Canadian dairy processor Saputo has a unique opportunity to play a pivotal role in reforming the Australian dairy industry following its pending takeover of Murray Goulburn, according to a key industry group.
Dairy Connect CEO Shaughn Morgan believes there is need for change particularly in introducing transparency and fairness to contracts between farmers and processors.
“Saputo Australia will have a valuable opportunity to create a new benchmark governing the format and fairness of supply contracts between dairy farmers and processors,” he said.
“Contract transparency is critical as well as ensuring that prices are clear and precise, with a clearly-understood price setting mechanism.
“We also need to remove the current provision in short form contracts allowing processors to arbitrarily scrap contracted prices paid and to claw back a proportion of past payments.”
Morgan said reforming its pro-forma contracts would be a valuable lever in attracting back milk suppliers who began abandoning Murray Goulburn following supplier price cuts in 2016.
“Analysts have predicted Saputo will have to work hard to win the faith of prospective fresh milk suppliers who will be closely watching and assessing the culture of the new enterprise,” he said.
“Any reforms introduced highlighting fairness and transparency will no doubt make their way through the industry nationally in the fullness of time.”
Shaughn Morgan said that the new contracts between farmers and processors must allow the producer to supply milk to other processors.
Murray Goulburn shareholders recently overwhelmingly approved the $1.3 billion sale of the cooperative to Canadian dairy giant Saputo amid some sadness over Murray Goulburn’s demise.
More than 98 per cent of proxies voted in favour of the sale at the shareholders’ meeting in Melbourne early this month.
Murray Goulburn shareholders, who have been extensively briefed on the sale since it was announced in October 2017, appeared resigned to the sale, asking no questions on the resolution.
The a2 Milk Company has entered into an exclusive sales and distribution agreement with Yuhan Corporation (‘Yuhan’) to promote and distribute a2MC’s branded products in South Korea.
A formal ceremony in recognition of the new commercial relationship has been held in Seoul today hosted by Mr. Geoffrey Babidge, Managing Director & CEO of The a2 Milk Company and Lee Junghee CEO and President of Yuhan Corporation.
Yuhan is the leading pharmaceutical company in South Korea, with annual revenue in the order of USD1.4 billion. Yuhan also has capabilities in consumer goods and has established relationships with leading international companies including Kimberley-Clark and Clorox Corporation.
South Korea is an attractive market opportunity for a2MC’s products given high per capita dairy consumption, world-class retailers and a fast-growing e-Commerce channel.
“Yuhan Corporation is a long established, highly credentialed and principled Korean business. We share similar values and ambitions, and with our complimentary capabilities believe that together we can build a meaningful business in Korea,” said Geoffrey Babidge.
The a2 Milk Company product range will be sourced from Australia and New Zealand, with nutritional products produced by our key supply partner, Synlait Milk Limited. Initial sales are expected to commence during the second half of calendar year 2018.
Alongside the expansion into South Korea, a2MC is continuing to broaden its nutritional product portfolio. In addition to new a2 Platinum products recently announced, the company is to shortly introduce a unique and premium a2 Milk powder product blended with New Zealand sourced Mānuka honey.
The storm clouds hanging over the global dairy market are expected to clear in late- 2018, while competition for milk is set to intensify in Australia as the “battle begins”, steering domestic producers towards a profitable 2018/19 season, according to a just- released report.
Australian Dairy – Let the big milk battle begin, by agribusiness banking specialist Rabobank, says the “battle between two global dairy giants looms large on the horizon”, as Saputo’s quest to win back milk supply begins and Fonterra maps out further capacity expansions. While smaller and newer dairy players are set to continue actively recruiting milk to secure their share of the milk pool.
Report author, Rabobank senior dairy analyst Michael Harvey (pictured below) says it will be these competitive pressures for milk supply, which are likely to intensify next season with Saputo’s acquisition of Murray Goulburn, that will translate into higher premiums being passed to farmers and help compensate for the lower commodity price.
“In the global market, while risks loom in the near-term and this is likely to see dairy companies take a conservative approach when opening their prices for the 2018/19 season, the prospects for a gradual tightening in global dairy markets is bright,” he says, “with the timing of the recovery expected to favour Australia by taking place through our seasonal peak in production.”
Mr Harvey says – based on Rabobank’s latest global commodity price forecast (outlined in its recently-released Global Dairy Quarterly) and assuming a spot currency rate of USD0.77 – the bank forecasts the global market to deliver a base farmgate milk price of AUD5.40/kgMS in 2018/19 – down slightly from AUD5.60/kgMS.
