also defended the board and management from being overly optimistic, saying the board acted quickly as soon as it suspected Chinese sales were weakening and denying that the risks weren't clearly spelt out in the prospectus.
As for management being overly gung-ho? He'll only say this: "We certainly drive management to always focus on extracting the maximum value possible in any given market, at any stage of the cycle. It's a very tough stage of the cycle.
"Whilst it's disappointing that some value has disappeared relative to what we were expecting, I still think the structure, strategy and motivation of management is all in the right direction to deliver the right returns to farmers and unitholders."
Mr Tracy also dismisses concerns that Murray Goulburn is carrying too much debt (it's drawing down more from its banks to support the milk payments to farmers).
"Our banks have great confidence in us," he said. "It's a very strong balance sheet."
Even if the banks are comfortable with Murray Goulburn's position, the farmers aren't.
Gippsland dairy farmer Marian McDonald, a former Murray Goulburn supplier, says falling prices and higher input costs are challenging for the entire industry.
"We are not mixed farms. We can't just grow sorghum if the wheat price isn't that good. We can't turn supply on and off," she says.
And she said the processor found it difficult to find a balance between dividends and milk prices in tough years even before its partial listing.
"Murray Goulburn's whole purpose for being is to pay the maximum milk price to farmers," she said.
"Now that it needs to take care of both its supplier shareholders and the unitholders who have invested their money in the business, getting the balance right will be even more critical."
