New Zealand-owned dairy giant Fonterra has confirmed it has made a bid for embattled milk processor Murray Goulburn. By: Warwick Long, Helen Taylor and Jess Davis
Managing director of Fonterra Australia Rene Dedoncker confirmed to ABC Rural that his company had made the bid while outlining the company’s financial performance for the past year.
“The answer is yes we have put forward a proposal,” Mr Dedoncker said.
“It’s non-binding and indicative and at this point we are going to sit tight and give the MG board the respect they deserve to consider all proposals.”
Mr Dedoncker would not elaborate on any further details of the proposal but said he could see a combined Murray Goulburn and Fonterra working well.
“In many respects we’re not that different,” he said adding, “When they [the Murray Goulburn board] are ready to talk we will be there and at some point when the boards are aligned there may be news.”
Fonterra Australia is already quickly overtaking Murray Goulburn as Australia’s largest milk processor.
In 2015, the company collected 1.5 billion litres of milk from Australian farms but as the crisis gripped the Australian dairy industry that figure had grown to more than 2 billion litres of milk.
In the same period Murray Goulburn’s milk supply had fallen from more than 3 billion litres to an expected 2 billion litres of milk this year.
Based on those figures, if Fonterra was successful in taking over Murray Goulburn, the combined company would collect between 40 and 50 per cent of the milk produced in Australia, raising regulatory concerns.
The Australian Competition and Consumer Commission’s agriculture commissioner, Mick Keogh said it was something the regulator was watching.
“As far as we are aware there are up to a half a dozen different bids either for part or the entirety of Murray Goulburn,” Mr Keogh said.
“If we’re talking hypothetically about two of the largest players proposing to merge, yes, you would think that would have a likely affect on competition in the dairy industry.”
“It’s probably too early to foreshadow any of that at the moment.”
Meanwhile, Fonterra has posted its annual results and while profit was down 11 per cent to $645.5 million (NZ$ 745 million) their revenue increased by 12 per cent.
Fonterra has continued to grow its milk supply as it pays more for milk than major rival, Murray Goulburn.
Mr Dedoncker said the business was generating sustainable returns and was now looking to grow to meet higher demand for dairy.
“We have hit all our performance targets, we have a clear strategy which is delivering and have the right assets and product mix on the ground,” he said.
“We are now looking to build on that base with further expansion linked to growing customer demand for consumer dairy, food service products and dairy ingredients.
“With our plants full we will be accelerating our capital investments in regional Victoria and Tasmania playing to our strengths in cheese, whey and nutritionals.”
The company admitted that as their supply and dominance in Australia grew they now had a waiting list of dairy farmers who would like to supply the company.
As part of the results Fonterra Australia has reported a $62 million Earnings Before Interest and Taxes (EBIT) profit and said Australian assets were generating an 11 per cent return on investment.
Source: ABC Rural