“However greater competition for milk is likely to bring higher value-add payments to Australian producers – and above those evident this season – with Rabobank forecasting an annual average farmgate range across southern Australia of AUD5.40kgMS to AUD5.90/kgMS in 2018/19,” he says.
“While the southern Australian export industry often beats the commodity market, it is not always the case. But looking to the past 10 years, the average premium between the base commodity milk price and average Victorian farmgate prices has been around AUD0.40kg/MS.”
Looking for momentum in milk growth
The Rabobank report says the Australian dairy sector made positive strides during the 2017/18 season, but a multi-stage recovery is required for a true resurgence.
“Looking to 2018/19, while the industry has a structurally lower dairy herd, there are enough of the key ingredients in place to support milk production growth for a second consecutive season,” Mr Harvey says.
Rabobank is forecasting domestic milk production to increase by 2.7 per cent in 2018/19 to deliver an additional 170 million litres of milk to the market. This follows the 3.2 per cent increase (or additional 390 million litres) in 2017/18.
“A well-timed autumn break will be vital to setting up the season,” he says, “with increased purchased feed costs and lower cull cow prices expected to place some pressure on margins.”
For Australian dairy farmers preparing for the new season, Mr Harvey says, there will be a need to budget for these higher feed costs, but also factor in the cash flow implications of a conservative opening price and lower non-milk income.
“The reality is that 2018/19 may be characterised as another season of consolidation due to looming market pressure, however margins are on track to remain above breakeven,” he says.
Big battle for milk looms
Given the increase in Australian milk supply and the gradual repositioning of the milk pool, the report says a “big battle for milk looms” between processors, to retain producers next season and to be in a position to grow their milk supply in the longer term.
“At the frontline of this battle are the two large international companies butting heads over milk supply,” Mr Harvey says, “as Saputo looks to win back milk supply and Fonterra maps out capacity expansions.
“The Saputo acquisition of Murray Goulburn, pending approval by the Foreign Investment Review Board, is set to fundamentally transform the ownership of the milk supply chain.”
With the Murray Goulburn asset footprint having an excess capacity of more than one billion litres, Mr Harvey says, Saputo will be looking to win back that lost milk supply.
“And then you have a number of dairy companies that have already taken up the lost milk from Murray Goulburn and they will be determined to retain their recently-acquired milk suppliers,” he says.
Mr Harvey says over the next two years, Australia’s dairy processing capacity is likely to increase further, with an estimated 900 million litres of capacity to be built over that time.
“This comes off the back of one billion litres of commercially-viable processing capacity coming on board in the past two seasons.”
In light of the increased processing capacity, Mr Harvey says, Australia’s dairy sector needs to ensure sustained milk supply growth continues.
“Without a growing milk pool, the industry risks carrying too much surplus processing capacity, fuelling manufacturing inefficiencies,” he says, “with the margin pressure just ‘pin balling’ from one processor to the next.
“And this is a looming risk for the sector because if it faces another sustained period of aggressive milk pricing, it could potentially transform into an unsustainable squeeze on processors margins and profitability.”
Mr Harvey says there is no doubt that trust between farmers and dairy processors has been damaged and a rebuild remains a ‘work in progress’. “Where there is a lack of trust, there will likely be a lack of loyalty and the threat of milk supply losses through supplier churn each season,” he says.
“So it is in everyone’s interests for the Australian supply chain to have a globally competitive cost base.
“It will be fascinating to see who emerges as the new price leader, but there is no doubt an improved mechanism for price discovery is needed to ensure sustainable returns throughout the sector. And this is likely to give processors renewed impetus to offer innovative tools, services and support to milk suppliers to facilitate future milk supply growth.”
Australian dairy advocacy group Dairy Connect is urging industry stakeholders to support a new public consultation initiative by global dairy agency the Dairy Sustainability Framework.
Dairy Connect CEO Shaughn Morgan said today the DSF played a critical worldwide role in fostering and informing sustainable production of peak nutrition dairy products.
The DSF had reached a growth point calling for public consultation on reporting guidelines for six high level indicator metrics. It had arrived at this point through a collaborative process with the University of Arkansas taking members through a structured development process.
Drafts of industry indicators and reporting guidelines were subject to extensive consultation with members, by which DSF received valuable feedback to develop industry indicators to the point they were ready for public consultation.
Dairy Connect said that now that the consultation was open to external stakeholders they should take part in the consultation exercise and share it among their networks.
