#Aussies have been slow to pick up on Asia's growing appetite

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AT yesterday’s bid price of $393 million, Warrnambool Cheese & Butter is an afternoon snack for Canadian dairy conglomerate Saputo, which has long wanted an Australian foothold to supply booming Asian markets.
 
The likely loss of WCB into foreign hands is an all too familiar story in the Australian dairy industry, which for a host of reasons is failing to take advantage of some mind-bogglingly favourable demographic trends in the region. It is also sure to test the Liberal Party’s relationship with the Nationals.
 
And while chief executive Lino Saputo Jr waxed lyrical about the opportunity for his company, it was the Australian Securities Exchange boss, Elmer Funke Kupper, who pulled out the raw data, which is just as relevant to financial services. Addressing a Melbourne business lunch, he said the Asian middle class numbered 525 million in 2009. That figure was expected to mushroom to 1.7 billion by the end of the decade, and then to three billion by 2030.
 
With their increased spending power, the newly affluent have discovered an appetite for dairy. In China, for example, per capita consumption has surged from one litre in 2007 to 8-10 litres.
 
Demand is growing so fast that China, already the world’s largest importer of dairy products, will consume about double its current intake by 2020.
 
New Zealand, principally through its dairy conglomerate Fonterra, has been riding the boom, controlling about 35 per cent of the world dairy trade.
 
The contrast with Australia’s highly fragmented industry could not be more stark. While the farmgate price in the southeast region is tipped to rise in the 2014 financial year, farmer confidence as measured in the National Dairy Farmers Survey has plunged to its lowest level since the survey was introduced almost a decade ago.
 
With average farm cash incomes estimated to have fallen 33 per cent to $95,300, the proportion of farmers intending to invest in their operations dropped from 38 per cent to 28 per cent.
 
It’s a familiar story — a mix of challenging production conditions, rising input costs and a never-ending focus on the price war between the big supermarket chains.
 
The result is that Australia’s annual milk production fell to about 9.3 billion litres in 2013 at the same time as China’s import demand rose 22 per cent.
 
Saputo was very clear about his company’s strategy yesterday. First and foremost, WCB is about the domestic market, with Asia representing the blue sky.
 
Second, Saputo is not about to get sucked into a value-destroying price war.
 
Just like in Canada, where similar competitive forces are at play, the company will differentiate itself on product, packaging and innovation.
 
That all sounds good in principle, but of course it comes down to execution.
 
Murray Goulburn, in the meantime, is cooling its heels, indicating it hadn’t ruled out any of its WCB options.
 
The co-operative’s ambitious chief executive Gary Helou has a lot on his plate, including extraction of $100m in costs by the end of the year and construction of two new milk processing plants costing $120m to service a 10-year milk supply agreement with Coles.
 
Murray Goulburn won’t have forgotten the competition regulator’s red light when a takeover proposal was floated in 2010. Bega has also put in a bid, rejected by the WCB board as inadequate
 
Source: The Australian

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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