Buyers eye Dennington

Several buyers interested in purchasing Fonterra's Dennington factory

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INTEREST: Several parties are interested in buying the Fonterra site, the milk processor has confirmed. Picture: Morgan Hancock

INTEREST: Several parties are interested in buying the Fonterra site, the milk processor has confirmed. Picture: Morgan Hancock

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Fonterra management told suppliers that there were parties interested in buying the Dennington factory during a visit to south-west Victoria.

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SEVERAL non-dairy companies have expressed interest in buying Fonterra's Dennington, Vic, factory.

A Fonterra spokeswoman confirmed interested buyers had approached the milk processor after the company in May announced it planned to close the plant later this year.

"We have been contacted by several non-dairy companies that have expressed interest," she said.

"We are talking with them; however these discussions are commercial in confidence."

The company said at the time of announcing the shutdown that it had explored all options for the site, including selling it, but there had been no genuine interest.

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South-West Coast MP Roma Britnell, who had accused the company of "mothballing" the site, said she was aware of several interested buyers from the dairying industry.

Ms Britnell said she met with Fonterra on Friday to discuss the site's future options.

"My focus is the Dennington site and keeping it open, it is a important site for our community and if we can see that continue to be operational that's what we are looking for," she said.

"It is looking promising, I am hopeful for a positive outcome."

Fonterra milk supply general manager Matt Watt said the company was preparing to exit the site and was exploring plans for possible environmental remediation.

"With local community groups and stakeholders we are going to have to make sure that whatever it looks like post (November), it's in the shape people expect it to be," Mr Watt said.

Focus on what works

BUSINESS MOVE: Fonterra's Australian milk supply general manager Matt Watt says closing Fonterra allows the business to focus on high-value products like Western Star butter, produced at Cobden. Picture: Jackson Graham

BUSINESS MOVE: Fonterra's Australian milk supply general manager Matt Watt says closing Fonterra allows the business to focus on high-value products like Western Star butter, produced at Cobden. Picture: Jackson Graham

Closing Dennington would allow Fonterra to better utilise its remaining assets, Mr Watt said.

Mr Watt said limited milk supply, drought, and the under-utilisation of the Dennington plant were the key reasons for the plant's closure.

But he said the closure allowed Fonterra to focus on the "the stuff that works", which includes the high-value product Western Star butter produced at Fonterra's Cobden factory, 60 kilometres to the east of Dennington, which attracts 200,000 new consumers a year.

"By putting milk in Dennington, it doesn't create the same level of value as putting milk into Cobden and producing something like Western Star," Mr Watt said.

"We have got a plant that can create more from a limited milk pool than a plant like Dennington.

"So we make the choice that says 'actually we are just going to double down on the stuff that works'.

"There are bits of our business in a smaller milk pool that aren't as relevant and aren't working."

He also confirmed that milk was flowing out of south-west Victoria to Fonterra's modern milk processing facility in Stanhope in northern Victoria.

He said that increased competition on the Dennington plant for milk supply, but added it was "by no means the majority".

"Over the last 12 months we have certainly seen milk move that way," Mr Watt said.

"We have times where factories here will be shut, and that will increase with only having one plant here. We will be saying 'where do we best allocate that milk?"

Mr Watt ruled out future risk to the Cobden plant, which he said was a "corner stone" of Fonterra's Australian operations.

"Western Star is its forte," he said.

"It also has powder-drying capability, and it's a beverages plant.

"It's a cornerstone plant in terms of what we do. We have made our decision around our network, and what that does is make the rest of the network, and Cobden especially in this region stronger."

'Increase your milk price'

MEETING: Fonterra management met with south-west suppliers in Camperdown, where farmers called for a step-up in their milk supply. Picture: Jackson Graham

MEETING: Fonterra management met with south-west suppliers in Camperdown, where farmers called for a step-up in their milk supply. Picture: Jackson Graham

Fonterra will review its opening milk price after suppliers called for a step-up at meetings in the south-west Victoria last week.

Farmers told Fonterra Australia's managing director Rene Dedoncker and general manager Matt Watt in Warrnambool and Camperdown that they expected a step-up following announcements of competitors' prices, some as high as $7.20.

Mr Watt said the company had announced its 2019-20 $6.60 a kilogram of milk solids opening price in May to give farmers certainty ahead of the new season.

"We have seen others come out with their prices and they have been high," Mr Watt said.

"We are going to have to respond to that.

"We are reviewing that now, and we have said to farmers today you can expect us to be competitive and you can expect to see that soon."

He said the business had between 250 and 300 south-west suppliers.

Mr Watt said the roadshow was an opportunity to discuss the "challenging" setting the industry faced.

"It's clear it's been a very challenging 12 months across the industry with droughts and changes," Mr Watt said.

LOYALTY CHALLENGED: Dairy Australia stats show an unprecedented one-in-four of Australia's dairy farmers chose a new processor for their milk this year.

LOYALTY CHALLENGED: Dairy Australia stats show an unprecedented one-in-four of Australia's dairy farmers chose a new processor for their milk this year.

"We would expect to see production in the next 12 months to be lower than this last 12 months."

Some farmers also have 12 months remaining on controversial 'claw-back' loans they received following Fonterra dropping its milk price in 2016, meaning a percentage of farmers could choose a different supplier when the loans mature.

"In terms of the loans itself, that's around 20 per cent of our supply base," Mr Watt said.

"Now that's significant, but I would say, if you look at the Dairy Australia stats, across the whole industry, 25 per cent of milk moved last year.

"So that just reflects that the whole market is competitive and whether that's this year or next year whether the loans expire, our farmers are going to have to see a bottom line return."

Decisions for next season

With one-in-four of Australia's dairy farmers choosing a new processor this year, farmers are looking at options for next season.

Dairy Australia says in 2019, 25 per cent of farmers changed processor, compared to 10 per cent in 2015. The number one reason was milk price.

Kennedy's Creek, Vic, Fonterra supplier Allan, who declined to give his surname, said he and others at the Fonterra meeting in Camperdown had pushed for a price step-up.

"They got the message and they reckon they are going to review it by the end of the week," he said.

He said any price changes could determine if he remained a Fonterra supplier.

"I am under no contract so I can do what I like, it's an open market," he said.

Princetown Fonterra supplier Eva Vickers said she had supplied four different processors in the past 20 years, but had no plans to move again.

"If we think something affects our business to its detriment we will move," Ms Vickers said.

"Fonterra have actually paid reasonably well in comparison over the last couple of years."

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