The guidelines and the comments and questions section for external stakeholder consultation can be accessed at www.dsfglobalcriteria.org.
Public consultation will remain open until midnight on 30 March, at which point DSF would start to review the comments and make changes based on industry feedback.
he DSF focuses on 11 key sustainability criteria, identified as relevant to the dairy sector globally. The framework outlines the high level strategic Intent that the dairy sector commits to working towards for each of the key categories of interest.
The DSF encourages individual groups, regions or organisations to develop different initiatives and programs on a local basis that work towards addressing the criteria and strategic intents of the framework.
Each Global Criteria will have a high-level indicator established on which the DSF will report on an aggregated basis for the global dairy value chain.
The ACCC says its concerns around the proposed acquisition of the assets of Murray Goulburn by Saputo are solely in relation to Murray Goulburn’s Koroit dairy plant in western Victoria, in particular the impact the acquisition will have on competition for farmers’ milk in the area.
The ACCC outlined its concerns in a Statement of Issues paper today and is seeking responses from interested parties by 13 March.
The ACCC says Saputo’s Allansford plant and Murray Goulburn’s Koroit plant would have over two thirds of the raw milk processing capacity in the south-west Victoria / south-east South Australia region. The two plants currently acquire the majority of raw milk from dairy farmers in the area.
“While Saputo is proposing to acquire most of the Murray Goulburn business, our only concern is in relation to Murray Goulburn’s Koroit plant,” ACCC Chairman Rod Sims said.
“Our view is that Saputo owning the Koroit plant would substantially lessen competition for the acquisition of dairy farmers’ raw milk in the region.”
Fonterra is the only other major competitor with a processing plant in the region. The ACCC’s concerns are that Saputo and Fonterra would be more likely to offer lower prices if Saputo acquired Koroit, and that there would be very limited alternatives for many farmers.
“When Murray Goulburn dropped its prices in 2015–16, Fonterra was quick to follow. Our analysis has shown that many farmers switched to Saputo in response, the only other major processor nearby,” Mr Sims said.
“We are concerned this transaction would ultimately lead to lower prices being paid to dairy farmers in the region.”
The ACCC says during its extensive consultations with farmers in the area, it heard from dairy farmers who just want the Saputo transaction to proceed.
“We understand Murray Goulburn faces an uncertain future, and that many farmers just want certainty after a tumultuous few years,” Mr Sims said.
“However, if the acquisition of Koroit by Saputo proceeds, our view is that dairy farmers in the region will be worse off and face lower raw milk prices in the longer run. It’s important to preserve competition in these markets so dairy farmers get a price for their product determined by healthy competition.”
“The ACCC considers that Koroit would remain in the market, continue to operate, and would likely be acquired by another business if the Saputo acquisition does not proceed,” Mr Sims said.
There are unlikely to be competition concerns in other regions where there is currently no overlap between Murray Goulburn plants and Saputo plants, or in downstream dairy product markets, such as fresh milk, butter, cheese and cream.
While concerns were expressed by industry participants in relation to bulk cream, the ACCC considered that those concerns arose primarily from a recent decrease in bulk cream production overall rather than any potential impact on competition from the proposed acquisition.
The ACCC invites further submissions from interested parties in response to the Statement of Issues by 13 March. The ACCC’s final decision is due on 29 March.
The A2 Milk Company has entered comprehensive strategic relationship with dairy giant Fonterra encompassing a range of supply, distribution, sales and marketing arrangements in targeted markets.
This is a significant development for a2MC given the wide-ranging nature of the relationship. The arrangements expand a2MC’s ability to build its business in new priority markets and beyond, provide exciting growth initiatives in new A1 protein free products and enable consumers to obtain new and innovative milk products.
The initial scope of the relationship incorporates the following elements:
Nutritional Products Manufacturing and Supply Agreement (NPMSA)
The companies have entered into an NPMSA under which Fonterra will exclusively supply A1 protein free milk products in both bulk powder form and consumer packaged form to a2MC.
Within this agreement, Fonterra has been granted exclusive supply rights for certain nutritional products destined for sale in certain a2MC new priority markets in South East Asia and the Middle East up to a specified volume. In return for these rights, a2MC has become a strategic customer of Fonterra with allocation of production capacity
as volume grows and competitive commercial terms. The products will be manufactured at Fonterra’s Darnum facility in Victoria, Australia, and packaged into consumer packaged form at Fonterra’s facility in Hamilton, New Zealand. To support the agreement, a new A1 protein free milk pool will be developed in Australia in conjunction with a2MC.
