The rhetoric suggested Australian dairy farmers were set to tap into rivers of gold thanks to a milk exporting boom.
The theory was that China’s much talked about growing middle class had an insatiable appetite for Australia’s clean and green exports.
It prompted a proliferation of companies that promised everything from mega dairies and farm buyouts to high-tech processing facilities and high prices.
But in the years that followed, few have delivered on what was promised.
ABC Rural examines how it all went so wrong.
Plans that failed to eventuate
Linear Capital/Aerem
The Tasmanian-based Linear Capital launched one of the biggest proposals the Australian dairy industry had witnessed in September 2014.
It planned to spend $750 million buying 50 farms between Colac and Mt Gambier in south west Victoria and south east South Australia.
The proposed development, which Linear said had the backing of Chinese investors, also included plans to build a milk processing plant at Colac.
The company had hoped to finalise the deals by March but instead extended its offer for another month.
By May 2015, Linear said “the deals were progressing” but within two months, one of the key people behind the proposal would confirm he was no longer associated with the venture, which had changed its name to Aerem.
Rumours and innuendo continued to dog the proposal for the remainder of 2015 and into the start of 2016.
Concerns about the proposal reached boiling point in February, when farmers who had signed individual option deals to sell their farms to Aerem feared the buy-ups had stalled.
Within weeks the company announced it had pulled out of the option deals, citing volatility in both global and financial markets.
The decision left farmers furious and questioning their futures after more than a year of uncertainty.
Camperdown Dairy International
Camperdown Dairy International burst into the industry in June 2015, vowing to establish a dairy empire along the Victorian-South Australian border.
Queensland coal miner Bill McDonald told the ABC he planned to build a 40,000-strong dairy herd and was on the hunt for 250 million litres of milk to complement his own production.
The goal was to export 100,000 tonnes of milk powder every year and employ more than 200 staff.
The company owned a milk powder plant in Melbourne and unveiled plans for a $200 million transformation of a factory in Camperdown, in south west Victoria.
At the time, Mr McDonald said the company had secured 20-year contracts with dairy buyers in Asia, the Middle East and the United States.
Within 18 months, the company announced that Mr McDonald had sold all his shares in the company and he instead planned to invest his money back in the coal industry.
His departure came after the company announced its $500 million plan to produce and process its own milk had been put on hold.
Chief executive Gavin Evans said the company had only purchased one farm.
He said the global oversupply of dairy and uncertainty around Chinese import regulations for putting the company’s plans on hold.
Mr Evans did not rule out the possibility of abandoning plans completely.
National Dairy Products
The financial woes of Victorian milk brokering company National Dairy Products became apparent last November when farmer suppliers from south west Victoria and Gippsland staged a mass exodus because they were owed money.
It was a company that was relatively young in the industry.
Its managing director, Tony Esposito, had previously ran United Dairy Power, a milk brokering company that was sold to a Hong Kong investor in February 2014.
United Dairy Power would later close down in April 2015. When it did, Mr Esposito started up the much smaller National Dairy Products.
Within a week of farmers walking out on National Dairy Products, the company appointed a voluntary administrator in a bid to “restructure the business”.
Mr Esposito blamed processors Murray Goulburn and Fonterra for his company’s woes, saying discount milk had de-valued the liquid market.
The company went into administration owing creditors more than $4.5 million, more than $1 million of which was to secured lender, Scottish Financial.
Administrators Deloitte Restructuring Services, in a statement to the ABC this week, said a second creditors’ meeting had been held on December 21.
At that meeting, the administrators presented a ‘Deed of Company Arrangement’ (DOCA) that would have seen unsecured creditors, which included farmers and transport companies, receive up to 17 cents in the dollar for debts owed.
Instead of agreeing to that offer, creditors instead adjourned the meeting seeking a new arrangement.
“This is to allow DOCA proponents an opportunity to revise their initial proposal for further consideration by creditors, and also to allow the administrators time to undertake some further investigations in relation to potential contraventions of the Corporations Act,” the statement reads.
A date for creditors to assess a new proposal is yet to be set but it expected to be in the coming months.
Stock market shocks following underwhelming performances
Bellamy’s
The Launceston-based Bellamy’s had been a stock market darling.
The organic infant formula manufacturer’s share price rose 133 per cent and profits surged 322 per cent in the last financial year.
But that all came unstuck last December, when shares tumbled 40 per cent following news that new Chinese regulations had depressed prices and hurt sales.
While the company argued it would ultimately benefit from the rule changes in China, it failed to impress investors.
Despite the optimism, the company later requested its shares be halted, and then suspended, from the ASX as it reassessed its financial position.
During this time, Tasmanian businesswoman Jan Cameron and investors targeted the company to remove its independent directors.
Shares in Bellamy again dropped when it emerged from its trading halt and announced it had replaced chief executive Laura McBain with chief operating officer Andrew Cohen.
The company’s chief financial officer, Shona Ollington, also stepped down from her role.
The company’s profit downgrade and leadership changes failed to satisfy Ms Cameron and investment vehicle, the Black Prince Private Foundation.
“I think the board is just stunningly arrogant in not accepting any accountability for what’s gone on,” Ms Cameron said.
“Instead, they seem to have pushed all the responsibility for the problems onto Laura McBain and made her the scapegoat.”
Bellamy’s returned fire and exposed a link between Ms Cameron and Black Prince, a connection the Tasmanian businesswoman had previously denied to the ABC.
The saga is ongoing, with class actions underway and the board to face an extraordinary meeting on February 28.
Shares in Bellamy’s this week were worth around $3.80, down from a peak of more than $15 in 2015.
Murray Goulburn
Murray Goulburn, Australia’s largest dairy processor, shocked the dairy industry when it suddenly and retrospectively cut farmer prices in April last year.
