Is foreign investment a benefit for dairy?

Lion Dairy, Bellamay's, King Island Cheese all recent targets of acquisition


Do the deeper pockets of foreign-owned - and sometimes sovereign-backed - companies present a better prospect of paying dairy farmers a better price for their milk?


How does a highly export exposed nation like Australia with high wages and a high cost of living compete in manufacturing?

The dairy sector is a good example of a food manufacturing chain limited in its growth potential domestically, but with big potential for export.

Perhaps this is why our dairy companies are being picked off like flies by international buyers - some for the second or third time.

Most dairy in the world is consumed domestically, so some of the buyers (like Canada's Saputo), which also tend to have more established in-roads into potential growth markets than Australian companies have typically had, are constrained in their domestic markets and must look elsewhere for growth opportunities.

In recent years we've watched as Saputo established itself here with its initial take-over of our oldest dairy company Warnnambool Cheese and Butter and then of Australia's largest dairy company, Murray Goulburn, through to its latest acquisition this year of the renowned King Island cheese brand.

The takeover of Tasmania's infant formula company Bellamy's has also gained FIRB approval and the company's shareholders will vote on that offer today. That offer was from Chinese-owned Mengniu Dairy Company, the same company that has got a bid in for the Japanese-owned Lion Dairy and Drinks.

Mengniu is about 20 per cent Chinese government owned, which might help Bellamy's recover a bit of the market access it lost after it upset the Chinese in 2016 and its value dropped from $1.4 billion to just $450 million in early 2017.

Also read: Bellamy's Chinese buyer adds Lion dairy to Aussie portfolio

The general attitude towards foreign buyers in the dairy sector has gradually mellowed, it seems, since Saputo's initial big move a few years ago.

It has been the domestic supermarkets and their cheap milk marketing strategies which have really soured things for Australian dairy farmers.

However, given the state of our dairy production base, due to drought and profit margins, these newer suitors must offer producers a price that will maintain herds, or else be left with stranded assetts.

And perhaps that's the key for success in dairy food manufacturing in Australia?

The companies with the deep pockets, sovereign backing and potentially better access to large markets can buy or invest in our supply chain - so long as the manufacturing and the jobs that go with it are based here.

Also read:ACCC ticks Lion-Saputo cheese deal, but is wary of more mergers


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