New Zealand Fresh Milk Licence
Fonterra has entered into an exclusive licensing agreement for the production, distribution, sale and marketing of a2 Milk branded fresh milk for end sale in the New Zealand market. As part of the New Zealand fresh milk licence, Fonterra will with support from a2MC, establish an A1 protein free milk pool in New Zealand.
a2MC will provide Fonterra with access to a2MC’s systems and know-how relating to the sourcing, processing and marketing of a2 Milk. Fonterra will leverage its substantial capabilities in the New Zealand milk market to establish distribution across the country.
Distribution and Sales Arrangements
As an extension of the NPMSA, the companies will seek to establish distribution and sales arrangements where Fonterra has resources and execution capability to assist a2MC’s market entry strategies in the new priority markets. The services may relate to any of importation, registration, warehousing and sales and distribution.
Exclusive period to explore a2MC branded butter and cheese, and China sourced liquid milk
This includes evaluating and, if appropriate, negotiating commercial arrangements for the sale of certain new a2MC branded A1 protein free products in Australia, New Zealand and China. These arrangements relate to traditional dairy products not presently marketed by a2MC, including butter and cheese, as opposed to nutritional products, and would be complementary to Fonterra’s dairy products portfolio in the specified markets.
Packaging facility to be explored
Given a2MC is now considering investment in blending and canning capabilities, a2MC and Fonterra have also agreed to explore the potential establishment of a jointly-owned facility as an extension of the arrangements under the NPMSA and to cater for growth.
Development of A1 protein free milk pool
To support these agreements, Fonterra in conjunction with a2MC will progressively develop an A1 protein free milk pool in New Zealand and Australia. This is for the purposes of manufacturing and supplying products to a2MC under these strategic arrangements. It is intended that these milk pools will significantly grow over time to service the agreement.
Murray Goulburn has experienced a 30 per cent drop in milk intake, as it waits for its sale to Canadian dairy giant Saputo to be approved.
On top of that, the dairy co-operative posted a $1.1 billion fall in revenue and an after tax loss of $27.5 million for the period.
MG said in a statement that successful completion of the of the sale is expected to result in a favourable outcome for stakeholders, including ensuring value for shareholders and unit holders and a competitive milk price and milk collection commitment for suppliers.
“The first half of this financial year has continued to be challenging for MG. The inability to pay a competitive milk price has resulted in a substantial loss of milk. While management initiatives continue to address the cost base and commercial performance, the business remains exposed to competitive pressures and future refinancing requirements,” said MG’s Chief Executive Officer, Ari Mervis.
The sale is subject to approval by an ordinary resolution of MG’s voting shareholders at a MG shareholders’ meeting, as well as by the ACCC and the Foreign Investment Review Board and completion of other customary conditions. It is expected to close in the first half of this year.
Responding to the Australian Competition and Consumer Commission’s (ACCC) interim dairy industry review, advocacy group Dairy Connect has called for simplified, single document contracts between dairy processors and producers.
The ACCC invited responses from industry stakeholders and the community following the release of the regulator’s interim findings on changes needed in dairy industry relationships and behaviours late last year.
Dairy Connect CEO Shaughn Morgan said the organisation had responded to the eight strong recommendations from the ACCC that were contained in their interim report.
He said that it was critical that industry now embraced changes designed to underpin and grow dairy’s contribution to regional economies and to the national economy.
“We submitted that this was a ‘once in a generation’ opportunity for positive collective change to occur,” he said.
Dairy Connect Farmers Group President, Graham Forbes said the dairy industry has been under sustained pressure during the past 10 years and it is evident that systemic and fundamental change was required to underpin dairy’s future.
“In the submission, we supported the development of a commodity milk price index, a federal government initiative announced last year by the Deputy Prime Minister Barnaby Joyce and which is currently awaiting further development, this should be progressed without delay” Forbes said.
“We strongly indicated that mechanisms that will help producers make informed decisions regarding farm-gate pricing should be strongly supported by industry players and governments.”
The Dairy Connect submission recommended to the ACCC that processor / supplier contracts should not prevent suppliers from switching processors to optimise farm-gate income.
Other recommendations included independent dispute mediation; full consideration by farmers of contracts they plan to enter; and processors should make available improved price information.
Dairy Connect argued that while the existing voluntary code of conduct should be strengthened in the short term, the ACCC should ‘seriously consider’ a mandatory code of conduct governing processor / supplier relationships and behaviours.
