The potential purchase of Australia’s largest dairy, the Van Dieman’s Land Company (VDL), by a Chinese investor, could spark greater interest from local investors, according to leading analysts.
Although the proposed purchase, by Chinese businessman Lu Xianfeng, still has to go before the Foreign Investment Review Board (FIRB), analysts said it was a positive sign for agricultural investment. The unsuccessful bidder for VDL, TasFoods, has indicated it intends going ahead with plans to set up a value-added dairy business in the state.
Fresh Agenda director Steve Spencer said there was a growing appetite for agriculture, among Australian investors. “The general hype out there over milk powder and nutritional infant products is still running pretty hot and the integrity of the Australian brand is still running pretty hot – it is still pretty strong,” Mr Spencer said.
But he said he did not think it would be through institutional funding, such as from superannuation firms. “That is hard to move, they don’t have it on their radar,” he said. “I don’t think it is in their portfolio DNA – we have a pretty different capital market structure and the returns are quite different from the northern (hemisphere) funds.” He said whilst dairy prices had tumbled, interest in the sector had risen. “Because of the high domestic mix in the Australian dairy sector, the business is largely immune from the volatility of the world markets – not totally immune, but able to smooth it out a bit.”
Dairy Australia trade and industry strategy group manager Charlie McElhone said “there has been a hell of a lot of interest in investment in Australia, generally, pre-and post farm gate, over the last 18 months.”
He said there also appeared to be a trend towards joint investments. Moon Lake had indicated it was interested in partnering with Australian investors and would consider approaches for up to a 40% shareholding in VDL. Mr McElhone said investors were tapping into the Chinese market, particularly when it came to infant formulas and powders. “There is recognition of the story of China and the Australian dairy position, within that – in particular - infant formula,” he said. “But its not just about infant formula, it’s more general than that, and there is an opportunity to leverage off that positioning.”
Rabobank’s Tasmanian manager Greg Bott said investors were starting to see the premium, which could be achieved through promoting the state’s provenance. “People outside of this state – and people overseas more than anyone - recognise the value of the brand, probably more than we recognise it ourselves, and can see a premium in it.”
