November 26, 2019

DAIRY GIANT TO SELL TO CHINA AS ANOTHER MILK PRODUCER FALLS TO THE PANDA

The Chinese company set to buy Australian infant formula manufacturer Bellamy’s Australia is now lined up to acquire Dairy Farmers if the Foreign Investment Review Board (FIRB) gives the tick.

Hong Kong-listed Mengniu, which is 16% controlled by Chinese government-owned COFCO, will pay $600 million to buy Lion’s dairy holdings. This will give them ownership of Dairy Farmers, Pura Milk, Masters; and flavoured milk Farmers Union, Big M and Dairy Farmers and Pura Classic flavoured milk. They will also own juice brands Daily Juice, The Juice Brothers and Berri, along with Yoplait yoghurt, under license.

Lions is a Japanese company, which means none of these companies is Australian-owned and as such it is unlikely the FIRB will oppose the sale. However, despite what the chinks at Mengniu have to say about how great our dairy farmers will have it, the opposite is true. Moreover, this isn’t the first dairy giant to have fallen to an overseas buyer.

Murray Goulburn was once Australia’s largest dairy cooperative. Between 2014-15 it collected 3.6 billion litres of milk from Australian dairy farmers to be processed for domestic and overseas markets. Within the arrangement of this cooperative farmers were guaranteed the best price for their milk.

In 2015, it underwent a restructure and partially listed on the stock exchange. Things were already falling apart. Markets soured forcing them to drop their prices and the once loyal farmers turned to the competition to improve their sale value. Murray Goulburn couldn’t hang on and in 2018 sold out to Canadian dairy giant Saputo.  

This is just another sad story in the dairy industry’s fluctuation of fortunes that culminated in the sector hitting a brick wall; with production outstripping demand and global markets applying the squeeze.

Ironically, much was set to be made of the Chinese market over the past few years and many cockeyed optimist investors prepared for rivers of gold, but that dream never transpired. China chose to protect local producers by altering the import regulations. With the vicissitudes that befell the dairy market farmers who couldn’t get a decent price for their produce, and who were at the mercy of big supermarket chains, they threw in the towel.

It’s quite significant to realise how big the change has been when you consider that in 1980 there were 22,000 dairy farms in Australia compared to fewer than 6,000 today. This exodus of farmers has created a shortfall in production and it would surprise most Australians to know we have gone from producing a glut of milk to importing the white stuff.

Australia has destroyed its manufacturing industry and sent everything offshore and now everything else is on the auction block, the first port of call when anything in business becomes tricky.

The result of course will mean that the decision will lie with the new Chinese owners whether to produce for Australians or flog it to their many times larger domestic market, which, as you know, is a no brainer.

Indeed, one day they will say, ‘They came for our coal, and we said nothing, they came for our cattle farms, and we did nothing… then they came for our milk, and by that time the country was full of Chinese anyway…’

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