Shaughn Morgan said the dairy industry has been under sustained pressure during the past years and it is evident that systemic and fundamental change was required to underpin dairy’s future.
“Over the years, there have been many reviews of the dairy industry, but the current ACCC activity can work as a mechanism to provide guidance and direction as well as providing an opportunity for stakeholders to embrace change,” he said.
“Failure to change may result in the decline of the dairy industry’s importance to Australia’s regional and national economies.”
Dairy processor Murray Goulburn has sold of its Edith Creek facility in Tasmania to Dutch Mill, a local subsidiary of Dutch Mill group of Thailand, a privately held processor and marketer of milk and milk products throughout Asia.
The transaction includes the Edith Creek land and all assets associated with the site. The transaction will not alter MG’s previously announced closure of the site on 30 November 2017 which will still proceed. Completion of the sale transaction is expected in early 2018.
“We thank Edith Creek employees for their significant contribution to MG. The decision to close this processing site was difficult to make, however a necessary step on the journey to ensure the competitiveness of MG. We congratulate Dutch Mill on their acquisition of Edith Creek, and wish them well for the future,” said MG’s Chief Executive Officer, Ari Mervis.
A mood of cautious optimism is creeping through the dairy industry in the run-up to Christmas, according to Shaughn Morgan, CEO of advocacy group Dairy Connect.
“It’s taken around 18 months for producers to begin to recover from the price cut shocks delivered by the Murray Goulburn Co-operative and by Fonterra in April 2016 but there is still a way to go,” he said
“Moving around the dairy valleys talking to producers, it is clear to me that they have begun to form a new sense of quiet confidence in the future.
“The reasons for this include the Saputo bid for Murray Goulburn and a sense MG may be in the capable hands of a successful Canadian family-owned international enterprise in the future.
“Producers have been pleased with that they have seen happening under Saputo at Warrnambool Cheese and Butter and they are getting a sense of the big picture across the sector beyond 2018.”
Saputo director Lino Saputo Jr told ABC Rural the strategy for MG post-takeover was to get Murray Goulburn to get back to processing 2.5 billion litres of fresh drinking milk.
The company planned to get Murray Goulburn’s seven processing plants back to capacity and operating efficiently again but this was governed by shrinking milk availability in the regions.
“We are taking on this business with a little bit of risk but over the past 20 years we’ve made 27 acquisitions”, he said.
Warrnambool Cheese and Butter supplier Russ Roberts said in a Facebook post recently:
“The WCB experience has been positive; the company has good ethics; and my personal experience with the company as a contractor has been positive; the Australian dairy industry could do a whole lot worse.”
Meanwhile the Australian Securities and Investments commission has handed down the outcome of its review into Murray Goulburn’s behaviour in March and April 2016.
ASIC said it had started Federal Court proceedings against MG alleging that from March 22 to April 27 last year, the co-op had failed to notify the ASX it was unlikely to achieve trading forecasts it had made in February.
Murray Goulburn has said it had reached a $650,000 settlement with ASIC over its behaviour last year in the lead-up to a profit downgrade and cut in milk prices paid to farmers.
“We still have many issues to address over the coming months, including the completion of the sale of Murray Goulburn; the review of the interim report of the ACCC into the dairy industry, prior to the final report next year; ensuring appropriate use of the term ‘milk’; an appropriate Code that addresses the concerns of producers and processors thus ensuring transparency, openness and restoring trust within the industry”, Shaughn concluded.
Saputo Dairy Australia, the local arm of the Canadian dairy giant has made a deal to buy the troubled Australian co-operative Murray Goulburn for $1.3 billion.
The transaction is subject to approval by an ordinary resolution of MG’s voting shareholders at a MG shareholders’ meeting, as well as by the ACCC and the Foreign Investment Review Board and completion of other customary conditions. It is expected to close in the first half of calendar year 2018.
A statement by Saputo said that the acquistion reinforces its commitment to strengthen its presence in the Australian market; and that the company intends to continue to invest in its Australian platform and contribute to the ongoing development of its domestic and international business.
“The Board believes that the Transaction represents the best available outcome for our suppliers and our investors. Saputo is one of the top ten dairy processors in the world and active in Australia through its ownership of Warrnambool Cheese & Butter (WCB). This transaction will crystallise real value for MG’s equity, whilst rewarding our loyal suppliers through the milk supply commitments,” said MG’s Chairman John Spark in a statement.
