Oz dairy in consolidation mode
The Australian dairy industry is heading for more consolidation as milk supply shrinks, according to dairy analyst Steve Spencer.
Spencer told Dairy News that Australian milk supply continues to fall and domestic buyers are worried.
Coles is paying A$105 million for two milk plants owned by Saputo Dairy Australia (SDA). One of Australia's two major grocery chains, Coles has been buying milk directly from farmers since 2019 and processing the milk with third parties.
Spencer describes Coles' decision to invest in processing plants as a major development.
"It is another sign of the deeper concern over milk security by domestic buyers, as the national milk production keeps falling."
Spencer doesn't expect the deal to impact either milk payouts to farmers or Fonterra, which operates milk plants in Victoria and Tasmania and processes milk for the other major retailer Woolworths.
Spencer doesn't expect Woolworths to buy processing plants, not in the short term at least.
"Woolworths, as yet, don't buy much milk directly from farms but that may change as it gets harder to secure milk."
In a statement Coles says the two processing facilities - at Laverton North, Victoria and Erskine Park, NSW, can process around 225 million litres a year. They are predominantly used today to process Coles Own Brand 2L and 3L milk.
Coles chief executive Steven Cain says the acquisition builds on the strong relationships it has developed with dairy farmers since 2019.
"While improving security of our milk supply and our supply chain resilience in the dairy sector, these facilities also have sufficient capacity to facilitate further growth opportunities through new product innovation.
"The acquisition will build on the strong relationships we have developed with our dairy farmers since launching our direct sourcing model in 2019."
Around 90 dairy farmers supply milk direct to Coles, allowing these farmers to invest for the future and ensuring the long-term sustainabilit of their farms.
"These processing facilities will complement our existing investments in our Own and Exclusive brand portfolio and manufacturing capabilities in areas such as convenience meals and meat," says Cain.
Saputo Dairy Australia says as the Australian dairy industry landscape continues to evolve, the sale of the two plants will streamline its manufacturing network and strengthen market competitiveness.
"We're continually working to ensure we have the right manufacturing footprint and product offering to enhance our position as a high-quality, low-cost processor," said Lino A. Saputo, chair of SDA's parent company Saputo Inc.
The sites employ approximately 48 people. All employees will receive an offer to transfer their employment to Coles Group Limited.
