Gippsland milk processor Burra Foods is looking to expand its South Gippsland operations.
Chief executive Grant Crothers said the company, formed in 1991, was now undertaking a strategic review of its capital resources, with the aim of seeking additional funding.
“I am hoping that can come with some value add, that may be technology, market access or brands - I have got an open mind,” Mr Crothers said.
“That plays to a bit of a theme of mine, about the role of private equity in dairy, particularly in dairy manufacturing.
“In this market export focussed world, it’s really about the value add and the global investor - the global dairy player - rather than some sort of private equity or financial investment.”
Burra, which has a processing plant in Korumburra, traces its origins back to 1934, with three generations of the Crothers family active in the manufacturing of speciality cheeses, butter, market milk and table cream processing.
More than 150 staff are employed at the company’s Korumburra plant, manufacturing more than 60,000 MT of product, every year.
In 2009, Burra Foods entered into a trading partnership with the Japan based, Itochu Corporation, a global conglomerate listed on the Tokyo stock exchange.
“We are always searching for superior value ingredients, we are an ingredient company, a business-to-business (B2B) firm, for manufacturers around the world,” he said.
Mr Crothers said Burra was moving into nutritional powders, although that sector brought regulatory and manufacturing risks,
“It’s a very complicated product to make,” Mr Crothers said.
“Let’s remember nutritional milk powders have been 15 and 30 per cent milk solids, so its not that much milk, in the white gold, people are referring to.”
He said processors who reached a critical mass where “invariably” dragged back into commodities.
“You can’t help but get sucked into that vortex, the challenge is to produce the amount of milk, which goes into commodities every year. ” Mr Crothers said.
“We look at where the value markets are; dairy manufacturing is a delicate balance of utilisation of components, you have got by-products, so its really about adding value to the whole litre, which is a sophisticated bunch of components.”
But he said he took heart from the Blackmore’s-Bega alliance, which was a “great synergy – they are working on each others strengths.”
He said he didn’t believe the current demand for infant formula, in China, was a bubble.
“It’s sustainable demand and I think we are getting a dividend - this is the dividend from a very, very high quality product and a great logistics system supporting a very honest, robust, well organised industry.
“That produces a word called trust – we are a trusted source of food, which is exactly where we want to be; this is our dividend, so bring it on.”
Mr Crothers said the recent drop in Fonterra’s New Zealand price, to $4.15kg/MS reflected a tough market.
“We have a very full milk price, I’d say, at the moment,” Mr Crothers said.
“I think, last year, the industry paid a somewhat irrational milk price - the real basket of return was lower probably five per cent lower than the milk price, will that happen again this year ?
“It’s looking like it.”
He said Fonterra was reflecting the “real” price of milk.
“You’ve got domestic higher value, in some sectors, and you have your product mix that can add more value – but it’s pretty hard to face headwinds for long and invariably, prices get dragged down by commodities.”
Burra was sitting on $5.60, which was the general industry benchmark.
“The currency is not going what we all wish it would do - it’s trending the right way, it’s threatening to do what we want it to do, but it just won’t do it. Soon its going to be too late,” Mr Crothers said.
“You’ve got soft commodity prices, they are stable but a little bit soft, you have lots of milk in Europe and lots of milk powder, coming out of Europe and a stubbornly high Aussie dollar.
“Now seventy cents is a lot more friendly than $1 or $1.05.
“But its not the 60 or 65, that we were all hoping for.”
