THE proposed investments in the dairy industry in Western Victoria by groups including Chinese investors has generated much interest as has the China Free Trade Agreement, which is seen by many dairy politicians as having significant benefits for the industry.
The proposed purchase of a large number of dairy farms to supply two new dairy processing plants targeting the Chinese infant formula market is concerning.
These two proposed milk driers are additional to at least two other proposed driers targeting the same end markets and tapping into the same milk supply in Western Victoria.
For well-known infant formula brands, retail prices are up to 50 per cent higher in China than in Australia driven partly by a Chinese preference for well-known brands which are perceived as (mostly) safer.
As I see around where I live in Melbourne, they have a similar preference for expensive car brands.
As I have spent nearly two years setting up a 500-cow dairy farm and processing plant in central China and a similar time working on other agricultural projects in China across 25 years, I am well aware of the capacity of China to manage dairy cows and produce high quality dairy products.
The melamine fraud was an anomaly, not the norm, driven by a simplistic milk payment system and a food safety system not being implemented properly.
Most Australians would have limited issues with Chinese-based companies investing capital in new businesses building new milk-processing capacity and brands to supply Australian and Chinese markets.
However, this can be achieved without the purchase and complications of managing dairy farms, as evidenced by the development of successful dairy processing and marketing businesses such as Burra Foods, Chobani, ProCal and Aussie Farmers Direct.
The Australian food safety management systems are designed to ensure that the processors can obtain good quality raw milk for processing.
There is no need to own the dairy farms to achieve this.
In fact, Chinese management control of dairy farms here could risk our ‘clean milk’ market image.
In the past 15 years, we have seen corporate dairy farming struggle, largely due to the challenges of management.
Many of these corporates attempt higher input and more complex production systems, which increases risk and requires higher management skills.
Foreign investors will be unlikely to find the right farming strategy initially and it may be that they don’t get it right before their patience runs out.
A recent farm sale in Cobram of a Chinese investment was made because the farm was unable to make a profit as management issues were too challenging.
The New Zealand dairy farmers with excellent knowledge of pasture-based dairy production who have moved to Australia in the past 20 years have found it challenging adapting to the different Victorian climatic conditions.
Although the plan is to retain the former owners of purchased farms on as managers, this will be only a short-term solution as these farmers will no longer be committed and will be challenged by the corporate model.
Buying existing farms to secure a milk supply that is already there is not needed.
One has to wonder if the interest in buying farms is similar to the strong demand for buying houses in the capital cities, which is suspected to be partly driven by a desire to transfer capital to safe havens outside China away from the ‘fox’ hunters.
A focus on developing new dairy farms to increase milk supply is needed if the Victorian industry is to gain significant benefits from increased dairy product exports. Buying existing farms is not the type of investment the Victorian dairy industry needs.
The new Chinese owners of dairy farms in Gippsland have already indicated they would like to bring in Chinese labour to work on their new farms – what does this do for potential employment of young Australians and also implementation of the well-developed food safety processes?
The draft proposal to use the old Glenormiston College as a dairy training centre initially seems attractive but will duplicate the services already provided by the NCDEA/GOTAFE facility based as at DemoDAIRY near Terang and increase the costs to the dairy industry and government.
The industry needs a unified training capacity, not more fragmentation.
It should be of concern to all Australians that the proposed new free trade agreements for both China and the USA contain clauses that will allow foreign companies to sue the Australian government if new laws are introduced that affect the future profitability of these foreign companies (ISDS).
This reduces the ability of the Australian government to introduce new legislation to address emerging issues that the Australian community wants to see addressed.
*Ian Teese has 37 years experience as an agricultural business economist working in the production, processing, marketing and institutions levels of dairy industries in Australia and New Zealand, and developing countries including China, Iran, Indonesia, Rwanda and Uganda. He has 15 years experience in developing, managing and operating his own intensive grazing dairy farm businesses (1600 and 700 cows) in Gippsland.
