Australian Dairy Farms CEO Peter Skene said he believed industry valuations had reached their nadir after a torrid few years, although it would take 18 months for depressed milk prices to improve on the back of reduced herd numbers.
“We think the industry from a macro point of view has bottomed out, but it has not recovered as well as we would like,” he said.
The ASX-listed ADF isn’t waiting for the vaunted recovery in global milk prices, this week unveiling plans to convert its prime Victorian farmland to organic production.
The Camperdown-based company intends to release its own branded infant formula, to be processed in a new facility on previously acquired land on the outskirts of the town.
ADF owns 1450 hectares across six separate farms in south western Victoria’s so-called Golden Triangle. It also owns the processing assets of the Camperdown Dairy Company, acquired from the now-collapsed Aussie Farmers Direct for $11 million in early 2016.
Mr Skene said while ADF produced specialist products, it relied heavily on a small number of customers for its commodity milk. Aussie Farmers Direct had been a key ADF client, but that was no longer the case when the company went into administration earlier this month.
In contrast, Australia produces about 40 million litres of organic milk annually, a drop in the bucket of overall milk output of nine billion litres.
The biggest producer, the Organic Dairy Co-op produces half of this output from 20 separate farms.
“It’s an attractive market opportunity because it’s not exactly niche, but not so big that it’s attractive to the bigger dairy players,” Mr Skene said.
Even so, ADF has its sights on the infant formula market dominated Bellamy’s which has a $2.6 billion market capitalisation. This month processing giant Bega Cheese also signed a deal with Organic Dairy Co-Op for locally-sourced organic milk.
ADF plans to invest an unspecified amount on a new wet-blend powder drying plant, a key requirement for gaining organic certification.
The plant will be located on four hectares of commercial and industrial zoned land on the outskirts of Camperdown, acquired in November last year.
Mr Skene expected the organic push to boost the value of ADF’s acreage, which is in the books at $25 million.
Other recent deals have highlighted the demand for organic dairy assets.
In November last year Longtable paid $43 million for Paris Creek Farm, an organic and biodynamic operation in the Adelaide Hill that accounts for 20 per cent of raw organic milk supply.
Meanwhile, a key test of industry valuations looms after furniture king Gerry Harvey’s joint venture dairy play went into administration and receivership on Tuesday.
Receiver McGrath Nicol has indicated that Coomboona Holdings, a 2400 hectare dairy and pedigree cattle breeding property near Shepparton, will be subject to an “orderly sales campaign” after the business has stabilised.
By: Tim Boreham
Source: The Sydney Morning Herald