The company planning to set up a $750million integrated dairy company in south western Victoria and South Australia says it still hopes to go ahead with farm purchases.
Aerem Investments spokeswoman Sarah Browne said the company would not be building a $250m processing plant in Colac West.
“Aerem confirms that it has advised farmers that the full scale integrated project will not be proceeding due to the volatility in global dairy prices and financial markets,” Ms Browne, a strategic communications senior director with FTI Consulting, said.
“However, we continue to look at options to acquire the farms as part of an alternative growth strategy.”
Fairfax Media has been told Aerem no longer has binding agreements to buy the 66 dairy farms.
It was believed the agreements had expired, with farmers being notified of the situation on Monday.
Dairy analysts continued to cast doubt on the scaled back plan, which originally involved buying 66 farms.
The farms were to be put into six clusters, each run by a manager.
In a document produced by consultants KPMG last year - entitled Project Matador - it was proposed the farms would be acquired at a price of $312.8 million and span 18,354 hectares.
Managers had been identified for the Colac, Terang/Cobden, Simpson, Warrnambool, Camperdown and Mt Gambier clusters.
Aerem, an unlisted company set up by Hobart property developer Troy Harper,was now believed to be seeking a capital partner, such as Bega Cheese, or Fonterra.
Kidder-Williams investment banker David Williams has long said the scheme, as initially proposed, would not proceed.
“It sounds like a bid from Casper the friendly ghost,” Mr Williams said.
The deal could not happen without a cornerstone partner that would bring credibility and operational experience.
“The sort of returns arms-length investors want to see are difficult to achieve on small dairy farms, in a market where milk prices might head to NZ pricing, and without an obvious lead operator or sponsor,” Mr Williams said.
While he couldn’t speak for Bega, Mr Williams said he would be surprised if the company diversified in to farming, when the opportunities for it from joint ventures with Blackmores offered so much upside.
“It’s been bad in that it’s given false hope to a lot of farmers, desperate to get out – when in reality there was never much hope at all,” Mr Williams said.
AustralianSuper, QIC Ltd and Lempriere Capital, owner of Cubbie Station, have also been touted among funds believed to be considering the deal.
A possible Chinese State government backer is believed to have dropped out early in the deal.
Mr Williams said Lempriere would be best positioned to pull such a deal off, but it was unlikely they would be involved unless a major cornerstone investor could be sourced.
Lempriere’s Tony McKenna declined to comment.
National Dairy Products acting chief executive Darryl Cardona said it appeared Aerem had finally “put up the white flag.
“They are getting out quietly,” he said.
United Dairyfarmers of Victoria president Adam Jenkins welcomed Aerem’s public announcement.
“It means people can now move on, if there are other programs and investments going on, let’s make it as transparent as possible with timelines which are met,” Mr Jenkins said.
Stakeholders needed to be kept fully informed of any plans.
Burra Foods chief executive Grant Crothers was also critical of the concept.
“I am a doubter as to the commercial viability of an integrated, paddock to plate model,” Mr Crothers said.
“The concept is a little bit misguided and the family farming unit is a very well proven, resilient, reliable production unit, that has created a lot of wealth and a lot of careers, for a lot of people.
“When I see these start-ups conceived, I scratch my head - we are in a commoditised business and a volatile price market.”
He said there would not be enough managers to work for a salary, and bonuses.
“I am struggling to see there is enough depth in the industry to run farms successfully,” he said.
