The Australian dairy manufacturing sector is diverse and includes farmer-owned co-operatives, public, private and multinational companies. Farmer-owned cooperatives no longer dominate the industry and now account for less than 40% of Australia’s milk production. Murray Goulburn (MG) is the largest co-operative as well as the single largest milk processor, accounting for around 37% of all milk produced in Australia.
The lack of growth in milk production over the past decade or so relieved the pressure on Australian dairy companies to invest in increasing processing capacity – at least in the short to medium term. At the same time, some processors have encountered difficulties in meeting demand for certain products, particularly in milk powder and cheese.
Around 63% of manufactured product (in milk equivalent terms) was exported and the remaining 37% sold on the Australian market in the 2015/16 season. This contrasts with drinking milk, where some 94% is consumed in the domestic market.
Cheese is consistently the major product stream, utilising just under a third of Australia’s milk production in 2015/16 and has remained around this level for a number of years. Drinking milk and skim milk powder/butter production were the two next largest users of milk, each taking around a quarter of the total milk produced in Australia.
As in the farm sector, the milk processing sector has undergone significant changes in the past 12 months, with a number of long-term investment decisions being made or otherwise changed.
MG has decided to review its decision to invest in a new greenfield facility for UHT and consumer beverages, citing increased European competition and lower prices in the Chinese liquid milk market. As of August 2016, MG remains committed to constructing a new 45,000 tonne milk drying facility in Koroit to supply powder for the infant formula and nutritionals market, following the conclusion of agreements with international partners Mead Johnson and Kalbe Nutritionals.
Large multinational companies have operated in the Australian dairy industry for many years and currently include Fonterra (New Zealand), Kirin (Japan) and Lactalis (France).
Fonterra has made significant changes to its manufacturing capabilities in the past 12 months, citing a desire to refocus on key product lines such as cheese, spreads, and milk powders. In December 2015 Fonterra announced the sale of its yoghurt and dairy dessert division to Parmalat, along with production facilities in Echuca and Launceston.
In August 2016, Fonterra sold its Wagga Wagga based Riverina Fresh business to Blue River Group, an impact investment firm. Production of Riverina Fresh will continue. Fonterra has also announced $AUD 4.3 million worth of new upgrades at its Wynyard cheese and whey plant in Tasmania (boosting production capacity by some 8,000 tonnes), and $AUD 6.2 million for increased coldstore capacity at its Cobden spreads plant.
Lion Dairy & Drinks (owned by Kirin) has folded its separate export-oriented subsidiary Lion Asia Dairy into its central operations, as part of organisational restructuring. Lion has also signalled renewed focus on its core business activities, ear-marking some $87 million to revitalise its white milk and milk-based beverage business operations, as well as $40 million to revamp its manufacturing and distribution facility in Bentley, WA.
Australian Consolidated Milk (ACM) has announced plans to expand production of organic liquid milk and is seeking new suppliers. ACM indicated that a significant premium would be offered, and a willingness to cover the costs of organic certification. In further developments, Pactum Dairy Group which is part-owned by ACM, will supply UHT milk to Vietnamese company, International Dairy Products, from its plant in Shepparton. Pactum Dairy Group was also awarded a contract to supply around 400,000 litres of UHT milk for the Victorian Government’s School Breakfast Club initiative.
Camperdown Dairy International (CDI) in Camperdown, western Victoria, has announced it is re-assessing plans to establish a $500m vertically integrated operation. Intended to span on-farm milk production through to manufacturing and export of milk and nutritional powders, the company has cited ongoing market volatility and concerns around changes in the Chinese regulatory framework.
Meanwhile, the Midfield Group’s project to establish two milk powder plants in Penola in south-eastern South Australia and Warrnambool, western Victoria continues. Construction is underway, and expected to have a processing capacity of around 220 million litres when completed in mid-2017. Midfield Group has taken on a subsidiary of the large international commodities broker Louis Dreyfus Company as a partner in the joint venture. Louis Dreyfus Company Dairy Asia will provide risk management and expertise in marketing of agricultural commodities to complement Midfield’s knowledge of farming and processing.
Beston Global Food Company has purchased Australian Provincial Cheeses for $2.2 million, and will continue to produce its Mable’s and Grange Peak brands at Murray Bridge.