Global investors chase SA dairy

SA Dairyfarmers Australia president David Basham said the industry body recently spoke to an investor proposing to inject $500 million into the industry.

He said while meetings were still in the preliminary stage, the case was indicative of industry trends, with interest sparked by the takeover of Warrnambool Cheese and Butter by Canadian company Saputo last year.

Mr Basham said SADA was receiving regular inquiries for domestic and foreign investment, and while China was a major player, the Middle East and other parts of Asia were also vying for a part.

“There has been a constant flow of interest in the past two years even though the world dairy price has softened in the past 12 months,” he said.

Mr Basham said many deals were yet to come to fruition but expected positive results.

“I’m hopeful we’re getting to the point where some of the deals are starting to come together,” he said.

“I know farmers aren’t going to believe it until they see it.

“It is encouraging to see that much interest in the industry, and its long-term interest, not just a quick buck to be made.”

Paradoxically, Mr Basham said the large sums could hinder access for farmers.

“Farmers need smallish, in relative terms, investment, say $1 million or thereabouts,” he said. “Then we’ve got investors talking $500m.

“Industry is working with the government to develop a basic understanding for farmers so we can talk to investors.

“They’re upskilling farmers, giving them the skills to ask the questions they need to ask.”

A recently released report from Rabobank, Magnetic Milk – the Lure of Dairy Investment Down Under, said overseas investors had been particularly interested in securing access to liquid milk and infant formula.

Report co-author and Rabobank senior dairy analyst Michael Harvey said the quest to secure access to a high-quality, safe milk pool had led to the push in Australian investment.

The report said with demand in Asia expected to outstrip local growth capabilities, many Australian and New Zealand dairy exporters were expected to position themselves towards Asia.

“Between 2014 and 2020 we expect China and South East Asia combined to account for almost one-third of the increase in global dairy imports,” Mr Harvey said.

“Many company strategies are heavily focused on capitalising on the growing opportunity presented by dairy demand in Asia.

“For Oceania processors, the strategic desire is often about building extensive distribution networks and local knowledge to tap into key growth export markets.

“Strategic partnerships can help smooth market access and thwart the impost of regulatory trade barriers.”

Mr Harvey said New Zealand was already working to position itself while Australia would need to capitalise on available opportunities to extract the full value of the market.

“Australia must grow its milk pool to fully capitalise on the trade opportunity across Asia,” he said.

Mr Basham is optimistic about the interest in the industry which has a growing global population to feed and more Asian countries following the Chinese example in its interest in dairy products.

“Australia is well-placed and SA needs to be a part of that,” he said.

Deals must factor in milk prices

“It only works if there is sustainable milk prices going forward,” he said.

“There is no point investing if they’re not going hand in hand.”

The third-generation dairyfarmer milks about 220 cows, Jerseys and Holsteins.

Mr Koch said there was potential for growth in the industry but said there was also need for caution.

“We’d like to see the growth of the dairy industry in SA but it’s got to be at a sustainable level and the milk price has got to be part of that,” he said.

Mr Koch said he preferred to keep investments domestic, rather than open up the market to foreign interests.

“Keep the jobs here, keep the money here and sell the product offshore, rather than the other way around,” he said.