The reality of course is a bit different. China is a convenient fall guy for other business decisions being made that might not suit the prevailing narrative.
It is also a reality check for a stockmarket that overhyped anything to do with China only to learn it’s a longer-term game: more than a couple of months and singles day.
Yesterday Murray Goulburn confided its proposed partner underpinning a $280 million plant expansion, Mead Johnson, had withdrawn from the deal and you guessed it — China was the reason.
Maybe Mead Johnson had other concerns about Murray Goulburn, which were couched in terms of China as a convenient explanation.
This column has long painted Bellamy’s as a stock worth watching, because it was marketed as a Launceston-based organic milk powder producer when in fact its basic product is imported from Europe (Austria) and New Zealand and is manufactured by Bega in the Victorian town of Tatura.
The organic dairy producer is an import-export agent which outsources its manufacturing and was overhyped in the stockmarket.
That explains why its stock price fell another 4.2 per cent to $6.56 a share.
The question to be asked about Bellamy’s is not what has happened in China to cause it to sink, but what was it doing trading at $11.81 in late October when Bega’s stock price was sinking after itself disclosing China issues.
Maybe the Launceston company could have come up with some more timely disclosures for the market.
Yes, China is changing the rules of the game and the administration is trying to minimise the brands of baby food on sale in a much belated reaction to the milk crisis back in 2008 which saw six kids die, 54,000 hospitalised and 300,000 hurt when baby powder manufactured by several Chinese producers was found to have been laced with industrial compound melamine.
The rules are changing but the demand in China is as strong as ever — it’s just the margins won’t be quite what some had in mind a year or so back.
The dairy industry is facing a reality check, which is long overdue.
Murray Goulburn raised $500m two years ago, in part to invest $280m in a new nutritional plant in Koroit, west of Warrnambool.
Former boss Gary Helou unveiled the Mead Johnson deal in March this year, just a month before he was shown the door amid stockpiles of unused milk powder.
The co-op is still facing class actions and an ACCC investigation over what was said and to whom around this time.
Interim Murray Goulburn chief executive David Mallinson, who is still waiting for chair Phil Tracy to either appoint him full time or anoint a successor, is still confident his team can find new partners in time to get the board to approve the Koroit project next year.
The planned nutritional plant was a key part of Helou’s dream. This would finally move the underperforming co-op into high-value-added exports to Asia.
A deal with Indonesia-based Kalbe Nutritional continues, which means only 5000 tonnes of the 65,000 tonnes produced by the Murray Goulburn land in China.
The rest are sold in Thailand, Indonesia and even New Zealand.
Koroit was to be a step up for Murray Goulburn, incorporating drying plants which could make seven tonnes an hour against four tonnes for its existing dryers. It would take another two years to build the plant.
But without another buyer, the co-op won’t be pressing ahead with the Koroit plant.
The money raised by Murray Goulburn through last year’s stockmarket float is now being applied to debt, which amid its other issues just might be the best thing for the dairy producer today.
Mallinson has said the stock overhang is now sorted so it’s just a matter of trying to keep up his supply base despite having the lowest farm gate price in the market.
All of which is a long way from Helou’s dream and a long way from China.
National policy needed
AGL boss Andy Vesey, EnergyAustralia’s Catherine Tanna and Origin’s Frank Calabria are united in seeking a national energy policy.
The climate policy unveiled by Environment and Energy Minister Josh Frydenberg yesterday is a useful start, so long as it completes the missing link by joining it with a national energy policy.
Alan Finkel, who is preparing a report on energy security due next April, will address this Friday’s COAG leader’s conference before meeting again with energy ministers next week.
In an industry overburdened with regulation, co-ordination at a national level is crucial.
There are now some 85 different government inquiries, rule change conferences and market meetings involving the energy companies, which explains just part of the regulatory burden for the industry.
Vesey noted recently: “The blackout in South Australia in September demonstrated the importance of energy security within our electricity systems. The Australian commitment to cut emissions by 26-28 per cent of 2005 levels by 2030 will effectively result in the entire National Electricity Market having an emissions intensity similar to that of South Australia today, with a much higher penetration of renewable energy.
“It is therefore important that policymakers better integrate energy and climate change policy now to ensure a smooth and orderly transition to a low-emissions, modern, price competitive and reliable electricity system.”
That much is not debatable but it is worth noting out of eight bullet points in Frydenberg’s policy commitment, just one brought the issue back to consumers.
He noted the inquiry would look at “the impact of policies on jobs, investment, trade competitiveness, households and regional Australia”.
Some might have thought that was the starting point in the debate. After all, what consumers are doing, both retail and industrial, has the greatest impact on the success of any climate change policy.
That explains why EnergyAustralia’s Tanna has recently launched a loyalty product for her existing customers called go neutral. Customers of six months or more standing get to enrol in a free offsets program which means their energy is delivered carbon-neutral.
Peabody probe
The ACCC is investigating South 32’s recent proposed $US200m ($269m) purchase of Peabody Energy’s Metropolitan project, including a 16.7 per cent stake in the Port Kembla terminal. The deal, unveiled last month, was the company’s first since being spun out from BHP in May last year. The operations are adjacent to South 32’s own mines in the region. Peabody filed for bankruptcy in April.
Source: TheAustralian
Link: http://www.theaustralian.com.au/business/opinion/john-durie/china-a-convenient-scapegoat-but-milk-problems-go-deeper/news-story/c5dca28613b8c9be4f2ad0e113d9d598
