Saputo’s woes: Canadian dairy giant struggles in Australia

Saputo’s top boss says Australian plants will close in the coming years, confirming months of rumours.

Saputo’s corporate supremo has confirmed the Canadian dairy giant will downsize its Australian operations with plants set to close.

In an interview at a Toronto conference overnight, Saputo chief executive Lino Saputo jnr said Australia’s shrinking milk pool had forced the company to reassess its operations.

“Australia’s very different from the US – not a commodity issue – more a lack of milk production in the country issue,” he told the Scotiabank conference.

Saputo chief executive Lino Saputo Jnr faces some tough decisions in the year ahead, on the back of big losses in his Australian business.

“Milk production has been declining year-on-year at a rate of maybe four or five per cent per year, which means there’s less milk for us to process, which means we need less plants in our system to be able to run our plants more effectively, more efficiently.

“So I will say, at the end of this strat (strategic) plan – which the final year is fiscal year 2025; we will have fewer plants in the US network, we will have fewer plants in the Australian network – still some tweaking we can do in Canada.”

Mr Saputo did not specify which plants in Saputo’s network would close.

In February, Saputo management announced it would “streamline operations” at its Maffra and Cobram sites.

One of the two Maffra dryers were closed as part of the move and the individual wrapped cheese slices production line was closed at Cobram.

But industry figures have speculated that further cutbacks are inevitable as Australia’s dairy processors pay record prices at the farmgate.

On Wednesday, The Weekly Times revealed Saputo was struggling to maintain its Australian footprint, losing suppliers and recording a pre-tax loss of $78 million in 2021-22.

Saputo Australia’s financials show revenue remained stagnant at $2.7 billion year on year, despite a 50 per cent surge in global dairy prices and at a time when it was paying farmers about $7.50 a kilogram for their milk solids.

The Allansford Saputo Factory. Picture: Chloe Smith

The company must now pay its farmers more than $9.40/kgMS to remain competitive in the year ahead.

Yet earlier this week, the company was putting a positive spin on its financial woes with its local finance director Daniel Egan reporting “the group will continue to pursue its vision to be Australia’s leading milk processing company”.

“There is a continuing general trend in the Australian dairy industry towards globalisation and rationalisation. The Group intends to take advantage of opportunities arising from this process,” he said.

How Saputo intends to achieve this goal remains a mystery, with Mr Egan simply stating “further disclosure of information regarding likely developments in the operations of the Group in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Group.

The Weekly Times’ cartoonist Chris Rule offered his interpretation.

“Accordingly, this information has not been disclosed in this report.”

Meanwhile Saputo’s rivals, Fonterra, Bega Cheese and smaller players are scrambling to take on its suppliers.

Bega’s latest financials show it took in 1.4 billion litres of milk in 2021-22, up 25 per cent on the previous season’s 1.12 billion-litre intake.

Farmers are reporting Saputo is sourcing less milk from their sheds and either toll (contract) processing milk or using brokers to source supplies to keep its factories ticking over.

Since taking over Warrnambool Cheese and Butter and Murray Goulburn co-operatives, Saputo’s farmgate milk intake has slumped from more than 3 billion litres to less than 2 billion.

United Dairyfarmers of Victoria president Mark Billing said processors would have to continue rationalising their processing capacity in the face of declining national milk production, which has fallen from 9.56 billion litres in 2015-16 to 8.5 billion litres last season.

Saputo has already closed one of two dryers at its Maffra plant and the shut down its cheese slices wrapping line at Cobram earlier this year.

Fonterra Australia managing director Rene Dedoncker said, “Over the last two years we’ve grown our share of the milk pool in a declining milk market, and we have the milk we need.

“We have built a strategic asset base, rationalising our primary processing footprint with the sale of Dennington in 2019, and the strategic acquisition of Dairy Country assets has really strengthened our secondary processing capability.”