RUMOURS have been circulating for months about a Chinese-backed consortium looking to buy dairy farms in the south-west.
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The facts are now starting to emerge and the venture appears to be larger than anyone imagined.
The sketchy details as we know them are outlined in our story on page 3 today.
The proposed enterprise would involve the purchase of dozens of dairy farms across the region to become part of a venture producing dairy products in a vertically integrated enterprise. It would see the consortium own the farms, own and operate a factory or factories, and control the distribution chain.
Whether or not it gets off the ground, the emergence of this venture raises a fundamental question: what has given rise to the proposal?
The answer would seem to be that the existing dairy business model is not working very well. Farmers wishing to retire can’t get out, young hopefuls can’t get in. Farmers are being asked to invest in boosting production to meet the Asian boom that all the processors are talking about, but they can get little guarantee of future income to confidently fund investment.
Imagine that we were now inventing the dairy industry from scratch.
It is hard to conceive that anyone would settle on the business model that we have now, where farmers foot the bill for the land and production costs, carry all the risks of variable seasons, fluctuating feed prices and volatile international markets, then take a price the processors chose to pay.
Farmers are the shock absorbers on which other layers of the industry ride.
The industry can never really thrive while farmers have to cop so much of the risk. A vertically integrated model would seem to be the answer — a model under which risks and rewards are shared across the enterprise.
The proposal also raises the question of Chinese investment in Australian agricultural land.
Many dairy farmers have been waiting years for a buyer to come along. Like it or not, they can hardly be blamed for seizing this opportunity.