CLOSURE of dairy manufacturing plants by big processing companies as they rationalise their operations in an environment of falling national milk production often puts them at odds with the industry or local communities.
Processors prefer to mothball the unwanted plants rather than sell them to other — often smaller — dairy companies so they do not lose milk to competition.
They are happy to wear the flak from communities concerned about job losses.
Smaller dairy companies are often willing buyers but the larger dairy processors are usually unwilling sellers.
Smaller dairy companies would be willing buyers of Fonterra’s Dennington plant or Murray Goulburn’s Rochester factory.
One industry source, who did not wish to be named, said the sites had intrinsic value continuing as dairy plants.
He said few dairy companies would be interested in continuing to run Fonterra’s ageing eight tonnes an hour spray dryer at Dennington.
“But a lot of people would want the site,” he said.
The source said it cost about $50 million to buy a spray dryer. But it would cost another $50 million in further costs to buy a greenfields factory site for milk powder production, including planning, approval and other costs.
Brownfield sites, such as Dennington and Rochester, can provide savings in terms of shell for new equipment, plus ancillary infrastructure and licensing costs.
The source said, if smaller dairy companies could buy closed sites for $10-$20 million, they were about $30-$40 million in front of where they would be if they had to start from scratch. He said the big companies did not want to sell for competition reasons.
“It’s not just about having smaller companies competing for milk from dairy farmers, but also for supermarket shelf space (for finished retail product),” he said.