In this case, the Canadian mozzarella giant wanted out as part of a continued rationalisation of its $1.3bn 2019 purchase of the Murray Goulburn (MG) assets.
The sale at below cost follows plant closures in Maffra and elsewhere, having earlier been forced by the ACCC to sell the milk-drying plant in Koroit to Bega for $250m after the 2019 MG deal.
The plants being acquired by Coles were part of then MG boss Gary Helou’s failed attempt to rationalise the industry with a re-entry into market (drinking) milk from the co-op’s base in milk powder and cheese.
The 2011 Coles push into $1-a-litre milk was seen at the time as a way to boost milk volumes but what it did was fast-forward the financial pressure on processors like MG, Bega and Lactalis because house-brand milk replaced branded milk.
Coles and Woolworths have continued to take control of their own supply chains, particularly in markets like milk where the farm base is widely dispersed.
It did the same with the KKR-backed Sundrop Farm tomato project at Port Augusta.
Bega, the second biggest milk processor, has diversified into vegemite, peanut butter and other non-dairy products but its market value has fallen from a share price of $5.24 a year ago to the $3.75, with BAML among others placing a sell recommendation on the stock.
Kiwi dairy giant Fonterra, the No.3 player in Australia by volume, is still profitable, having gone through its own rationalisation
Dairy farmers are doing okay but their numbers are dwindling in part due to simple demographics, as the children of older dairy farmers are unwilling to commit to the long hours, continued fallout from the MG collapse five years ago, Covid-19 labour shortages, floods and higher feed costs.
There are also alternative sources of income like beef, which until recently had strong prices and outright land sales with corporate interest in plantation and carbon farming.
Last year’s Munich Re purchase of Midway’s 17,000ha block in Victoria being a case in point.
The post-2000 deregulation peak volume of 11.2 billion litres has shrunk to 8.8 billion and Dairy Australia predicts more declines.
Milk is still a drawcard for the supermarkets getting people through the doors but Dairy Australia figures show the story.
Retail milk sales of 1.4 billion litres retails at $2.7bn against 164,000 tonnes of cheese at $2.6bn.
Saputo is a global leader in cheese, particularly mozzarella for pizza, so the retreat from market milk in Australia is no real surprise.
While Australian farmgate prices are above global prices, the issue is for how long?
Global prices are falling due to increased production volumes in Europe and China, which in the simple law of supply and demand means prices are down and as the global economy slows that will also suppress returns.
It makes sense, at the moment, for retailers to take control of their supply chains and dairy farmers see them as being a better choice right now offering long-term contracts on competitive terms.
It is the supermarkets who are calling the shots and that might be working for the farmers right now, but they are also well aware where they sit in the value chain when the wheel turns.
Growth in soil carbon projects
Soil carbon was the hot new method for reducing Australia’s carbon emissions but progress towards converting more responsible farming into carbon credits is a lot slower than some imagined.
The good news is there are several projects in audit stage which should show the value of the method, albeit at a five-year payback against as little as two years for some other methods.
CarbonLink’s Terry McCosker has half a dozen projects in audit in south Queensland and northern NSW which should be in line for carbon credits shortly.
Sounds great but it’s not an overnight success with soil carbon measured in five-yearly intervals, and there are now only two projects generating carbon credits – both run by Matthew Warnken’s Agriprove, with another 15 of his doing the final rounds of audit checks.
This includes six projects from Deane Bellfield’s Regenerative Australian Farmers, which is a facilitator and service provider for integrated agricultural solutions to build and monetise soil organic carbon, soil health and rural prosperity.
He notes, “this includes cost-effective soil carbon evaluations, soil carbon field coring, and targeted implementation plans to support long-term soil carbon contracts”.
Agriprove is about to enter into a second funding round on the back of its success which includes backing from Green Collar (29 per cent) and Jeremy Grantham’s neglected climate opportunities fund (28 per cent).
Agriprove’s soil carbon projects cover just 25 per cent of the registered project area land but 75 per cent of the registered projects.
It does this by subdividing the land which means there may be up to four projects per property, which Warnken says recognises soil quality varies but others question the cost for farmers.
Organic matter in soil is responsible for its structure and water holding capacity, makes soil less prone to erosion, and is what makes it not only more capable of holding water at source but also infiltrating a greater portion of precipitation.
Australia has around 83,000 commercial farms with no off-farm income and as of January just 300 farms committed to some form of carbon sequestration.
From a farmer’s perspective the good news is looking after their soil better means they can run a herd of cattle across the land at the same time as generating carbon credits.
In part it’s a matter of better rotation to protect the ground cover.
At the end of 2021 there were 70 soil carbon projects ballooning to 400 projects in February.
Soil carbon projects can be complicated and costly with upfront investment required and lab fees alone accounting for up to 10 per cent of costs.
Technology is helping to reduce costs and complexity with software providers like Phillip Mulvey’s Carbon Count, backed by Sydney University research, with a proprietary algorithm for soil testing and software to make it easier to work through compliance process.
Two years ago Macdoch’s Alasdair MacLeod set the local industry alight with a $500,000 Microsoft deal crediting the carbon created in the soil on his property, Wilmot, in the New England region of NSW.
This was achieved under US Verra standards but the Carbon Link and Agriprove deals are under the Australia carbon credit units.
The Macdoch foundation funds projects like Farming for the Future, which aims to create national scale evidence connecting natural capital to farm profitability and other benefits.
In July it will release results from a study on livestock production in Western Australia, Queensland and NSW to hopefully show the evidence.
Why the Jewish Council doesn’t care about Australian Jews
It is a tragic irony that the Jewish Council of Australia’s activists see themselves as protectors of the marginalised yet they are ultra-marginal by every measure and mostly very rich and powerful.
PM’s defence fail leads to impossible Taiwan question
Anthony Albanese’s strategic approach seems to be dodge displeasure from Beijing and try to entrap the US into providing for our security in exchange for the minimum possible effort on our part.
Coles’ $105m milk processing deal with Saputo this week underlines the growing market power of the big supermarkets as they consolidate supply chains at the expense of the middle man processors.