Food security

You could be forgiven for thinking Australia and New Zealand food industries are being raided by Asian buyers. There has been a flurry of activity in recent weeks with a new breed of players involved in a fresh wave of transactions. Chinese food conglomerate Bright Dairy & Food has announced an agreed purchase of a controlling stake in emerging NZ South Island dairy manufacturer Synlait Milk, nominally valuing the dairy company which has been operating a couple of years at about $A120 million. Japan’s commodity house Mitsui is already a shareholder in Synlait.

Bright had recently been gazumped by Singaporean commodity player Wilmar, the world’s biggest listed producer of palm oil, in a bid for CSR’s sugar division.

Dairy has been on the radar for others. A NZ-financed dairy farming operation based in South America has also been snapped up by another diversified commodity group Olam, which owns a fair slice of Australia’s cotton industry. Olam holds a stake in another NZ dairy group, Open Country.
There are other Chinese bidders involved in potential deals in NZ. A large portfolio of dairy farms is being sold off by receivers, while other large farm clusters that are in trouble due to financial pressure have potential overseas buyers in the wings.

Fears for food security are partial drivers for this activity. That motive is a strong factor in Bright’s purchase of Synlait. The Chinese dairy sector is still adjusting to a new order after the disastrous melamine poisoning fiasco of 2008 which is still sending fresh tremors through the retail market as contaminated product continues to show up in shops. Bright wants a secure supply of products (whole milk powders and infant formula products) made from “quality milk”. The Chinese retail market has not yet returned to its former self, as Bright and its competitors build new credible supply chains rather than rely on fragile and corrupt practices of the past. Bright will give momentum to Synlait’s expansion, promising to support a further planned capital raising by the company in 3 to 5 years – when the share market may also be in better health.

In the case of activity of commodity traders, the moves are interesting as they go from dealing in commodities to owning the suppliers. After taking a hiding in the global financial crisis, the commodity traders are after food security of a different form – reliable access to product without exposure to volatile conditions. Wilmar is also keen to dilute its exposure to palm oil which will only be a less-popular food ingredient in future, and promises rapid expansion in Brazilian and South East Asian sugar production.

Where else might the raiders look? Wine might be a real opportunity for a bargain hunter as there would be plenty of sellers given the depressed state of the sector reeling from the double-whammy of over-supply of grapes and the erosion of export values by low-cost competitors and the value of the $A. Bright was reported several weeks ago as in talks with Fosters which has struggled to make its wine business a worthy contributor to the drinks group.

There is little doubt we’ll see more action in this space as emerging global players compete for a slice of the hungry consumer markets in the developing world.