A NEW company with links to the south-west is planning to float Australia’s first dairy farm.
Investment advisor Adrian Rowley says the aim is to tap into one of the world’s most exciting industries.
Mr Rowley has assembled a team of directors to form Australian Dairy Farms (ADF) that he hopes will start trading on the ASX next month.
The company has engaged Bell Potter to raise up to $14.5 million.
It already owns two farms in south-west Victoria and hopes to buy another 14 more to produce 50 million litres of milk a year by 2016.
The move comes as dairy farm prices are plummeting, supermarkets are selling milk for $1 a litre and many ageing farmers are scratching their heads about who will take over their properties when they retire.
But Mr Rowley and ADF’s three other directors hope to capitalise on Asia’s seemingly insatiable appetite for dairy, particularly infant formula which the Australian government’s commodities forecaster ABARES isn’t expecting to slow down soon.
Such is the demand that it has pushed global prices to historically high levels and ignited a three-way bidding war for Australia’s oldest listed milk processor, Warrnambool Cheese and Butter, which Canada’s Saputo won earlier this year.
The milk frenzy comes after a dismal decade for dairy farming. Australian milk production has plunged 20 per cent to about nine billion litres a year, while farm prices have fallen, leading in some cases to bank foreclosure.
But Mr Rowley said these factors strengthened the case to create a listed dairy farm.
“From 2007 to 2011 China tripled dairy imports and dairy demand is 10 billion litres a year which is more than the whole of Australian production,” Mr Rowley said.
The opportunities aren’t lost on milk processors, who are desperately trying to get farmers to lift production to meet demand.
But Mr Rowley said many dairy farms were family-owned, which made access to capital and thus growing volume difficult.
Banks traditionally are eager to lend to farmers during good times and when property prices are rising, less likely when it’s the other way around.
Mr Rowley said this made it difficult to reduce risk, such as buying more feed ahead of a predicted dry period and before fodder prices rise.
“We will have the cash flow to manage that risk,” he said.
Corporate dairy farming is relatively small in Australia, comprising 3 per cent of the industry, which is rural Australia’s third biggest generating $13 billion in 2012-13.
“(It is a) fragmented cottage industry ripe for corporate aggregation,” Mr Rowley said.
He said ADF planned to give investors two types of returns — earnings from dairy operations and exposure to rising farm prices off a cyclical low. The company plans to operate large-scale farms with a minimum of 500 cows (the Victorian average is 300 per farm). It will also have properties in areas that traditionally have reliable rainfall, such as south-west Victoria.
Mr Rowley said the company’s plan was to become Australia’s biggest milk producer and be able to be a “price maker” rather than “taker” during contract negotiations with processors.
He said it could also consider joint ventures in processing plants with about 50 million litres of milk a year needed for UHT and 200 million litres a year for higher-value products such as milk powders.
“But while there is excess capacity in the production industry it doesn’t make sense to invest in processing.”