Investment opportunities in Western Australia’s dairy industry

Contents

1. Investment highlights..........................................................................3

2. Executive summary............................................................................4

3. Industry overview................................................................................6

4. Market................................................................................................8

5. Proposal in detail................................................................................9

6. Opportunities for investment.............................................................12

7. Other benefits to investors................................................................18

8. Other important information..............................................................18

9. Key risks and mitigants.....................................................................19

10. How to progress.............................................................................20

11. Disclaimer......................................................................................21

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Investment highlightsThe Government of Western Australia through the Department of Agriculture, Western Australia (DAFWA) is supporting a significant expansion of the state’s dairy industry. Building on long established and world competitive milk production systems, Australian and foreign direct investment, linked to new international market development, provides investors in the Western Australian dairy industry with compelling business opportunities.

There is strong and increasing demand from consumers in emerging Asian countries requiring fresh, safe, quality, liquid, dry and functional foods with convenience and supply chain integrity.

Western Australia (WA) has abundant land resources, favourable climatic conditions and lengthy experience in the dairy industry, all of which provide the foundation for a significant expansion of the industry.

Western Australia’s close proximity to Asia provides the opportunity to deliver fresh and extended shelf life (ESL) dairy products, at competitive cost and with reasonable shelf life.

There has been strong interest by existing farmers and processors to work with investors to develop sustainable and profitable new supply chains.

Western Australia (WA) can effectively compete in a global market. Indicative financial metrics for an integrated supply chain show cash costs before interest, tax and depreciation, as low as:

Opportunity A – 100 million litres of liquid milk per year, free on board (FOB) cost A$ 0.51 per litre.

Opportunity B – 250 million litres of milk a year for processing into 30 000 tonne of whole milk powder per year, FOB cost A$2800/tonne.

WA is a reliable livestock producer that produces meat and dairy products which enjoy high consumer confidence worldwide. According to the Organisation for Economic Cooperation and Development (OECD), Australia ranked equal first with Denmark and the United Kingdom (UK) for food safety performance in 2010.

The high health status of the WA dairy herd underpins investor confidence, with strict bio-security measures and stringent food safety controls, reducing the risks to supply which could arise from disease outbreaks or food safety concerns in other regions of the world.

The Western Australian government welcomes new investment in the dairy sector from within Australia and from overseas. The government will assist investors to establish operations in the state and will provide access to government services including research and development, export development and minimisation of animal health risks.

Approvals to operate feedlots or processing facilities may be achieved within 3–6 months of receiving a proponent’s application, provided the proponent makes full

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disclosure of all information. DAFWA is skilled in assisting proponents to seek approvals and will work closely with them.

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Executive summaryWorld consumption of dairy products is increasing at around 18 billion litres of milk a year with much of the demand from Asia as a result of changing eating habits, sound economic growth and increased population.

The current WA dairy sector is mainly focused on producing fresh milk for the domestic market but there is considerable scope for increased milk supply for exports under alternative models.

Growth based on export markets in Asia is key to a more sustainable future for dairy production in WA. This will require significant investment along the supply chain including on-going innovation in farm production and manufacturing, new product development as well as market development.

Options for investment in milk production include:

Joint arrangements with existing dairy farmers to provide capital to increase milk production (available in short term).

Purchase of existing, large dairy farms currently available for purchase as functioning dairies, to develop experience and presence in the local industry (available in short term).

Purchase of beef or other properties in current dairy areas of the South-West for conversion to dairy operations (short to medium term).

Expansion into feedlot dairies into the neighbouring Great Southern region where land is cheaper and closer to grain growing areas (medium term).

Western Dairy and WA Farmers, the peak dairy producer organisations in WA have highlighted the strong interest of its members to collaborate with Australian and overseas investors to expand milk production in joint venture arrangements. Similarly existing dairy processors in WA have stated a willingness to cooperate with investors to process additional milk.

Existing milk production is approximately 320 million litres per year and current processing utilisation is in the order of 40%. Subject to commercial negotiations with any or all of the three major processors, a range of co-operation models may be possible.

In order to illustrate specific investment opportunities DAFWA in consultation with industry and consultants, has completed pre-feasibility studies (PFS) for Opportunities A and B below. These opportunities are to develop large new integrated supply chains, which are complementary to the existing and long established milk industry. Financial modelling is within typically accepted parameters for PFS +/- 25% and assumes development of Greenfield sites.

Opportunity A – 100 million litres of liquid milk for export in bulk to Asian countries.

Opportunity B – 250 million litres of milk a year for processing into 30 000 tonnes of whole milk powder.

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Opportunity C – tailored investments with existing processors and producers.

WA has an enviable reputation for fresh and safe milk production and processing as well as the availability of large land holdings suitable for farm milk production.

WA is a major Australian producer of rural produce, of which around 70% by value is exported to Asia. The state has efficient land and sea freight systems which ensure competitive freight costs.

