The potential sale by Fonterra of its Australian operations could have implications for the course of Australia’s entire dairy sector over the next five to 10 years, according to ANZ’s latest Agri Commodity Report.
The outcome of the potential sale, expected in 2022, could be seen as an indicator of the level of confidence in the Australian dairy industry.
“How the process plays out over the coming months will be a very important indicator for how the investment community views the Australian dairy landscape as well as the wider domestic agribusiness sector,” ANZ’s head of food, beverage and agribusiness Ian Hanrahan, said.
“It will be interesting to see which entities seek to compete for the company, and if one of the international dairy companies without an existing major presence in Australia were to bid, it could be seen as a vote of confidence in the local dairy industry’s future.”
A move by one of the major private equity firms, or by one of the major international pension funds, would send the same message.
A change in ownership could also potentially see a revival of sorts of investment upstream into the dairy farming sector itself.
A vote of confidence in the sector as a whole could well see an increasing focus by larger investors onto dairy farming operations, which has arguably diminished over the past five years in favour of stronger investment into beef, grain and horticultural opportunities.
This new investment focus would also inevitably bring with it an increased investment into dairy farm infrastructure, including milking facilities, water and pasture, as investors sought to increase efficiencies, reduce labour reliance, grow the potential for product innovation and increase profitability
The Australian dairy production sector is currently in one of the strongest positions for some years, through a combination of strong farmgate prices, combined with flatter input cost prices, particularly as a result of the good season.
Following the initial panic-buying of dairy products at the start of the pandemic in 2020, consumer behaviour has largely returned to normal and as a result, sales of fresh and long-life milk have actually fallen slightly this year, coming down from last year’s inflated levels.
At a global level, while dairy demand took a hit in a number of regions as a result of lockdowns, recent figures would indicate that purchasing interest is now growing again from major markets, especially from south east Asia and the Middle East/North Africa region.