Dairy suppliers look to China for future growth

Dairy suppliers look to China for future growth article image

The recent supermarket price war on milk has forced Australian dairy suppliers to look elsewhere for new markets and revenue sources.  

China has become an obvious target.  

Dairy farmers are well-positioned to export to South-East Asia, where demand for milk and other dairy products is set to keep growing.  

In the past five years China has been increasing its intake of dairy products – particularly milk and whey powders used in infant formulas and western-style baked goods.  

As a result, Chinese authorities have cut red tape by reducing customs and quarantine delays, opening the fresh milk market for Australian producers.  

Globally, Australian dairy producers have a reputation for high quality, having avoided incidents like the 2013 botulism disaster (when contaminated whey protein produced in New Zealand was exported to China).  

Earlier this year Canada’s Saputo Inc finalised its acquisition of Warrnambool Cheese and Butter Factory Holdings Limited, Australia’s oldest dairy producer, with the aim of entering the Chinese and South-East Asian markets.  

In April this year Norco Co-operative Limited, with the services of an export consulting firm, was able to reduce export lead times from 19 days to under seven.  

Five-year supply agreement  

Norco successfully shipped an initial 1,000 litres of fresh milk to China, which was priced about $7-$9 per litre.  

In April last year Norco signed a five-year supply agreement with Coles that is expected to lead to higher farmgate prices and further investment into processing facilities. Murray Goulburn Co-operative Co Limited is the largest Australian owned dairy cooperative, and accounts for a sizeable proportion of national milk output.  

Last year the company’s fresh milk revenue was $221.0 million, about 9 percent of total company revenue.  

Like Norco, in April 2013, Murray Goulburn signed a lengthy (10-year) fresh milk supply agreement with Coles.  

Murray Goulburn recently announced further investment in its Victorian and Tasmanian processing facilities to attract new suppliers and raise farmgate prices.  

Growing Asian demand  

In May this year the company announced plans to invest $19 million in its baby formula factory in response to growing Asian demand.  

To support its investment and growth plans, Murray Goulburn has announced plans to raise $500 million through the sale of unit notes in a trust to be listed on the ASX.  

The opening up of the Chinese market delivers a potential reliable revenue source for Australian dairy farmers.  

Increases in farmgate prices to sustainable levels will reduce farmers’ cost pressures and allow them to reinvest in their operations.  


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