“MG has reached a position where, as an independent company, its debt was simply too high given the significant milk loss. Securing a sustainable future for MG’s loyal suppliers is of paramount importance to the Board. We are pleased with the strong milk commitments secured as part of Saputo’s offer to reward this loyalty. Saputo has demonstrated itself to be a credible and trusted partner for Australian dairy farmers through its investment in WCB. The Transaction has the unanimous support of the MG Board.”
Murray Goulburn will sack 60 workers in response to the reduction in milk supply and its milk collection needs.
The dairy co-operative said in a statement the workers affected will be tanker drivers and others in support roles from Koroit, Leongatha, Maffra and Rochester.
The statement added that to minimise the impacts on employees, it will first seek to make changes to rosters and offer voluntary redundancies.
“These actions are regrettable but necessary to ensure a strong MG that can deliver sustainable and competitive returns for our suppliers,” the statement read.
The announcement comes as rival dairy manufacturers consider offering bids for the beleaguered Murray Goulburn. Today is the cut-off day for bids and it is expected that a short list will be drawn up from those bids.
Bidders include New Zealand dairy giant Fonterra as well as European and Asian dairy companies.
Global dairy markets remain buoyant, however concrete signs of sustained supply growth from major exporters suggest global prices have peaked in the current cycle, according to Rabobank’s latest Global Dairy Quarterly.
The report says while milk production across the export regions is revving up, and the pace will accelerate in the coming months, rejuvenated import-purchasing from Chinese buyers should prevent the market from being overwhelmed in coming months.
“Higher farmgate milk prices in most export regions has been the catalyst for a supply-side response, so we are again seeing the export engine produce more milk,” said Rabobank senior dairy analyst Michael Harvey.
Harvey says while the Oceania spring peak looms large, and Australia and New Zealand are on-track to increase production, China is expected to absorb much of this increase as an active buyer – at least in the short-term.
“Chinese buyers have been increasingly active in recent months as their domestic milk production fails to keep up with demand,” he said, “and this is a trend that is expected to continue into 2018 – albeit, at a lower rate.”
The record price spread between dairy fat and protein is also set to remain a key feature of the global dairy complex in coming months, he said.
“The Oceania spring flush is unlikely to provide the solution to the global fat shortage,” he says, “given that other product streams remain a priority.
“As such, we don’t see much downside pressure on global dairy prices until early 2018, when the Northern Hemisphere ramps up their milk supply.”
For Australia: Australian milk production is forecast to increase in 2017/18 by a modest 2.5 per cent, as local farmers continue to rebuild herds. With milk production set to expand at a pace above local consumption growth rates, Australia’s exportable surplus (particularly of butter and cheese) is expected to increase throughout the season.
Given the strength in global commodity markets, Rabobank has revised up its forecast for Australian full-year milk prices in the southern export regions to between AUD5.70/kgMS and AUD6.10kg/MS.
Synlait has received registration which will allow exports of A2 Milk’s China label infant formula to China to continue.
All manufacturers of infant formula are required to register brands and recipes with the China Food and Drug Administration (CFDA) in order to import products into China, through traditional import channels, from 1 January 2018.
Synlait submitted the dossier application to the CFDA for the registration of The a2 Milk Company’s infant formula in May 2017.
The rigorous process included raw materials and finished products testing, certification of manufacturing standards and formulation assessment, as well as packaging changes in response to labelling and branding requirements.
“We view this registration as another milestone in our long-term partnership with The a2 Milk Company. Synlait teams in New Zealand and China compiled a significant dossier to ensure our application was in line with CFDA requirements,” said John Penno, Synlait’s Managing Director and CEO.
“Having successfully navigated the process, in conjunction with The a2 Milk Company, we are now in a stronger position for future applications of other Synlait customers,” adds Mr Penno.
Geoffrey Babidge, Managing Director and CEO of The a2 Milk Company, said: “Our flexible multi-channel infant formula strategy in both China label products (offline and online) and cross-border English label products (online) has positioned The a2 Milk Company well in the context of the current regulatory requirements.”
“We look forward to the continued expansion of our business in China following this announcement.”
Synlait and The a2 Milk Company’s commercial relationship began in 2010 with a goal to manufacture the world’s first infant formula made from milk containing only the A2 beta-casein protein type, and free from the A1 protein type.
The a2 Milk Company worked closely with Synlait and their Canterbury milk suppliers to introduce and manage A1 protein-free herds, while simultaneously building a manufacturing process capable of exclusively streaming that milk into finished infant formula.
Following the rapid growth and sustained success of The a2 Milk Company’s infant formula in the Asia Pacific region, Synlait and The a2 Milk Company announced a new supply agreement for a minimum term of five years in August 2016.
