Dairy Australia calls for sector to get ‘investor ready’ to attract private capital

The national body for Australia’s dairy sector has called for 'better targeting' of different investor groups, including institutional investors and high-net-worth individuals, to attract more capital into the industry.

Dairy Australia, the national body of Australia’s dairy industry, has published a draft plan that calls for a reform of industry structures that will help attract more private investment into the sector.

The organisation’s draft Australian Dairy Plan said profitability in the sector had been undermined by “rising input costs combined with unprecedented volatility,” but that the investment environment for the sector remained attractive because of continuing high demand in both domestic and export markets.

The plan makes several commitments, including to reform the sector to create a “more cohesive dairy industry,” to increase sector-wide marketing efforts and to improve transparency between farmers, processors and retailers.

It also called for more support for new entrants and investment that would help build the dairy sector’s capacity.

Another element of the draft strategy involves attracting new investment by “better targeting different investor groups,” alongside reducing costs for new entrants and creating new avenues to dairy farm asset ownership.

Dairy Australia identified corporate investors including “private companies, institutional investors and high-net-worth individuals” as a group to target.

The draft plan said: “These types of investors seek out good returns and look to manage risk through ensuring dairy businesses have high levels of management skills and good governance structures. The industry may be more successful attracting this type of investment by helping dairy businesses to be investor ready (ie, structured in a way to meet the required standards for attracting commercial investment.)”

This will come in the form of more tools and resources for businesses to help them get “investor ready.” Dairy Australia itself has committed to running more investor roadshows on a state-by-state basis to speak directly with potential investors.

At the launch of the plan in Victoria, Australian Dairy Plan independent chair John Brumby said: “This draft plan sets out a series of commitments, priorities and specific initiatives which we believe will help rebuild the profitability, confidence and unity of Australia’s dairy industry.

“Our economic modelling indicates that these proposals, if implemented, can add A$600 million ($415 million; €371 million) annually in extra value at the farmgate and help stimulate hundreds of new jobs in rural areas. The draft plan also focuses on initiatives to help farmers better manage the increased cost of key inputs like feed, water and energy to support the profitability of their dairy businesses.”

The Australian federal government published a mandatory code of conduct for the dairy industry on December 13. It compels farmers and processors to “act in good faith” and gives the Australian Competition and Consumer Commission authority to monitor the conduct of farmers and processors to ensure compliance. The code takes effect from January 1, 2020.

The dairy sector has been subject to two major takeover bids from Chinese corporate interests in recent weeks. Hong Kong-listed China Mengniu Dairy received government approval to buy infant formula producer Bellamy’s for A$1.43 billion in November, before the firm made a separate bid to buy the dairy and drinks business of Lion for A$600 million just weeks later.