With recent investment announcements totalling over $1.5 billion to be made within the Australian dairy industry over the next few years, it is an exciting time for suppliers of process and packaging solutions to this sector.
Murray Goulburn (MG) kicked off its $500 million Australian investment program with the construction of two greenfield fresh milk plants; one in Laverton VIC and the other in Erskine Park, NSW. These plants are to be followed by further investments in retail cheese in Cobram and then nutritional powders and UHT milk.
While the fresh milk and retail cheese investments have a domestic focus, driven by long-term supply contracts, the powder and UHT plants will have a focus on China and SE Asia. What underpins all projects is a determined strategy by MG to build plants that are extremely efficient, with world-class levels of production output, quality and reliability.
In response to MG’s fresh milk investment, a result of a 10-year supply contract with Coles, Fonterra is also currently constructing a new fresh milk facility in Cobden, to satisfy a long-term, and hard fought, supply contract with Woolworths.
What unites both fresh milk projects is a focus on highly efficient milk filling processes, very lightweight, innovative primary packaging and, for the first time in Australia, foil bottle seals to prevent leakage and potentially increase shelf-life.
A further $500 million each from Gina Rinehart and also from Freedom Foods, in a joint venture with Chinese food giant, New Hope, will focus mainly on the booming Chinese market.
Factors underpinning these investments are the recent signing of the long awaited Australia-China free trade agreement, rising incomes across Asia increasing the desire to improve nutrition, particularly for infants, and concerns about the quality and provenance of manufactured dairy foods.
Gina Rinehart’s Hope Dairies plans to build an infant formula plant in SE Queensland’s Mary Valley that will increase Australia’s current capacity of 70,000 tonnes per annum by an incredible 40 per cent.
Rinehart will source up to 75 per cent of the required milk volume from a company-owned herd, solving a looming Australian problem: milk supply. (The Australian dairy herd size has declined from 2.2 million head in 2000 to 1.65 million today, predominantly because of volatile and low farm cash incomes. New Zealand meanwhile has increased its milk production by nearly 90 per cent in the same period.)
Of particular interest is that Rinehart intends to implement a technology solution to allow consumers to track the unique provenance of the milk powder in each consumer package. Most likely to be a unique QR code solution, or possibly even NFC, these technologies have been available for many years but surprisingly never adopted by Australian food producers.
With Australia’s reputation as a clean, high quality and reliable producer of food and dairy products – but searching for ways to effectively differentiate in a competitive global market – it is intriguing that a miner should lead the way in exploiting our natural food production competitive advantage.
ASX-listed Freedom Foods and New Hope also intend to make large investments into securing milk supply, with a large proportion of their $500 million fund being used to sure up dairy farms. Already a significant UHT milk producer in Shepparton, Freedom is looking to leverage its existing relationships to supply a larger volume of value added dairy products.
World class milk production performance doesn’t come easily though. The performance and contractual expectations placed on suppliers for these projects has been, and will continue to be, at levels not typically seen in the Australian packaging and processing landscape.
This is not necessarily a negative development, though it does mean that suppliers must pay very close attention to technical, scheduling and commercial aspects at all stages of the project execution cycle; from quotation to contract formation to project handover and warranty.
Those suppliers willing to provide much larger ‘turnkey’ scopes of work and overall project management, along with the possible acceptance of increased project risk, are well positioned to participate. Other, typically smaller organisations, will need to think carefully before taking on these types of opportunities.
Phillip Biggs is a packaging machinery sector consultant, with a recent focus on the dairy sector. He is also co-director of Packaging Partners, an organisation investing in the Australian packaging machinery sector.