It triggered ripples that almost a year on are still continuing to rock the industry.
The industry regarded Murray Goulburn as the benchmark for prices, with competitor processor Fonterra cutting prices soon after, citing a supply agreement from preventing it from doing so sooner.
Murray Goulburn’s business was roughly split with about half its revenue coming from domestic sales and the remainder from exports.
While prices on global markets had continued to fall, thanks to Russian trade bans and a global oversupply of milk powders and cheese, Murray Goulburn, which was a fully farmer owned cooperative, prepared to list on the ASX.
Global prices continued to slump as Murray Goulburn listed but it remained confident it could ensure farmer milk prices would not have to be cut.
The company’s mid-year results came in below forecasts, prompting a cut in its forecasted profit. Farmers were also told farmgate prices would not increase for the remainder of the season.
Murray Goulburn ultimately blamed an unfavourable change in the exchange rate, lower than expected adult milk powder sales in China and a devaluation of its milk supplies for retrospectively cutting farmer prices.
Chief executive Gary Helou and chief financial officer Brad Hingle stepped down on the day the cuts were revealed. Board members would also later resign.
With farmers individually owing Murray Goulburn and Fonterra hundreds of thousands of dollars thanks to the cuts, the Federal Government intervened to offer concessional loans.
The competition watchdog, the Australian Competition and Consumer Commission, has launched inquiries into the dairy industry and will assess the contracts farmers receive.
The corporate watchdog, the Australian Securities and Investments Commission, also launched inquiries into Murray Goulburn’s disclosures to the ASX.
The chairman Philip Tracy will leave the company after its new chief executive, Ari Mervis, starts in February.
The year ahead will also see the continuation of Senate inquiries, political roundtables and class actions against Murray Goulburn.
Bega and Blackmores
Bega Cheese earned respect from dairy farmers when it refused to retrospectively cut prices like Murray Goulburn and Fonterra.
Executive chairman Barry Irvin slammed Murray Goulburn for breaking what he described as a “moral commitment” processors made with their farmer suppliers.
But shares in Bega took a dive after he announced at the company’s annual meeting that its partnership with Blackmores to export infant formula to Asia had not gone as planned.
Processors had been describing the baby formula market as “liquid gold”.
But a global surge in production and changes to regulations in China prompted Bega to rethink its forecasts.
Shares continued to fall in the company, hitting a 52-week low as investors offloaded their stake in Bega.
The company won back the support of investors when it announced it would diversify its business and buy most of Mondelez International’s Australia and New Zealand grocery and cheese business.
The $460 million deal, which sees Vegemite return to Australian ownership, prompted a surge in the company’s share price.
Exporting no simple matter
Camperdown Dairy Company
The boss of Camperdown Dairy Company, not to be confused with the aforementioned Camperdown Dairy International, has for years talked about the problems in the milk powder market.
“Milk powder stores for a long time and [that] often causes fluctuations in the price that affects the farmers because a lot more can be made than is needed and traders get involved and prices rise and fall,” chief executive Peter Skene told the ABC in December 2014.
His company instead focused its attention on the fresh milk market.
Camperdown Dairy Company received milk from farms in south west Victoria and could have it on a passenger plane for sale in China within 24 hours of milking.
The company hoped to use its fresh milk, which retailed for as much as $12 a litre, to tap into China’s lucrative gift giving market.
Early sales prompted the company to expand its exports to include yoghurt cups in February 2015.
Trouble struck in September 2016 when the Australian Government announced it had suspended the processor from exporting to China due to “milk quality issues”.
The company ultimately decided not to reapply for its Chinese export licence.
Mr Skene told the ABC that his company had secured backing from a Chinese company to build a new factory.
Viplus Dairy
Viplus Dairy was undergoing a $10 million expansion of its processing plant in Victoria’s Gippsland when Chinese authorities issued it with a temporary ban on imports.
Chinese officials asked the Australian Department of Agriculture to inspect and audit the infant formula manufacturer last November.
The ban came as a shock for Viplus, with the lingering uncertainty a cause for frustration.
It had 23 container ships containing 3,500 tonnes of infant formula headed to China when the suspension took place.
The chief executive Peter Cunningham told the ABC when the trade resumed in the middle of December that the ban had cost the company millions of dollars.
“We’re a little bit perplexed, but the thing is, we respect that the CNCA has to have reasons for this,” he said.
Viplus’ woes came at a similar time to Bellamy’s but Mr Cunningham was adamant the issues were different.
“Bellamy’s is a totally different situation to what Viplus has been through,” he said.
“We haven’t been informed [why trade was suspended] because it was a negotiation between two government departments.”
Where to from here?
In hindsight, business analysts have started drawing comparisons between the dairy crisis and the iron ore crash.
Demand for the product prompted a surge in production, and as that production outstripped demand, prices fell. This was also compounded by China changing importing regulations to protect local producers.
Both the industry and analysts agree that milk prices will recover once the dairy sector cuts back its global oversupply of milk powders and cheese.
In Europe, farmers are being paid to cut their production. In the United States, the former federal administration bought stocks of cheddar cheese, which it used for government programs and food banks, to help cut into the oversupply.
In Australia, analysts point to slight price rises as an indication that the recovery effort is continuing.
Market forecaster IBISWorld last week predicted overall revenue generated from milk powder would drop for the third consecutive year.
Senior analyst Nathan Cloutman said the rate of decline was slowing and the price of milk powder was rising.
“We’re seeing a lot more producers producing less milk. We’re starting to predict the oversupply balance will start to kind of readdress itself,” he said.
“We’re starting to see a slight increase in prices. There’s rising demand from countries within Asia, particularly China.”
Farmers say after the last year they’ve battled, they have a lot resting on that proving true.
Source: ABC
