Fonterra’s exit from Australia ‘a major event’

That’s the view of Michael Harvey, Rabobank’s senior analyst in dairy and consumer foods based in Melbourne.

Speaking to Rural News at the Australian Dairy Conference, Harvey says Lactalis, which is paying $4.2 billion for the co-operative’s global consumer and related businesses now renamed Mainland Dairy, will emerge from the sale as the biggest milk processor in Australia.

“It is a major event and there is some uncertainty around how that transacts.

“But what does emerge is clearly you've got Lactalis which has become a much bigger player in the industry,

“They will have a much bigger footprint in terms of how much milk they're processing and the number of brands and assets they've got around that.

“So, that is a fundamental change. But for farmers, the story doesn't change too much.”

In Australia, Mainland Dairy will continue to collect milk from 460 Fonterra suppliers and process it into products at eight manufacturing sites across Victoria and Tasmania.

Mainland Dairy will become new owners of well-known Australian brands like Perfect Italiano, Mainland, Western Star, and Bega.

Despite Fonterra’s exit, there’s still good competition for milk.

Other major milk processors are Canadian dairy giant Saputo and listed processor, Bega. The second tier of smaller processors include co-operative Norco, Noumi and supermarket chain operator Coles, which buys milk directly from farmers and processed by third parties for its home brand.

Harvey notes that farmers want competition.

“I think there's still going to be good competition, I mean, you are losing one buyer from the market, but I don't think it materially changes the reality around a tight milk pool and lots of different buyers in the market.”

Australian dairy farmers are on track to produce around 8 billion litres of milk this season. The average farmgate milk price is around $A9/kgMS.

Sudesh Kissun is attending the Australian Dairy Conference courtesy of Halter.