Rob Woolley told the Senate inquiry into the diary industry milk was currently procured from Western Europe and New Zealand.
But he said there had been “strong interest” from Victorian and Tasmanian farmers, in converting to organic systems and supplying Bellamy’s.
“People get a bit frustrated because it takes a while to get something like that off the ground because you are not just trying to get one farm, you are trying to move to volume,” Mr Woolley said.
Bellamy’s recently returned from a trading halt, described, by Mr Woolley, as a “bump in the road” with its commercial arrangements.
The company is facing a class action from shareholders, upset with the sharp drop in its price, and a motion to spill its board of directors.
Last month, chief executive Laura McBain was sacked.
Mr Woolley said the company had identified the need for about 10 farms, each with between 300 to 400 cows, to supply it with organic milk.
“To do that, we, or others, would have to invest as they came online to help them get through that period.
“We have been working with other people in the industry to make that happen. We think it is best if we do it with others helping along the line.”
Victorian Greens Senator Janet Rice asked what sort of price Bellamy’s would offer for organic milk.
“Broadly, the farmers can get about 30 per cent higher, but the fact is the organic price is not linked to the conventional price,” Mr Woolley said.
“Stepping back a moment, the best examples are in western Europe where there are some that are linked to the conventional price, so it goes up and down and up and down.”
He said organic farmers suffered when the product was linked to the conventional price, as they had a higher cost base.
“When their price drops below their break-even they are really in big trouble.”
He said Bellamy’s had been operating in China since 2007; “we know enough about China to know that we do not know very much.”
But he said there had been a lot of volatility, underlying the demand, and the company had to deal with – and been exposed to – regularly change in China.
The supply chain had been restructured and Mr Woolley said a more stable regulatory environment should position the company to align better with underlying demand.
We have restructured our supply chain, and with a more stable regulatory environment for our products in China we expect we are going to be very much better positioned in the future in aligning our production with the underlying demand.
“Our investments are being focused on promotion and spending in retail; marketing activities across all the channels; and increasing our people capability to enhance the organic supply chain,” Mr Bellamy said.
“We will be investing in China—in marketing in particular—in the future; looking to build our customer base; and increasing what we see as the lifetime value of our existing customers.
Bellamy’s needed a large volume of milk to make its business worthwhile.
“Even when we were quite small, there was not enough volume to be able to commercially source it,” Mr Woolley said.
“We have only recently become of such a size that we feel we can commit to the supply chain.
“By 'committing', I do not mean investing in factories but investing in contracts with manufacturers, which then flow back to the farmer.’
Farmers would have to make a significant investment, in changing from conventional to organic, and it could take up to three years.
“It is probably going to take longer because the farmers need time to make their minds up,” he said.
Once a decision had been made to convert to organic, farmers needed to know Bellamy’s would be taking the milk, in volumes.
Europe had developed an organic industry from smaller volumes, as their processing capacity was smaller than that in Australia.
Mr Woolley told Independent Tasmanian Senator Jacquie Lambie there was nothing governments could do to remove barriers, to make it easier for Bellamy’s to encourage farmers to produce organic milk.
“The barriers are commercial,” Mr Woolley said.
“I always say that the best area in which government can assist any industry is in investing in, helping and supporting research and development (R&D).
“R&D in this industry is all about assisting farmers to commercially source things like their feed and so on, because it all has to be organic.
“So you are not just talking about the dairy farm; you are talking about the wheat and anything else that they are using; it all has to be organic.”
Mr Woolley said Bellamy’s was also likely to partner with others in the supply chain, including agronomists and veterinarians.
“We would be looking to work with manufacturers and so on, and they are all very keen to do that.
“The beauty of the organic industry, whether it is milk or something else, is that it has a much more stable supply chain so it is a much more stable business and environment to be working in.”
Once it got enough milk from Australia, Bellamy’s would have it processed on the mainland.
“There is not a factory in Tasmania that is accredited and has the necessary equipment to do infant formula,” he said.
“If you look at the ones here, they would have to add probably between $60 million and $150 million, broadly.”
Bellamy’s would not invest in hard assets, like farms and factories, as it believed dairy farming for organics was best in the hands of the farmer-owner, or sharefarmer.
“They will pay much more attention to it. So we would build it off contracts rather than rather than try and buy it.”
Farmers needed to continue to get a good price for milk, while they were in conversion to organic.
“After they have made the decision, they have to change their source of feed and so on if they are feeding out,” Mr Woolley said.
“They have to change the regime for animal health. But after that their main expense, as far as I can see, is making sure that they have a good return for those three years where it is in-conversion milk.”