Terry McCrann: Why Bega buys a future for all of us

Buying Lion Dairy and Drinks was literally make or break for Bega Cheese. Now, Barry Irvin must ensure it’s the making of the company.

This was the deal that just had to be done. It had to be done for the company. It had to be done for farmers and it had to be done for the country.

Buying Lion Dairy and Drinks was literally make or break for Bega Cheese. It’s now up to CEO Barry Irvin to ensure that it’s the first: that it will be the making of the company.

If Treasurer Josh Frydenberg had not “knocked back” the higher bid for Lion D&D from Chinese group Mengniu, Bega would have faced a seriously challenged future just when it was trying to emerge, so to speak, from the Bega valley and intent on building a major national branded dynamic.

The quotation marks are because Frydenberg didn’t formally reject the Chinese offer — what we saw was something akin to “Chinese whispers”; the Chinese “deciphered” them and withdrew their offer, leaving the field effectively free for Bega.

A Mengniu-owned Bega would have seriously threatened Bega’s operating future — and indeed, challenged even the two dairy majors, the Canadian owned and controlled Saputo-Murray Goulburn, and the New Zealand owned and controlled Fonterra.

This is because Mengniu already had a presence in the milk production chain after its purchase of the small Gippsland dairy processor Burra; along with a big presence in baby formula powder after its purchase of Bellamy’s.

Like for most things agri — and a lot else we produce and export — China is now easily our biggest customer; and, as anyone who visits a supermarket knows, baby formula is Sichuan-level hot.

A strong and growing Bega keeps some of our dairy future in local hands. It means one of the big three is listed and controlled in Australia. At least so long as that continues; anyone can come and launch a takeover bid for Bega just like Mengniu did for Bellamy’s, of course.

Bega Cheese executive chairman Barry Irvin. Picture: Adam Taylor

It also means that all of the big three have strong links to farmers and the farming ethic, but crucially married to commercial and business skills in the global context.

Saputo’s had them for a long time; Fonterra spent a decade or two learning them as it grew out of its farmer co-operative roots. Bega’s recently moved, so to speak, from primary to secondary school and it’s now going tertiary.

Yes, Saputo might be Canadian owned and Fonterra’s controlled from across the ditch but they both have a strong farming business culture, as clearly does Bega even if it is north of the Murray.

Arguably one of the best things that happened to dairy in Australia the decision by Saputo to cross the equator in 2013 and launch into Australia for the first time, by joining — and winning — the battle for the (relatively minor) Warrnambool Cheese.

It turned into an old-fashioned bidding duel; and in irony of ironies, Saputo even ended up later buying the company it beat to win Warrnambool — Murray Goulburn (at the time of the bidding war, Australia’s biggest milk processor) out of the wreckage of the Gary Helou days.

Helou’s days at Murray Goulburn ended in disaster, disgrace and clear-cut failure but he had seen the future with uncommon clarity, albeit perhaps with too little sense of realism and he had certainly seen it “too early”.

That future can now unfold and consolidate into both the stability and dynamism — and indeed competition — of a Saputo-Fonterra-Bega big three; that, I suggest, looks pretty good for the companies, even the other players in the industry, and certainly farmers and also the country.

It’s doing so in a way we have never seen before, since the industry started on its journey — mostly reluctantly — from the 20th century reality of scattered farmer co-operatives and indeed scattered farmers across Victoria and up the east coast into Queensland, to the much more brutal 21st century reality that also offers huge upside in both volumes and value adding.

That’s most easily explained in terms of $1 milk sitting in the fridge next to a range of $3 to $4 speciality milks and surrounded by cool shelves of 200 per cent-plus mark-up branded dairy and semi-dairy products. Plus baby formula.

That was the future Helou saw and tried to deliver. He was too early; he also essentially cocked it up. Over to you Barry.

GOOD TIMES ON A ROLL

There were a series of big positives in the Roy Morgan Business Confidence Survey for November.

Overall business confidence across the country leapt 10.4 points to 109.1 points.

This was the “most confident” the business sector had been since September last year — so, going back even before the virus whacked us from March.

In four states — NSW, Queensland, SA and WA — confidence was above the 100-point average. Even in Victoria it leapt to be just below that critical mark at 97.8 points.

Most striking of all, a clear majority of businesses — 58 per cent — said the next 12 months was a “good time to invest in growing the business”.

This was the best figure for this indicator for nearly seven years since January 2014, according to Morgan CEO Michelle Levine.

Further, businesses were growing less pessimistic about the longer-term outlook, with the numbers expecting “good times” for the Australian economy over the next five years now pretty much on par with the numbers still expecting “bad times”.

The timing for greater confidence could not have been better — running straight into Christmas and while the still lush, if slightly reduced, JobKeeper money is still flowing strong.

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