Australia’s Shrinking #Dairy Targets

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Anyone looking to strike a deal in Australia’s red-hot dairy sector may have to look harder for targets, after a string of acquisitions fueled by Asia’s increasing thirst for milk and other products has left few targets on the block.
 
The latest major deal was Italian dairy giant Parmalat PLT.MI -0.24% SpA’s purchase of Western Australia-based dairy and fruit-juice company Harvey Fresh Ltd. for 117 million Australian dollars (US$110 million), announced this month. That followed the completion of Canada’s Saputo Inc. SAP.T 0.00% ‘s acquisition of a majority stake in listed Warrnambool Cheese & Butter Factory Co. WCB.AU 0.00% in January, valuing the company at about A$538 million. Saputo edged out Australia’s Murray Goulburn Co-Operative Co. and Bega Cheese Ltd. BGA.AU -4.14% in a four-month bidding war that highlights the intense interest in the sector.
 
Nine deals were announced in the dairy sector in Australasia in 2013 totaling US$855 million, according to Dealogic data, the highest level since 2007, with four in the fourth quarter alone.
 
Parmalat’s purchase of Harvey Fresh and Saputo’s successful pursuit of Australia’s oldest dairy company underscore the increasing importance of Asia as an export market. More than half of Warrnambool’s products are currently being shipped overseas, mostly to Asia and the Middle East.
 
Demand for milk and other dairy products like cheese and whey are growing at a rapid rate in large markets close to Australia, such as China and Indonesia. The demand for milk powder for infant formula in China is particularly voracious, following a series of food-safety scandals in the country’s dairy industry.
 
«It’s a pretty straightforward play. Australia’s got a green, clean image. For the Asian market, specifically China, that image is a valuable part of the Australian brand,» said Michael Boddington, managing director of Asian Agribusiness Consulting in Beijing.
 
But investors looking for deals in Australian dairy will have to look harder as the big names get snapped up, while those that are still independent are not necessarily up for sale. Investors are likely interested in New South Wales-based Bega Cheese, whose share price has jumped more than 60% since the bidding war for Warrnambool kicked off at the beginning of September. New Zealand’s Fonterra Co-operative Group Ltd. FCG.NZ -0.48% bought a 9% stake in Bega in November. A shareholder cap of 10% on Bega prevents an outright takeover of the company for the time being.
 
Melbourne-based Murray Goulburn, which owns the Devondale brand, is another dairy company that could attract attention. Being a co-operative, which is wholly owned by farmers, shouldn’t preclude it or other co-ops from receiving investment, said Patrick Vizzone, regional head of food and agribusiness, institutional banking, for Asia at National Australia Bank Ltd. NAB.AU -1.27%
 
«Co-ops globally are looking for ways to grow internationally while continuing to service their members,» said Mr. Vizzone. «Fonterra is a good example of a co-op venturing overseas while staying true to its roots. Other co-ops are wondering how they can move overseas and downstream.»
 
With the big players mostly off the market, buyers have already started to look at medium-size dairy companies. William Hui, a Hong Kong businessman, bought Australia’s biggest privately owned dairy processor, Victoria-based United Dairy Power, in February for about A$70 million. And China’s Bright Food Group Co. acquired Mundella Foods, a small cheese and yogurt maker based in Perth in January. NAB said it expects the trend of investment in «niche players» in Australia’s dairy sector to continue.
 
Foreign investor interest in Australia is also heating up at a time when the country is trying to ramp up its dairy production and improve the sector’s competitiveness.
 
«There’s a huge need for capital in our sector,» said Charles McElhone, group manager trade and strategy at Dairy Australia, a national industry group in Melbourne. The recent Australian mining boom led to tightness in the labor market and pushed up the Australian dollar, making costs very expensive especially for anyone exporting products from Australia. «We’ve seen production decline in the past decade, when there has been a huge amount of international growth demand opportunities,» Mr. McElhone added.
 
Other factors have hampered production in Australia’s dairy sector, such as drought, and the Coles-Woolworths supermarket duopoly that has kept domestic milk prices depressed for years.
 
At a time when global demand for dairy products has increased dramatically, Australia’s market share of the global dairy trade has in fact fallen. The country dropped one place to be the world’s 4th largest exporter of dairy products last year, overtaken by the U.S., according to Mr. McElhone. He said that
 
Australia needs about $16 billion of additional investment in farms to recapture some of that market share.
 
Source: WSJ

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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