The bulk milk opportunity (Opportunity A) model assumes that all milk will be sourced from new farms established in the South-West region and processed in a newly built facility. However an alternative pathway to developing new facilities (and therefore different cost structure) may be for existing WA farmers, processors and foreign investors to work together (Opportunity C). This will reduce build costs and make investments which are structured to increase production on existing farms and make better use of existing surplus capacities in processing.

In the milk powder opportunity (Opportunity B), it is assumed that about one-third of the total milk supply is sourced by purchasing existing dairy farms or establishing new farms within the existing dairy areas of the South-West region (which could be established relatively quickly). The other two-thirds are assumed to be sourced from new feedlot dairies to be established in the Great Southern region where land is cheaper and suitable for grain production.

Analysis by DAFWA and consultants indicates in an integrated supply chain, using best practice production methods, the cash cost of producing and delivering pasteurised or ESL milk in bulk is approximately 51 cents a litre FOB. The capital investment in farms and facilities is estimated at A$192m–$196m depending on technology adopted at a production scale of around 100 million litres a year of pasteurised or ESL milk. Cash costs have been calculated without including interest, taxation or depreciation, which will be different for each proponent.

The analysis for whole milk powder production indicates that in an integrated supply chain, using best practice production methods, it can be produced and delivered to Fremantle Port at a cash cost of approximately A$2800 per tonne FOB. The capital investment required to produce and process milk is estimated at about A$650 million for a milk powder plant producing 30 000 tonnes a year, with the final capital requirements dependent on completion of a Definitive Feasibility Study (DFS) for the chosen site. Cash costs have been calculated without including interest, taxation or depreciation, which will be different for each proponent.

DAFWA is keen to discuss development proposals in further detail with interested parties and to assist parties to conduct their own due diligence. Supporting documents for the information provided in this business case are available on request. DAFWA will also assist interested parties to seek the approvals required to establish a milk production and processing business in WA. However, DAFWA recommends that any party interested in investigating the opportunities presented in this business case should engage the services of consultants with the relevant expertise to provide more detailed advice.

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Interested parties can contact the Dairy Industry Transformation Project Manager at the Department of Agriculture and Food, Mr Terry Burnage on +61 (0)8 9368 3585 or terry.burnage@agric.wa.gov.au

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Industry overviewThere are currently around 160 dairy farms in the South-West region of WA, mostly located close to the coast (Figure 1), producing around 320 million litres of milk per year. The area has a Mediterranean climate with mild winters, 800–1000mm of rainfall and hot dry summers, although the climate tends to be more temperate closer to the south coast. Local topography and soil vary markedly through the region, which can affect farming practices, productivity and profitability.

The number of dairy farms in WA has declined over the last two decades due to deregulation of the State’s milk marketing arrangements, competition for land from other rural land uses and dairy farmers seeking economies of scale as farms have been consolidated to become more efficient. There are however, former dairy farms and current beef cattle farms that could be purchased and consolidated into large scale dairy operations.

A number of farmers have expressed interest in working with foreign investors in order to secure expansion capital and access new international market opportunities. There are large dairy operations which are currently available for purchase and a new entrant to WA should consider these options first as a mechanism to gain access to milk and experience in the local industry.

The productivity of the South-West is demonstrated by data from existing dairy farmers in this region who are among the most efficient and resilient in Australia. A reliable climate, good understanding of managing high production levels utilising grain and conserved fodder, sound capital structures and business diversity are among factors which contribute to the high productive performance of farm businesses in the South-West. Dairy farms in this region are, on average, the largest of any state in Australia and have the largest areas devoted to production of beef cattle, which could be replaced with dairy cattle to increase milk production.

Table 1 Average dairy farm and cropped area in hectares (ha), 2006–2010

StateDairy farm

area(ha)

Area cropped

(ha)

Beef herds (number)

Western Australia 460 141 107

Victoria 205 67 21

Queensland 311 63 32

Source: Australian Bureau of Agriculture and Resource Economics and Science

The existing dairy processing sector focuses on fresh milk for the domestic market with only relatively minor volumes exported, predominately as bulk, whole milk. Major Western Australian processors are the Lion Nathan-owned Masters Dairy, Archer Capital-owned Brownes Dairy and the privately owned Harvey Fresh, which together process around 90% of existing milk supplies. A number of smaller processors of specialty dairy products also operate in the state including operations of Bright Dairy under the trade names of Margaret River and Mundella, which are suppliers of specialty cheese and yoghurts.

