Canadian dairy company Saputo last week announced it intended to sell the Koroit plant to Bega Cheese for $250 million to comply with an Australian Competition and Consumer Commission’s requirement to offload the factory on competition grounds.
With Saputo’s $1.31 billion purchase of MG’s businesses, dairy suppliers transfer from the co-operative to the Canadian company.
But under the Koroit sale deal, Saputo will annually supply Bega with 300 million litres of milk to the plant until June 30, 2020.
That supply guarantee scales back if former MG suppliers switch to Bega.
Bega chief executive Paul van Heerwaarden said there would be strong competition between dairy companies in the next two years as his company sought to secure its own supply base beyond June 30, 2020.
Mr van Heerwaarden said Bega had its own milk supply to be directed into the Koroit plant, built up over 10 years.
“We have been increasing our presence in the Western District, so we will have additional milk (beyond the 300 million litres guaranteed by Saputo) to direct into the Koroit factory,” he said.
He said Bega was actively seeking new farmers to supply the company as part of its normal recruiting program.
Mr van Heerwaarden said Bega was not assuming it had to build milk supply to the Koroit factory to historical levels of 800 million litres.
“We will continue to look at the overall product mix at Koroit, not dissimilar to what we did when we took over Tatura (Milk Products) in 2001,” he said.
“There is a strong nutritional capacity at Koroit which provides that sort of flexibility.”
United Dairyfarmers of Victoria president Adam Jenkins said Western District dairy farmers would welcome competition for milk supply.
“Once those two years come off and Bega has to seek its own supply in an open market there will be pretty strong competition, which will bode well for local southwest farmers,” Mr Jenkins said.
“But we need to be careful that we don’t set ourselves up for another 2016 where companies pay above the market returns and end up with a situation which has a catastrophic effect on the whole industry.”
By: PETER HEMPHILL
Source: The Weekly Times