The farmer-owned Norco dairy co-operative has joined the list of contenders weighing up a bid for at least part of the big $600 million Lion Dairy and Drinks business.
The mid-sized NSW-Queensland co-op, popular with its consumer base and farmer suppliers, would be lining up alongside dairy sector heavyweights such as the listed Bega Cheese, which was a bidder when Lion first went up for sale two years ago.
Norco confirmed it was exploring options which could fit with its goals to expand into southern Australia, while Bega has re-engaged the investment advisory team it used 2018-19 when the contest also featured Saputo, Freedom Foods and Coca-Cola Amatil.
Last week Treasurer Josh Frydenberg effectively blocked the sale of Lion's milk, yoghurt and fruit juice processing business to Inner Mongolia's China Mengniu Dairy, apparently in response to increasing trade tension and political provocation from Beijing.
Despite having Foreign Investment Review Board and Australian Competition and Consumer Commission consent, both commercial parties agreed to "mutually cease the current transaction process".
Japanese-owned Lion's management said the decision was "disappointing for us, but we are considering pathways forward".
The decision also disappointed Lion's farmer supplier base across Australia, largely because Mengniu is a big vertically integrated global dairy player with strong marketing firepower in developing Asia which may have opened up new export opportunities for milk and yoghurt products sold under the Pura Dairy Farmers, Farmers Union, Big M and Masters brands.
It already has a strong export pipeline from Australia via its Bellamy's Organic and Burra Foods' ties.
"Mengniu would have invested good money in Australia," said Queensland farmer and chairman of Lion supply network Dairy Farmers Milk Co-operative Andrew Burnett at Gympie.
"We were looking forward to seeing a strong investor pouring money into Lion's marketing effort, and standing up to retailers."
However, farmers were equally keen to see another solid offshore player or local business step forward, with the likes of former farmer co-operative Bega, or Norco, appealing to many.
"I don't know if Norco is ready to buy more than a portion of Lion's assets, or maybe team up with another partner, but it's a company which already resonates well with farmers and consumers and has the smarts and ability to grow beyond its base in southern Queensland and northern NSW," he said.
Norco chief executive Michael Hampson agreed acquiring Lion's production and supply chain, stretching from Perth to North Queensland, could be "too big to do all by ourselves".
"However, we could work with Lion or another party," he said.
The 125-year-old co-op had a keen interest in what new processor ownership alternatives were likely to emerge and was not surprised farmers in other regions wanted to see the company expand.
Norco still sees good value in the dairy industry
The Norco brand enjoys unusually strong consumer loyalty and the fastest growing milk sales in NSW and Queensland, lifting almost 40 per cent in 2019-20, easily outpacing supermarket private labels and the A2 Milk Company's impressive run.
The co-op also pays above average farmgate milk prices - up to about 68 cents a litre in Queensland, or equivalent to about $9 a kilogram for milk solids.
"Norco still sees good value in the dairy industry and in bringing our bread and butter values to members and customers," said Mr Hampson.
"We'll look at business opportunities we can pursue. We see our co-op model as something the industry would benefit from if we could take it into new territory."
The Lismore-based company, supplied by about 220 farms, also has export credibility, including as a fresh milk exporter to China and other Asian markets.
DFMC's Mr Burnett noted Norco was "doing very well" and if it could achieve some sort of business expansion with Lion there were plenty of opportunities for the farmer-run company to tailor its offering to new markets.
"We shouldn't underestimate farmers' abilities to invest beyond the farm gate and be more involved marketing the products they're committed to producing."
'Talk to Norco'
On NSW's South Coast, Lion supplier Brett Chittick was one of many urging the processor to "talk to Norco".
"They used to be ridiculed for struggling while big co-ops like Dairy Farmers and Murray Goulburn were growing, but Norco turned out to be a dairy industry success story," he said.
While he appreciated the value a Chinese investor may have brought to Lion's operations, he was not entirely comfortable about a part-state owned entity like Mengniu having so much influence in the Australian dairy industry.
"The Chinese government doesn't always play by the same rules," he said.
His Nowra district neighbour Tim Cochrane believed a Norco-led syndicate "ticked all the boxes" for farmers, but Bega Cheese may be a good investor, too.
"Bega's not really in the fresh milk market at present, so buying Lion would give it a big national network to balance its other dairy products business."
We will continue to re-position our supply chain to make it relevant to the market we are in
Lion's assets include a major cold storage distribution network which would be attractive to Bega Cheese, whose executive chairman Barry Irvin last week said "all those things are interesting to us".
Although its dairy activities were now spread between the NSW South Coast and northern and southern Victoria, chief executive officer Paul van Heerwaarden said Bega needed to continue diversifying activities away from southern NSW to avoid competition and climate change risks to its food business.
"We will continue to reposition our supply chain to make it relevant to the market we are in," he said.
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