SAPUTO boss Lino Saputo jnr, who recently emerged victorious from a $500 million battle for control of Warrnambool Cheese & Butter (WCB), will touch down in Australia this week to deliver a key message to dairy farmers: grow your herds, ramp up production and all your milk will find a home.
He also brings with him a thirst for acquisitions, matched by a bulging wallet, despite just bedding down in May the takeover of Victorian processor WCB.
“On the mergers and acquisitions front, I’m often asked if there is still room for Saputo to continue to be a consolidator in the dairy industry. My short answer is ‘absolutely’,” Mr Saputo said.
“We continue to evaluate possibilities, our balance sheet remains strong, and we have the necessary resources to integrate multiple acquisitions at the same time.”
In Australia briefly, the chief executive of the $C13 billion Canadian dairy giant will reach out to farmers who currently supply WCB, which Saputo owns 88 per cent of, as well as those who have never dealt with the company before with a pledge of capital investment and other incentive programs to support a swelling of the region’s milk pool.
“A lot of the discussions are around what will it take, beyond price sometimes, what will it take for the dairy farmers to be optimistic about the dairy industry and investing in their farms and what kinds of programs can we put in place that will assist them,” Mr Saputo said.
“What we are trying to do in Australia is appeal to the dairy farmers and say, ‘Look, we can be a good home for your milk. If you choose to increase your herd size and you’re producing more milk, we will put on the infrastructure to process that milk’.
“So again, even if the markets are in the decline mode because of issues that are out of control of the dairy farmers like weather and climate and things of that nature, we’re trying to even appeal to new dairy farmers that have not serviced us before to consider us as a home for their milk.”
The call to farmers to go for growth comes as milk processors scramble to lift Australia’s production which, since deregulation more than a decade ago, has plunged almost 20 per cent from about 11.2 billion litres to 9 billion litres a year.
According to peak industry group Australian Dairy Farmers the sector is Australia’s third-largest rural industry worth $13 billion. It ranks fourth in agricultural exports, valued at $2.76 billion.
Perfectly positioned to feed into the Asian food boom and a growing appetite for dairy-based goods such as baby formula, processors like Saputo are now desperate to ramp up supply.
Fonterra, the world’s biggest milk processor, recently tempted local farmers with the promise to fix milk prices for a season with the new payment system all about providing certainty which then allows them to invest in bigger herds.
Mr Saputo is similarly keen to shove more money into Australia after getting his first lick at local assets through the takeover of WCB.
“We intend to accelerate growth in Australia by making necessary capital investments and devoting resources to increase manufacturing capacity, grow milk intake and create new opportunities,” he said.
“So we’re hoping that the dairy farmers will believe in what we have to say, that will trust us and that will continue to invest in their farms so that we can ultimately have more milk and they can have a better future with perhaps even a lower structured milk production entity.”
Despite his lofty local ambitions for the time being Mr Saputo will have to be content with only having 88 per cent control of dairy processor WCB, with Kirin-backed brewer Lion clinging to a 10 per cent stake and refusing to sell.
It is believed Mr Saputo has no plans to meet with Lion boss Stuart Irvine on this trip, leaving Saputo stranded just short of the 90 per cent holding required to mop up minority shareholders and delist WCB from the Australian Securities Exchange.
Lion, owned by the Japanese conglomerate Kirin, barged into the three-way takeover battle for WCB to give itself a seat at the table of a potential change of ownership and protect its joint-venture deal with the processor. WCB produces the majority of Lion’s 12,000 tonnes a year of high-volume, low-value, everyday cheese under brands like Coon and Cracker Barrel at its Allansford site in Victoria.
The cheese partnership between Lion and WCB is up for renewal in mid-2015.
Source: Queensland Country Life