More recently, The a2 Milk Company acquired an 8.2% shareholding in Synlait in March 2017 to further strengthen the relationship between the two organisations.
Dairy Co-Operative Fonterra has announced net profit after tax for 2016/17 was NZ$745m ($687m), a drop of 11 per cent.
Despite the drop, the company also announced an increase in the amount it pays farmers. It confirmed a final Cash Payout of NZ$6.52 for the 2016/2017 season for a 100 pet cent share-backed farmer. This is made up of a Farmgate Milk Price of NZ$6.12 per kgMS and a dividend of 40 cents per share.
Revenue increased by 12 per cent to NZ$19.2 billion, with rising prices offsetting a 3 per cent decline in volumes at 22.9 billion LME. Normalised EBIT of NZ$1.2 billion was down 15 per cent as a result of reduced margins across the business which also influenced net profit after tax, down 11 Per cent at NZ$745 million.
Chairman John Wilson said the Co-operative’s ability to maintain its forecast dividend despite the Milk Price increasing by 57 per cent over the year and the impact of negative stream returns was an excellent result.
“We will always need to manage variability across our Co-operative – both in global markets and in our local farming conditions. We’ve demonstrated our ability to deal with those conditions and deliver on our strategy again this year,” said Wilson.
The A2 Milk Company’s full-year net profit has risen by 198 per cent to $NZ90.6m ($A83.4m), boosted by increased sales of infant formula mainly in China.
Infant formula generated 72 per cent of the company’s total revenue for the year – up from 61 per cent in the 2016 financial year.
The company is clearly focused on sustainable growth of a2 Platinum infant formula through significant investment in product supply and quality, building brand awareness and strength, and meeting the requirements of China’s regulatory regime.
In Australia, a2 Milk branded fresh milk achieved further growth in sales, while a2 Milk branded whole milk powder, introduced in the previous year, showed strong growth.
Continuing earnings momentum has led to a further strong increase in the cash position. Net operating cash flow for the year was $99.9 million, compared with $21.5 million in the pcp and in particular benefited from lower than targeted infant formula inventory due to strong demand.
The closing cash on hand of $121.0 million was after an investment of $48.7 million in shares in Synlait Milk Limited.
“The Company’s continued growth reflects increasing consumer acceptance of the a2 brand and the benefits of dairy-based products free from the A1 beta casein protein type,” Managing Director Geoffrey Babidge said in a statement.
“We have continued to support and expand our brand proposition through effective marketing and promotional activities in each of our markets. Our support for relevant scientific research and continued investment in intellectual property are also key aspects of this strategy.
Fonterra, Australia’s largest exporter of dairy products, officially opened its rebuilt Stanhope Facility today.
Minister for Agriculture and Regional Development Jaala Pulford officially opened Fonterra’s rebuilt and expanded facility, which has helped retain 120 jobs and create an additional 30 jobs.
Throughout the 18 month building and commissioning phase of the project, over 200 contractors worked to build the new plant.
The project included demolition and rebuilding of the fire damaged hard cheese room and installing modern processing equipment to increase production of a range of cheeses.
In addition, a modern mozzarella manufacturing facility was installed and a whey production and processing has been reinstated.
In December 2014, the existing cheese production facility at Stanhope was destroyed by a major fire at the plant.
The new facility has increased cheese production by 50 per cent each year on the previous plant, and will make hard cheeses such as cheddar and mozzarella for the domestic and export markets.
Nearly three-quarters of the 2 billion litres of milk processed by Fonterra each year is supplied by 1000 Victorian farms.
“We’ve worked closely with Fonterra Australia to facilitate the investment in rebuilding, modernising and expanding their Stanhope facility,” said Minister for Agriculture and Regional Development Jaala Pulford.
“Fonterra will be making cheese right here in Stanhope, in the heart of Victoria’s dairy country, and sending it around Australia and to the world.”
Advocacy group Dairy Connect has thrown its weight behind the findings of the Senate Standing Committees on Economics inquiry into the Dairy Industry presented in Parliament tonight.
A total of 12 recommendations arising from the far-reaching review were tabled as part of the Senate package.
CEO Shaughn Morgan said today the Senate recommendations were largely in line with a written Dairy Connect submission provided last November and face-to-face evidence given to the to the review by Graham Forbes, President, Dairy Connect Farmers Group in Brisbane earlier this year.
The Senate inquiry into the Australian dairy industry began following dramatic cuts to farm gate milk prices by processors Murray Goulburn Co-Op and Fonterra.
