North American dairy giant, Saputo Inc, has no intention of splitting up Murray Goulburn’s massive dairy processing business for re-sale to rival players if it wins a $1.3 billion bid for the co-operative’s assets.
Saputo wants to aggressively ramp up production at the seven Murray Goulburn (MG) milk plants it would be operating in Victoria, NSW and Tasmania and promises to pay industry-leading farmgate prices to attract milk volumes it needs to achieve that goal.
Saputo, which also bought Victoria’s big Warrnambool Cheese and Butter (WCB) factory in 2014, would become Australia’s biggest milk processor by far, handling more than 3 billion litres annually if the deal goes through.
Some industry speculation has regulators likely to want at least one of MG’s plants off-loaded to avoid Suputo having too much control over southern farmgate prices and processing activity, particularly in south western Victoria, where MG’s Koroit milk powder and butter plant is just 20 kilometres from Warrnambool.
But chief executive Lino Saputo (Junior) said his company had not entered the deal with any asset divestment plans.
“We’re not thinking of selling any of the assets – we believe they all have value for us,” he said.
We absolutely expect to be paying market leading prices... we'll put our money where our mouth is
“Some need a little bit of investment work, but we know the technology, we know what we’re looking at and we know some plants are capable of working well above what they’re currently doing if the milk comes in.”
Saputo is confident it will win back disenchanted former suppliers and lift MG’s annual milk receivals from the current 1.9 billion litres to 2.5b in less than two years, if it gets more than 50 per cent shareholder support from co-op members and approval from the Foreign Investment Review Board and the Australian Competition and Consumer Commission.
“We absolutely expect to be paying market leading prices,” said Mr Saputo, who has been meeting suppliers during a busy series of forums in Victoria and NSW in the past week.
“We’ll put our money where our mouth is.
“I think our WCB suppliers will agree, we honour our commitment on prices.”
Farmers need financial stability
Mr Saputo, who wraps up almost 20 farmer meetings by Thursday after 10 days on the road in Australia, said his third generation family-controlled company believed “having financially strong suppliers is the best way to look after our business”.
A financially strong MG supplier base was also essential for confidence and growth in the wider industry.
“It all starts with the payment farmers receive,” he said.
“Without that raw milk your employees don’t have jobs and we don’t have a dairy industry.
“Obviously global prices do have an impact on what we are able to pay suppliers.
“If conditions are not favourable it will have an impact, but we have proven our capacity to generate good returns from value-added milk solids and have achieved better returns than most competitors.
“We’re certainly hoping the better conditions in global markets now will be around for a while.”
They (farmers) like the Saputo story, they like the base we come from, and our values, and they like our optimism
Mr Saputo, who has accompanied MG officials on their roadshow to explain the distressed co-op’s asset sale plans, said producers had been genuinely “warm and welcoming”, although he wasn’t taking anything for granted prior to a shareholder vote, likely by next March.
“I think they’re giving us the benefit of the doubt,” he said.
“They like the Saputo story, they like the base we come from, and our values, and they like our optimism.
“Now it’s up to us to prove ourselves.”
Saputo Inc was founded as a cheese business in 1954 in the corner of a Montreal milk processing plant by Mr Saputo’s migrant grandfather, Giuseppe, and father, Lino, making deliveries on a bicycle.
It is now one of the world’s top 10 dairy companies with businesses across Canada, the US and Argentina, and Australia’s WCB.
Last month it bought America’s largest goat’s cheese business, Wisconsin-based Montchevre, and a Florida extended shelf life milk processing co-op.
Mr Saputo was keen for MG shareholders to know what potential his company saw in the Australian industry, and particularly the MG co-op’s assets.
He felt many former MG suppliers were also watching from the sidelines, “waiting for this saga to find its way to an end” so they could potentially return to the fold.
“I want suppliers to get to know us – to realise we are focused on dairy only, and we have a very compelling story they can hopefully relate to.
Driven by loyalty and ethics
“As a family business I think we operate more the way farmers expect a co-op to behave.
“We are driven by ethics and loyalty and responsibilities to our stakeholders.”
Mr Saputo said it was “unfortunate” the previous MG management “took some bad decisions which may not have been in the best interests of suppliers” and now the co-op’s new management team was seemingly “running out of time to get back in the race”.
“But we can pick up from where they’ve left off and we can pay a fair price for milk,” he said.
“And we have the funds to invest where the current MG management cannot.”