Victorian dairy company puts $500 million investment plan on the backburner

A Victorian dairy company is re-assessing its $500 million plan to produce and process its own milk, citing setbacks caused by a global oversupply of product and uncertainty around Chinese import regulations. By Danielle Grindlay
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Camperdown Dairy International last year announced it would build an intensive dairy operation, with 40,000 milking cows, and invest $200 million on large milk driers at a processing site in Camperdown.
The «fully integrated» business model was designed to guarantee buyers, especially in China, traceability of product from paddock to plate.
The plan was to buy at least half a dozen farms and start milking cows by the close of 2015; the Camperdown driers were flagged to be operating by mid-2016.
Chief executive Gavin Evans confirmed the company had only purchased one farm and that all dairy and processing plans had been put on the backburner.
Mr Evans did not rule out the possibility of abandoning plans completely, but stressed the company had long-term confidence in Australian dairy.
«There’s always a possibility but at this stage we’re still very confident that the vertically integrated approach is the right approach for the long term,» he said.
«A time-frame is difficult though, I won’t pretend it’s not; there has been volatility and a lot of change, both in the global market and the domestic market.
«To fully complete the integration, with the spray driers and the farms, we’re talking the best part of $500 million worth of investment.»
Manufacturing success in focus
The company will instead focus on building its manufacturing operation at a site in Braeside, which Mr Evans said had been increasingly profitable since it started exporting to China 12 months ago.
«We’re buying in ingredients from other established dairy players, value-adding those ingredients to create a premium infant formula and other formulated powders in a consumer-ready pack,» he said.
«We’re signing a number of very significant contracts — at the moment I can’t share who they are with, but by the end of this year there’s probably likely to be a position where we can make some announcements about that.
«The reality is that we do not need to invest in milk production and processing of milk into powder because there’s plenty of supply of those products at this point in time.»
Jobs and farm buy-ups on hold
Camperdown Dairy International’s announcement crushes short-term hopes for hundreds of jobs in regional communities across western Victoria and south-east South Australia.
A company representative said the Camperdown factory would have required 150 staff and that a further 80 employees would have been hired to run the intensive dairy farm in Frances.
Dairy farmers looking to sell up will also be hit, with another big player indicating it will not add competition to the property market.
Corangamite Mayor Jo Beard said she was «disappointed» but «not surprised».
«Obviously the impacts within the local industry are pretty tough at the moment,» Ms Beard said.
«We’ve just got to stop, take a breath and figure out what’s going on and make sure people are getting it right — I can certainly understand that and don’t blame the company.
«As a region our industry is our heart and soul so we need to continue to make sure there’s a viable future for everyone to be invested in.»
Mr Evans acknowledged how disappointing the company’s decision would be for communities that were already struggling in the face of milk price cuts for farmers and the flow-on effects.
«A big part of our motivation around the Camperdown processing site and the farm development plan was just that — to put some investment back into the community,» he said.
«We believe that creating a business that targets premium products … is the best way to get rewards back into the country where all the hard work’s done.
«But we also have to balance that with prudent investment decisions.»
Chinese regulation creates uncertainty
Mr Evans said Chinese import regulations continued to evolve, creating uncertainty for Australian companies looking to shape their operations around export opportunities.
While Camperdown Dairy International is confident about its input control, Mr Evans said there were concerns about brand and recipe registration in China.
«[There are also] potentially some limits on the amount of brands each manufacturer can produce,» he said.
«So it’s prudent for us as a business to get a clearer view of that raft of change that’s been touted for the next 12 or 18 months … before we push ahead with the rest of the strategy, to make what are very, very significant investments in the farm part of the portfolio and also the processing part.»
Mr Evans said his company was also working to distance itself from an export suspension imposed on nearby dairy company Camperdown Dairy Company.
The affected company is exporting a completely different product but because its name is so similar, Mr Evans said there was work underway to distance Camperdown Dairy International from the controversy.
«That licensing into the Chinese market is so critical to your business that even the noise that there may be an issue with it can be problematic,» he said.
«It’s unfortunate, you’d prefer it was something we didn’t have to deal with, but it is and we just do it in an open fashion.»
Global dairy crisis ‘a surprise’
Australian dairy farmers are battling to survive an industry-wide crisis, after processors dramatically cut milk prices in response to a global oversupply of milk.
The nation’s biggest processor Murray Goulburn is being investigated by authorities after making retrospective price cuts, demanding back money it had paid suppliers throughout the season.
Murray Goulburn maintains it was unaware of how bad the crisis was and informed shareholders as soon as possible.
Mr Evans said the crisis also came as a shock to Camperdown Dairy International.
«The extent of how it’s played out in the Australian market and probably the length of the trough in the global market around dairy has definitely surprised us,» he said.
«It sort of justifies our strategy of not focussing on commodity-style dairy products.
«We’ve targeted premium value-added products like the infant formula because it’s not nearly as volatile to that global market.»
 
Source: ABC
Link: http://www.abc.net.au/news/2016-09-12/camperdown-dairy-international-milk-price-crisis-china-exports/7831162

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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