Canada’s Saputo begging Australian dairies for more milk

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Fresh off a $500 million purchase of Australia processing giant Warrnambool Cheese and Butter (WCB), Saputo’s CEO Lino Saputo, Jr,. was asking dairy farmers down-under to grow herds, ramp up production, and send it in Saputo’s direction while visiting the country this week.

Australian milk production has dropped almost 20% since the industry was deregulated in 2000, as federal support of manufactured milk prices fell away. Today, 40% of Australian milk is exported as the industry operates at some of the lowest production costs in the world.

Saputo’s purchase battle continues in some regards. After a public battle between three companies, Australia’s Bega Cheese, Australian dairy cooperative Murray Goulburn, and Saputo, the latter reigned supreme. Bega and Murray owned 19 and 52 percent of the company, respectively, before Saputo’s purchase of 88% of the shares – at 20-times earnings before interest, tax, amortization, and depreciation in FY 2013 – was completed in early 2014. However, it remains 400,000 shares short of the 90% needed for compulsory acquisition of the outstanding shares.

The holdout is Lion, owned by Japanese food and brewing giant Kirin. Lion is supplied by the WCB plant, giving it a unique position in the matter.

Australia and New Zealand used to have quite similar dairy economies. Now, NZ is twice its size, despite huge differences in landmass. New Zealand won the race to export markets, and now Saputo is wagering Australia as the best bet for the next competition.

Sources: Herald Sun, ABC News, Financial Post, Dairy Australia, and The Age

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