#Regional revival: How dairy group Longwarry survived the setbacks

Engineer turned dairy entrepreneur Rakesh Aggarwal took the gamble of his life when he bought an abandoned milk powder plant in 2001. Despite the risk, when the opportunity presented itself to go from being a consultant to the dairy industry to being a player, he grabbed the providential teat with both hands.
That impulse paid off. The family-owned Longwarry Food Park, based in the town of Longwarry in the lush dairy region of Gippsland in south-east Victoria, initially focused on manufacturing milk powder. It subsequently added fresh milk, long-life (UHT) milk and cream cheese.
Exports made up 75 per cent of its $75 million sales for 2013. The company exports to 30 countries in Asia, the Middle East and South America. China has been its biggest export market for the past two years. In 2011, it launched its own Gippy brand of fresh milk for the domestic market.
“Running this business gives me a lot of satisfaction. The expansion and growth we’ve achieved is very satisfying,” Aggarwal says.
Longwarry Food Park has been named BRW’s best mid-market business in regional Australia, but not before proving the adage that fortune favours the brave. From the initial refusal of banks to back his venture to a 2012 plant fire that almost devastated the business, a string of events has tested Aggarwal’s resilience and adaptability.
The ambitious plan to resurrect the Longwarry plant – decommissioned by dairy giant Bonlac Foods in 1997 – almost didn’t get off the ground. Unshakable determination and optimism ensured it did.
Aggarwal and his family immigrated to Australia from India in 1992. Much of his experience was in dairy, with expertise in plant optimisation. Soon after arriving, he joined Bonlac, which was bought by New Zealand giant Fonterra in 2003.
 
Spotting potential
By the time Bonlac announced it was selling the century-old Longwarry plant, Aggarwal had started Melbourne engineering consultancy Saurin (named after his sons Saurabh and Rohin), specialising in food and dairy. He was familiar with the plant and although it had been stripped of equipment – what equipment remained was outdated – the engineer saw the plant’s potential and placed a bid.
The banks did not share Aggarwal’s enthusiasm. Every bank he approached knocked him back. Loan assessors saw no potential in the decommissioned plant. Nor did it help matters that Victoria was in the grip of a drought.
There was another consideration: the entrepreneur had no track record. “I had no history. The banks don’t like lending money to people who don’t have experience,” he recalls. “It was a challenge.” Aggarwal raised $100,000 from family and friends, which gave Queensland bank Suncorp the confidence to step in with the – still confidential – balance.
But challenges remained. For a start, Aggarwal was subject to a three-year non-compete clause.
“There was an element of frustration about that because it was costing me money, but I turned a problem into an opportunity,” he says.
Aggarwal used the time, and his skills as an engineer, to redesign the plant and source reconditioned equipment from around the world. He designed a facility that was more efficient, had greater manufacturing capacity and was state-of-the-art in its application of green technology. Among its environmental achievements, Longwarry Food Park has reduced energy use by 30 per cent and reduced water use to less than half the industry standard.
But those attainments were in the future. In the meantime, the latest potential setback needed to be overcome: paying for the milk it needed to start production.
Until now, the only income flowing in was from Saurin and a handful of tenants from the food park that Aggarwal attempted to establish on the 80 hectare site. The food park concept, but not the name, was abandoned.
“I was disappointed but in hindsight that decision made us focus on the dairy business, which probably was not a bad outcome,” he says.
No spilt milk
With the non-compete ban expired and the restored plant ready to roll, but with finances stretched, in 2005, four years after buying the plant, Aggarwal approached local dairy farmers with a proposal to provide milk on credit. He had hoped to sign up 30 farmers, but 38 agreed and a new entrant to Australia’s competitive dairy industry was born. By 2006, in its first full year of milk-powder production, Longwarry Food Park had sales of $17 million.
Aggarwal’s plan was to remain a producer of milk powder – primarily used by food manufacturers and a popular export staple. When annual sales reached $41 million in 2007-08, exports accounted for 90 per cent. Longwarry Food Park was recognised as Australia’s fastest growing business in the 2008 BRWFast 100.
But the close of that milestone year also brought the global financial crisis. A rush of cancelled orders and prices crashing to below 60 per cent pre-GFC levels saw revenue plummet to $32 million. Suncorp again proved Aggarwal’s saviour, providing Longwarry with the credit to trade on.
Aggarwal never lost faith that demand for milk would bounce back, particularly in the powerhouse Asian economy, and that Australia’s “clean and green” reputation as a source of food and fibre placed Longwarry Food Park in the box seat for growth.
“The world’s demand for dairy products, in particular Australian dairy products, has always been strong. It never occurred to us that selling our product would be an issue [beyond the financial crisis],” he says. “In fact, we felt our main challenge would be sourcing enough milk to meet expected demand.”
Even so, changes were afoot to ensure Longwarry Food Park was never again exposed to dramatic shifts in its export markets by diversifying its range of products to strengthen its domestic position.
The architect of that strategy was Saurabh Aggarwal, former investment banker with UBS, who joined the family business in 2008.
ASX an option
The “journey of diversification” that followed transformed Longwarry from being a producer of milk powder, principally for export, to a diversified producer of fresh milk, UHT milk and cream cheese.
Longwarry entered the private-label contract manufacturing market for supermarket home brands, which Rakesh Aggarwal describes as “a big part of the business”. Its Gippy Milk range, introduced as the supermarkets commenced their $1 a litre milk wars, has also proven successful.
Gippy is stocked by Woolworths and Coles supermarkets in Gippsland, South Australia and the Northern Territory.
“We’re very confident about the future. We believe the business will grow 25 per cent to 35 per cent every year over the next three years,” Rakesh Aggarwal says.
Confident predictions for growth contrast to the uncertainty created by the plant fire in February 2012, which left a damages bill of $5 million and shut the plant for seven weeks. At the time, Longwarry was determined to ensure continuity: it bought more milk than it needed from its suppliers, which it on-sold at a loss to competitors, and it arranged with its insurance company to allow employees to work on the cleanup so no jobs were lost.
“We didn’t have a choice; we just had to keep going,” Rakesh Aggarwal says. “The business basically stopped but we are growing again.”
The fire hurt revenue – which fell from $85.7 million in 2011 to $75 million this year. But Longwarry is now gearing for expansion, including introducing new products, and expects to add a new production facility to the warehouse and cool room that have already been constructed on-site.
Saurabh Aggarwal, Longwarry’s general manager, is bullish about “organic opportunities for growth”. He expects the volume of milk it buys from local farmers to increase by 50 per cent to 70 per cent in the next three years.
Saurabh says listing on the stock exchange to fund expected growth is likely within that time frame.
“We have a reputation for excellence, both for the quality of our products and our competitive marketing. Customers come to us looking for a lot more than just milk powder,” Saurabh says.
 
Source: BRW