THE Australian dairy industry is no longer in charge of its own destiny.
By: SIMONE SMITH
Source: The Weekly Times
And the days of the large dairy co-operative are over.
If Canada’s Saputo, with an annual turnover of $US8.4 billion last year, is successful in buying Murray Goulburn it would control up to three billion litres of milk in the Australian milk pool — or about a third of Australia’s total milk pool. It’s a monumental shift in the Australian dairy landscape, with few dairy companies remaining untouched by foreign ownership.
New Zealand dairy co-operative Fonterra has another two billion, with capacity to process up to 2.5 billion a year.
Bega Cheese is listed on the Australian Securities Exchange, while the Union Dairy Company at Penola, South Australia, is a joint venture between Warrnambool’s Midfield Group and global agribusiness giant Louis Dreyfus. Beston Global Foods, the new player in South Australia, is also ASX-listed.
There are still some dairy companies left in Australian hands. Australian Consolidated Milk has about 330 million litres of milk and is about to build a processing plant at Girgarre, while Australian Dairy Farmers Corporation has 230 million litres of milk and is owned by its farmers, but has no processing assets.
NSW north coast dairy co-operative Norco processes 222 million litres of milk a year.
In 2014, Saptuo won a protracted bidding war, fending off rivals MG and Bega Cheese, for control of Warrnambool Cheese and Butter and paid more than $500 million for 87.92 per cent. It provided Saputo with a foothold in the Australian market and access to Asian markets.
In February this year, Saputo secured total control of WCB when Lion Dairy & Drinks sold its shareholding to the Canadian company. WCB this year has recruited at least another 250 million litres of milk. A Saputo-owned MG would extend the Canadian dairy giant’s reach beyond its current major asset at Allansford and a small plant at Mil Lel near Mt Gambier.
As a stand-alone factory, Allansford produces dairy products for various markets. But the MG purchase would provide the company with a large and diverse milk supply pool. The ability to tap into milk in multiple regions helps manage seasonal risk.
Fonterra matches the processing footprint of an MG and Saputo, with plants and suppliers in all the key dairy regions, including Tasmania.
The purchase of MG by Saputo also means there is no large dairy co-operative in the Australian market. This is a huge issue for many dairy farmers as they feel they lose a sense of ownership and control over their processor. It had long been believed that MG set the floor in the farmgate milk price.
With no large co-operative left in the Australian dairy industry there are concerns the industry will be without a processor with the philosophical view of returning maximum value back to the farmgate. Co-operatives are also a large part of the huge EU industry with co-ops Friesland Campina and Arla Foods among the top 10 dairy processors in the world.
There’s no downplaying the significance of this deal and the Saputo-MG roadshows will be eagerly attended with dairy farmers and the broader industry keen to hear more details of the proposal.