Proterra exits China-focused Indo dairy company

Managing partner Rich Gammill tells Agri Investor that, while China's appetite for dairy motivated the firm's 2010 investment in AustAsia, Indonesian demand will be more compelling over the next five years.

Proterra Investment Partners has sold its remaining stake in AustAsia, a dairy company partially owned by Indonesian agribusiness conglomerate Japfa, to its joint-venture partner for $263 million.

The transaction, announced late last month and set to be finalized upon approval by Japfa shareholders in April, was supported by a syndicated loan of up to $280 million provided by DBS bank and Rabobank.

Singapore-headquartered AustAsia provides fresh milk, cheese and cream to customers in China, Indonesia and other markets throughout Asia. Established in 1997, it maintains a combined herd of 80,000 cows on seven farms in China and one in Indonesia.

“Some of the key factors that drive opportunity in food are really starting to pick up.”
Rich Gammill, Proterra Investment Partners

In addition, AustAsia operates processing plants in both countries, a distribution center in Singapore, and Greenfields, an Indonesia-based consumer brand that is also present in other regional markets and counts Starbucks among its customers.

As it announced the deal, Japfa highlighted that AustAsia had achieved consistent profitability “despite the prevailing low raw milk price environment.”

“Gaining full control over its dairy business, which has been a strong engine of growth, will enable the group to align AustAsia’s objectives to its long-term goal of becoming a fully integrated milk and food player in emerging markets,” Japfa said. “With its upstream milk business substantially in place, the group will focus on strengthening its downstream capabilities.”

Changing China

Emerging markets-focused Proterra purchased its stake in AustAsia in 2010, using capital in funds raised by Black River Asset Management that are now managed by Proterra, which spun out from Cargill in early 2016.

Managing partner Rich Gammill told Agri Investor that Proterra’s investment in AustAsia was the firm’s first pursued under its food strategy and came at a time when the firm was quite focused on dairy demand in Asia.

He said that Proterra partnered with Japfa, which already had a dairy farm in Indonesia and its Greenfields brand established, to build AustAsia in order to meet Chinese dairy demand. At the time, he said, reports of melamine detected within baby formula had increased consumer focus on food safety and demand for imported milk; there were no large-scale dairy farms in the country.

“Fast forward to today, there are quite a few large-scale dairy farms in China, several different companies that are in dairy farming and it’s a much more mature business than it was seven years ago,” said Gammill, explaining further that the widespread availability of safe milk in China today has placed a premium instead on the efficiency of operations.

Such efficiencies, according to him, stem less from the automation of functions such as milking, feeding and climate control than from the underlying genetics of cows, quality of feed and how the animals’ health is maintained.

“If you’re good at managing the cows and the nutrition and the happiness of the cow, you’re going to do well with your milk yields and efficiency,” he said.

Dwindling returns

While the maturity of China’s dairy market and increasing presence of imported supply from New Zealand means that returns there are no longer particularly compelling, Gammill noted, Proterra continues to look for deals in the subsector in other regional markets, especially India. Another of Proterra’s Asian dairy investments – a 23 percent stake in Hyderabad-based fresh dairy producer Dodla Dairy – was sold to TPG’s The Rise Fund for $50 million in mid-2017.

Over the next five years, Gammill said that dairy demand growth in Indonesia, where AustAsia already has a second farm under construction, is likely to be more interesting than the growth in China.

“The dairy market in Indonesia is still very nascent,” he observed. “You have a huge, young population, GDP growth and urbanization. Some of the key factors that drive opportunity in food are really starting to pick up.”