In early May the Australian dairy processor, Burra Foods (Australia) Pty Ltd.
(Burra Foods) at Korumburra in Victoria announced a restructure. Currently,
Itochu holds 45% of stake in the company, 55% being held by its founder, Grant
Crothers.
Source: Baidu
The new arrangement involves its ceding 79% of its shares to Inner
Mongolia Fuyuan Farming Co., Ltd. (Fuyuan Farming, a fully-owned subsidiary of
Mengniu - which also holds 25.41% of China Modern Dairy). This came not long after
Burra was cited by a leading investment analyst as one of 2 likely imminent
IPOs in the Australian dairy industry (the other, lesser player being the
powders blender Camperdown Dairy).
Grant Crothers noted: “Every year we produce about 60,000 tonnes of dairy
products. When Fuyuan Farming finishes the capital input, we will expand the
production to about 100,000 tonnes by 2020. Currently, we have over 170
suppliers and process 300 million L of raw milk each year. The acquisition is
of strong complementarity."
Prior to this, on 26 April, it was disclosed that Fuyuan Farming had signed a
transaction agreement with Burra Foods to acquire the stake for a sum of up to
USD220.1 million (AUD300 million, USD/AUD exchange rate @ 1.3628 on 12 May,
2016, sourced on hexun.com). Fuyuan Farming was established on 17 February,
2012, and Mengniu indirectly holds 93.29% of the firm. Headquartered in Hohhot,
Inner Mongolia Autonomous Region like the parent group, it is mainly involved
in dairy production and related forage grass planting, animal husbandry R&D
etc.
To date it has built 8 largescale dairy farms, with a combined total of
32,000 cows. The Burra deal takes it downstream into processing of powders -
especially infant nutritionals, which it has been able to export into China
since 2014 - and also other dairy products such as cream.
Overseas investments: attractive if problematic
If the acquisition succeeds in obtaining official approval, it will mark
Mengniu's 2nd overseas investment after building the Yashili plant in New
Zealand, backing up the claim made by Sun Yiping, President of Mengniu, that
the company is determined to internationalise. Since 2012, it has established
successive strategic partnerships with many competitive enterprises and
institutes, including Arla Foods (Denmark), Danone (France), WhiteWave Foods
(USA), AsureQuality Limited (a state-owned food safety and biosecurity
enterprise in New Zealand) and UC Davis (USA).
It is just the latest of several recent Chinese dairy sector investors in
Australia, which have included New Hope Dairy Holdings Ltd. (New Hope Dairy),
Hunan Dakang Pasture Farming Co., Ltd. (Dakang Farming) and Biostime. For
instance, New Hope Dairy acquired Moxey Farm (one of Australia's largest
single‐site dairy operations) via its Australia Fresh Milk Holdings Pty Ltd. -
and also acquired Kilcoy Pastoral Company (the 4th largest beef processor in
Australia and the largest exporter to China).
“In the future, we will enhance
the cooperation with Australian enterprises for cow, goat, dairy products,
marine aquaculture and similar premium animal protein business,” stated the
company. “We plan to construct the Sino-Australia Modern Industrial Park in
Jintang Island, Zhoushan City, Zhejiang Province, to make full use of the
bonded zone which enjoys customs clearance convenience and to have quality
agricultural produce from Australia processed there to supply both China and
other countries like Japan and South Korea,” said the company.
So far, the
Zhejiang provincial government, New Hope Dairy and Harvest Fund Management
Limited have signed the agreement for this investment: “This business activity
will bring positive impact to the businesses in both China and Australia,”
commented New Hope Dairy.
Certainly not all China's investments in Australia are going smoothly. For
instance, in April Dakang Farming announced its intention to acquire 80% of
shares in S.Kidman & Co Ltd. (S.Kidman, reportedly Australia's biggest
farming estate) for USD220.1 million (AUD300 million), but this was rejected by
the Australian government. On 4 May, Dakang Farming noted the annulment of the Agreement
on Implementing the Tender Offer signed with S.Kidman and related parties on 19
April, and suggested that it will submit a revised acquisition proposal within
3 months.
The Mengniu/Burra deal seems less likely to be set back by such factors, given
that it does not include sensitive assets such as land. Whether land should be
considered more sensitive than processing plant is open to question. However
given the crisis in the Australian industry ensuing from the Murray Goulburn
debacle and Fonterra's follow on "price crash", meaning a real threat
to future supply, the Burra acquisition should not raise too many eyebrows.
This article comes from Dairy Products China News 1605, CCM
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Tag: Farming dairy