Bega Cheese executive chairman Barry Irvin has fired a warning shot to his rivals, saying Bega will invest up to $25 million to shore up its milk supply in the face of stagnant national milk production and fierce competition for milk.
»Absolutely there is going to be intense competition for milk – and not just in this next period but over the next few years,» Mr Irvin said. »There’s no question, dairy is not a place for the faint-hearted. It has always been our intent to be ahead of the competition.»
Earlier this year, the ASX-listed Bega Cheese and Australia’s biggest dairy exporter Murray Goulburn lost out to Canada’s Saputo in a fierce, $500 million-plus bidding war for Victorian rival Warrnambool Cheese & Butter.
After selling its 18.8 per cent stake in WCB to Saputo, Bega reaped almost $100 million before tax and costs, and the cashed-up company wants to encourage its 500-odd dairy farm suppliers to increase milk production and to win new suppliers from its rivals.
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Global demand for dairy commodities such as milk powders and infant formulas has been surging on growing Asian dairy consumption.
Despite the strength of demand, milk supply in Australia has been flat at about 9 billion litres a year, declining from about 12 billion litres (partly due to drought) more than a decade ago.
»People are seeing business opportunities and there is very strong demand for dairy product out of Australia,» Mr Irvin said. »One of the things the dairy industry has struggled to do is grow. There’s a good market signal for farmers, but it’s been a pretty tough decade.»
Bega Cheese directors and senior management met with dairy farmers in western Victoria on Monday night and met suppliers in Tatura on Tuesday. The NSW dairy group’s top brass will host meetings in Bega on Thursday and Gippsland later this month.
The discussions are aimed at generating feedback on how to deepen ties with farmers and to get longer-term supply agreements in return for helping to finance growth projects for dairy farmers.
Bega collects about 650 million litres of milk a year to process into dairy products including cheese, cream cheese, milk powders and infant formula for the domestic and export markets.
Murray Goulburn collects about 3 billion litres, while Fonterra, Lion and WCB have annual intakes of about 1.8 billion litres, 1 billion litres and 900 million litres respectively.
Fonterra, Murray Goulburn and WCB have all said they will fight to retain their farmer-suppliers and to win farmers from their competitors.
Saputo chief executive Lino Saputo jnr said the company was facing a battle in the market.
But Mr Irvin thinks his rival is ready: »Lino’s been around the dairy industry for a long time and I’m sure he will take all of this with the same level of calmness that we do.»
Source: WaToday