Blue River: ‘Not getting caught up in any price wars’

Australian dairy has faced hard times in the last year, including a recent crackdown on exported dairy from China, with the government claiming one company in particular had shipped milk containing “disease-causing bacteria”. We talk to Australian impact investment firm Blue River’s co-chief executive Craig Shapiro about why his firm’s buyout of Fonterra subsidiary Wagga Wagga is a safe bet, and what makes his firm an impact investor rather than a private equity house.

Does your first investment being in the Australian dairy sector have any particular significance given your impact agenda?
We didn’t target the dairy sector per se. We had been looking at different agri opportunities including horticulture and cattle farming. But we are pleased our first investment has been in dairy. From an impact perspective, we hope we can attract more investment dollars to agriculture. We are not agriculture experts, but we work by finding partnerships. When we came across the Riverina Fresh [Wagga Wagga’s top brand] opportunity, we were able to tick the people factor; Rob Collier is staying on as chief executive, plus it being rurally based in Wagga Wagga, in the Riverina district in New South Wales, means it has [rural employment] impact.

Where does the investment sit in the Australian dairy market?
There are obviously some ongoing issues in the Australian dairy space. [Riverina] had some issues but they are all under control now. The big co-ops are being corporatised, like Murray Goldman. The whole co-operative versus corporation approach is fluid. We have supply contracts with 20 farmers so we don’t have a co-operative, but we do have a community approach and that is critical to why we invested. The Riverina Fresh farmers know that roughly one-twentieth of milk in our bottles has come from their farm, as opposed to going to a much bigger co-operative where it may go to any number of brands or products.

What is your investment timescale and why don’t you refer to yourselves as private equity investors?
Nothing is forever. We are not defining what the curve looks like, but we are long-term investors trying to have positive impact. We are 100 percent Australian, but we are not talking at all about who our investors are. We also don’t want to be labelled a private equity firm. We do principal transactions and we put syndicates together, but that is why I talk about being a longer-term investor. As a private equity investor your modus operandi is to buy an asset, carve it up and spit out in a short time frame, such as three to five years. That is not our intention.

What are your plans for the Wagga Wagga group in terms of increasing returns?
Fonterra have been divesting assets to refocus the business. By having a locally owned head office in Wagga Wagga, it will provide an additional lease of life on the business, [getting] more focus as a core asset for us, as opposed to being a small part of a multinational. There are opportunities to grow the brand, as well as some spare capacities in the plant out from which we could generate some efficiencies. The brand is already the main drinking milk in Riverina, and is sold into the café markets in Sydney and Melbourne. You have the upstream and downstream fitting in nicely which made it an attractive investment proposition. The more output we can get at home means more supply from farmers. Any exports would be in the future, but the export markets have been volatile. This business is supplying domestic markets and is a premium brand, so it’s not getting caught up in any price wars.