The subsequent clawback of money previously paid to farmers gave rise to a strident debate about contractual fairness in the industry.
The Senate review has been running parallel to a second inquiry being undertaken by the Australian Competition and Consumer Commission which is due to hand its report to the Federal Treasurer in November.
Recommendations from the Senate review today included asking the ACCC to reflect on how effectively the recently released Australian Dairy Industry Council’s voluntary Dairy Industry Code of Practice would address power imbalances between milk producers and milk processors.
“The Senate Committee also asked that the ACCC consider how collective bargaining by dairy farmers could be strengthened,” Shaughn Morgan said.
“The Senate report has also recommended that any review of the voluntary Code for contractual relationships be conducted independently.”
“Further the report puts forward that industry organisations should team up with retailers to develop an ‘education campaign’ to promote awareness of the industry value chain so consumers were empowered to make more informed purchase decisions.”
Shaughn Morgan said careful consideration should also be given to the Senate recommendation that dairy processors set opening milk prices ‘conservatively’.
“This may help avoid the damaging price step-downs by Murray Goulburn and Fonterra that impacted dramatically on family farmers and entire regional & rural communities during the past 15 months,” he said.
“Importantly, it was recommended that the ACCC address the challenge of unfair contract terms and advise whether short form milk supply contracts fell within the scope of the law relating to unfair contract terms.
“We support the recommendation that the government prioritise action to slash red tape for cooperatives and establish programs to facilitate the establishment of new cooperatives.
Dairy Connect remains supportive of the important and vital role that Dairy Australia provides to the dairy sector in RD&E.
Senators Jacqui Lamble and Nick Xenophon co-sponsored the motion to form the Senate Economics References Committee inquiry, with the support of the Government and Opposition, in October last year in response to the cuts made by Murray Goulburn and Fonterra to farm gate milk prices in April.
The Victorian Government is supporting retrenched dairy workers in the Indigo and Campaspe Shires affected by Murray Goulburn’s down-sizing.
Following recent discussions with impacted workers, Minister for Agriculture and Regional Development Jaala Pulford has announced $50,000 for each council to undertake community economic development planning.
The Government will also allocate $80,000 to allow the Victorian Planning Authority to develop a structure plan for the township of Tangambalanga.
The plan will be developed in close partnership with the community and will set out a clear direction for growth and development, boosting local job prospects and the economy.
The planning will identify priority actions to help manage the economic impacts of the facility closures, and develop investment attraction strategies to grow the local economy.
The Government will also extend the Rural Skills Connect Program by 12 months in the Murray Dairy region to support the community working groups of Tangambalanga (Kiewa) and Rochester.
These measures are a direct response to requests from the Indigo and Campaspe Shires, who are suffering from the staged closures of the Murray Goulburn manufacturing factories.
In addition to initiatives announced today, the Labor Government continues to support impacted dairy workers with its comprehensive $18 million dairy support package with industry.
Quotes attributable to Minister for Agriculture and Regional Development Jaala Pulford
“We know that workers and their families are facing challenging times and we will support these dairy communities right across the supply chain,” said Pulford.
“We’re doing everything we can to ensure these communities have a successful and viable future.”
Dairy advocacy group Dairy Connect has initiated an online petition aiming to stop makers of non-dairy drinks using the word ‘milk’ to describe their products.
Dairy Connect CEO Shaughn Morgan said there was a constantly evolving range of products such as ‘soy milk’ and ‘almond milk’ vying for consumer attention.
“We have seen a rise in the number of dairy-imitations made from plants,” he said.
“We believe that this has been the source of confusion among consumers, some of whom equate the great nutritional benefits of cows’ milk with the plant drink alternatives.”
Dairy Connect said the traditional definition of milk by Food Standards Australia and New Zealand was a liquid drink derived from the ‘mammary secretions of milking animals’.
The group claims such a change would deliver a clearer distinction between the two product types, including potential presence of allergens or intolerances; greater consumer awareness about the nutritional variations between traditional fresh dairy milk and plant drinks describing themselves as milks; and greater clarity regarding the methods of formulation used in the two different categories
Morgan pointed out that the European Union Court of Justice this year ruled in favour of the need to differentiate between dairy products and plant derived products:
“In light of this, we would like to see Australia keep up with the progressive dairy labelling laws in overseas markets and we support the initiatives being progressed in Europe and the United States,” he said.
“We encourage members of the community and industry stakeholders to show their support for dairy farmers by signing the petition and sharing the campaign.”