An analyst says a key issue at Australia's biggest co-op Murray Goulburn, just sold to Canada's Saputo, was finding capital. Photo / Bloomberg
An analyst says a key issue at Australia's biggest co-op Murray Goulburn, just sold to Canada's Saputo, was finding capital. Photo / Bloomberg
Across the Tasman, dairy co-operatives are a dying breed.
With the passing of what was Australia's biggest co-op, Murray Goulburn, to Canada's Saputo, they now account for less than 5 per cent of the milk pool there.
Closer to home, the sale of troubled Westland Milk to China's Yili leavesjust two co-operatives — Fonterra and Waikato's Tatua.
Fonterra has had its well-publicised problems, so does that mean the dairy co-operative model is on its way out?
Rabobank senior dairy analyst Michael Harvey doesn't think so.
Melbourne-based Harvey says co-ops still play an important role in the world's dairy sector.
Rabobank compiles a top-20 league table of dairy players and six co-operatives remain in the table, not far down the list from the world's number one — Nestle.
"But there are ongoing challenges for dairy co-ops as well and it all comes down to raising capital for growth, generally speaking," Harvey says.
"We've seen that here in Australia play out in terms of the way the industry was restructured, with Murray Goulburn going down a path of looking for outside capital to fund a very aggressive growth strategy."
Many things went wrong at Murray Goulburn, but at the core was the issue of finding capital, he says.
Rabobank senior dairy analyst Michael Harvey says co-ops still play an important role in the world's dairy sector. Photo / File
"There are levers that dairy co-operatives can pull to raise capital. One of them is to try and raise capital from their supply base, which can prove challenging because so much of their capital is tied up on the farm," he says.
"Then there is retained earnings and that's a long process which can take years, so if you want to raise capital quickly then that's not an option. You can increase debt, which is a challenge in itself because co-ops don't want to weaken their balance sheet."
In Australia, some co-ops have opted for sale and leaseback agreements.
"A common challenge is once you exhaust all those avenues, what's the next alternative?
"That's where the discussion comes in about inviting in outside capital.
"Then it becomes a question of how do you deal with outside capital when you have at the core of what a co-operative is, which is trying to maximise the milk price?
"They are are a very important business model globally. Clearly, there are ongoing challenges you see co-operatives face and it is a constantly changing landscape."
Fonterra accounts for about 80 per cent of the milk supply in New Zealand, but large, dominant co-ops are also common overseas, particularly in Europe.
While some co-ops have had their problems, the big multinational companies — such as Saputo and France's Lactalis — have been aggressively growing their businesses through acquisitions.
"These are the consolidators of dairy industries around the world," Harvey says. "So that's the environment that the dairy co-ops are competing in."
