Tide could be turning for milk

Jeremy Bayard, who is the chief executive of the corporate dairy operation, ACE Farming, said there was no doubt the nation’s dairy industry had fought a serious image problem.

Speaking at the Australian Dairy Farm Investment Forum in Melbourne this week, he said stories of droughts, floods, distressed farmers, and falling milk prices, dominated the press.

“City-based fund managers get their news from mainstream media and see stories on the Today Show about how tough the agricultural sector was doing, and it’s not good when you are trying to raise capital,” he said.

But he’s noticed the sentiment changing.

“People have started to focus on the opportunities,” Mr Bayard said.

“There’s a greater acceptance of the dairy industry as an investment destination.”

And while there were a handful of corporate players, such as Warrakirri Dairies operating in the market, he said it would be of enormous benefit if Australia saw the emergence of an additional three to four corporate groups.

“…it would not be so lonely for institutional investors then,” he said. “If we see ongoing growth of established players and the emergence of others, you will find it creates a snowball effect.”

Managing director of investment firm Kidder Williams, David Williams, also spoke at the event.

He said one of the biggest reasons that other agricultural sectors had seen growth in investment was due to scale.

However, this was changing - with large-scale dairy companies like Van Diemens Land reportedly being considered by buyers.

“That’s the sort of thing that does interest people,” he said.

He also hinted at several other large farms being current investment targets.

“We might see some action on those in the near future,” Mr Williams said.

On the other end of the scale, he said smaller institutions and banks had begun to get behind smaller, more efficient farms in a bid to fund their expansion.

“We haven’t seen much to date (in terms of investment), but a lot of things are happening on the bigger and smaller end of market…and that will come to fruition before Christmas,” he said.

One restrictive factor in the investment sector when it came to dairying was finding good farm management.

“Often the best managed ones aren’t for sale,” he said.

And while interest was increasing from foreign investors, Mr Williams said Australia’s view was too narrow – and too much weight was being placed on China.

“You can’t pick up a paper where you don’t see China and dairy in the same sentence. We are over emphasising the importance of China,” Mr Williams said.

He said in the past six to nine months, Canadian dairy giant Saputo had purchased Warrnambool Cheese & Butter, United States’ Chobani had bought up Gippsland Yoghurt, and Peters Ice Cream was snapped up by a European firm.

“We are all talking China, but the investment is coming from everywhere,” he said.

From a processor’s perspective, Murray Goulburn chair Phil Tracy, told the crowd at the investment forum there was no doubt opportunities existed.

While New Zealand had managed to race away from Australia in the past decade, due to factors that were outside of anyone’s control, he said those factors were now swinging back in our favour.

The drought was gone, the dams are now full, and all of a sudden the variables looked positive, he added.

Grant Crothers, who heads up Gippsland’s Burra Foods, also said the stars were aligning.

“It’s a great time to buy assets when the prices are low, interest rate is low, and the currency looks like it’s going in the right direction,” he said.

“The last time we had the same amount of enthusiasm around the industry we were competing against the MIS scheme and now it’s gone…you are not going to get those pumped up prices competing against blue gums.

“And the forward income curve looks attractive.”

Mr Crothers said there had been a contraction in the industry, but the tough times had passed.

“The platform for growth is perfect.”

Chris Griffin, who is a director of the lobby group Australian Dairy Farmers, said one common issue was volatility, but this should not hold farmers back.

“It can be detrimental as far as expanding,” he said.

But there were farmers who had also proved a profit could be made in tough times, and the industry needed to get this message out.

“I don’t focus on the price I receive; I focus on the margin in between,” Mr Griffin said.

“There’s still money to be made if you do it right.”

While some discussion centred on the day centred on whether establishing a national dairy champion - similar to Fonterra in NZ - was an attractive path for Australia, he said this opportunity had gone.

“That won’t happen now. This is a bit left field, but I think it would be nice for some of the companies to get together and do a joint venture in a production plant - tailored to getting the best returns.”

Neil Lane, who heads up Dairy Australia’s farm business capability sector, had some advice for corporate investors: replicate existing, successful family farming businesses by partnering with local expertise, having low overhead costs and thinking long term.

Compared with other agricultural sectors, Mr Lane said dairying offered the best return on grazing land, as well as offering the best balance between risk and reward.

But he said corporate investors were failing to spend up big in Australia largely because the dairy industry was not focusing on selling the case for the sector’s long-term potential and its ability to make a return on assets.

“Then the money will start to flow,” he said.

Meanwhile, Federal Trade Minister Andrew Robb revealed this week the Government was at the pointy end of negotiations in finalising a trade deal with China, but said it had been tough-going.

He said it was important to get a good deal for dairy.