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Figure 1 Location of current dairy farms in WA

WA’s strengths in milk production and processing include:

a government supportive of expansion of the state’s dairy industry, of regional development and of domestic and international investment

competitive cost of milk production using Australian and international benchmarks (e.g. International Farm Comparison Network)

reliable Mediterranean climate that allows a range of efficient milk production systems including dry-land or irrigated pasture and grain-fed systems

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more than 150 years of commercial milk production and processing experience

existing dairy sector produces around 320 million litres per year and has proven export performance

large rural land mass readily traded in a free market

abundant supplies of high quality grain and fodder

farm milk production of up to 10 000 litres per cow per year using pasture and supplementary feeding

healthy dairy herd with stringent health protocols and corresponding high quality milk, both in composition and microbial status

government oversight ensures high standards of food safety and environmental compliance

reliable sea and air freight to a large Asian population in the same time zone

stable government and financial institutions and a robust economy with a strong growth outlook.

MarketBulk fresh milkWorld trade in liquid milk products is very small compared to other products such as milk powders and cheese.

Cross-border trade within the Asian region (North and South-East Asia) in 2011 was 246 million litres with the majority being long-life or ultra high temperature (UHT) milk.

Imports of liquid milk products are growing at a steady rate in most Asian countries and reached 290 million litres in 2012. Malaysia and Indonesia have reduced their imports of liquid milk over the last three years and Indonesia has increased exports of liquid milk products to Singapore and Hong Kong.

There are significant trade barriers to the export of liquid milk products into some parts of Asia. The countries with the least restrictive barriers are Singapore, Hong Kong and Taiwan. These countries are Australia’s largest markets for liquid milk products.

Competition among suppliers to Asian markets has been keen in recent years. Western Australian liquid product prices in 2011 were estimated at A$0.89/L landed in Singapore. Singapore landed prices fell by 12% between 2009 and 2011 due to vigorous competition from Indonesia and Europe and UHT products from Germany, Holland, Argentina, Uruguay and Latvia. Indonesia is currently the major alternative supplier of fresh product in competition with Australian exporters.

The legal definitions and taste perceptions of fresh milk vary from country to country. Understanding these perceptions is critical to ongoing business. The perception of ‘fresh’ is a major selling point in many Asian markets and a highly regarded characteristic of products from WA. As Asian consumers become more affluent, markets will increase in size and become more attractive to processors from around

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the world. It is therefore expected that competition will increase in both the fresh and long life milk sectors.

Whole milk powder

World production of whole milk and skim milk powders was approximately 7.8 million tonnes in 2011 (Organisation for Economic Cooperation and Development and the Food and Agriculture Organisation of the United Nations (OECD-FAO) Agricultural Outlook 2012) with approximately three million tonnes traded across borders. Milk production to achieve these production levels was approximately 28 billion litres.

The market for all milk products is increasing by 17.6 billion litres per year with milk powder production expected to grow by 1.5 billion litres of milk equivalent (LME). The major markets for milk powders are in:

Asia – 12.9 billion LME Algeria, Nigeria and Egypt – 3.6 billion LME Mexico, Brazil and Venezuela – 2.6 billion LME The Middle East – 2.1 billion LME.

The average price for milk powders is expected to be reasonably constant in dollar terms beyond 2013 although volatility in prices remains a risk. This volatility will depend on individual country’s trade policies, international production and demand patterns, international feed prices and the availability of product for trade.

World powder projections from the OECD-FAO Agricultural Outlook 2013-2022 are shown in Table 2.

Table 2 Forecast milk powder production and prices

Projected production and price 2014 2015 2016 2017 2018Production (million tonnes) 5 5.1 5.1 5.2 5.3

Price US$/t free on board (FOB) 3727 3717 3737 3863 3930

Proposal in detailThis business case looks at two regional locations for expansion of the dairy industry. For ease of description, the options are termed the South-West region and the Great Southern region.

South-West region

Existing dairy properties

A number of existing dairy properties, of the preferred large scale, are currently available for purchase as going concerns. While each would not be of sufficient size to supply a new major processing operation, DAFWA considers that a strategy to purchase some of these properties would offer a number of advantages to a company looking to establish a significant presence in WA. Among the advantages of this option are:

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The purchase of existing properties would provide the opportunity to gain a greater understanding of local farm management practices.

Immediate cash flow to provide returns on investment.

Supply arrangements could be established with local processors which, in turn, could help in the creation of a joint venture operation, if this was considered economic for a product such as bulk milk.

These large properties could allow the new owner to source a significant herd of quality breeding stock, of the order of around 5000–10 000 dairy cattle plus replacement stock which, in turn, could form the basis for expanding the herd to meet subsequent processing requirements.

The new owners would also have greater opportunity to establish relationships with other dairy farm businesses. This could create the environment to encourage expansion in the industry to facilitate supply to a new processing operation.

The properties would provide the opportunity to employ and train staff for the subsequent, expanded operations.

The operating costs of these farms would be comparable with those assumed for 1000 cow South-West farms discussed below.

In addition, some dairy farmers are seeking equity investment for expansion. These farms could be run as a joint venture, retaining family management and labour.

New 1000 cow farms

New farms, of a similar scale to existing large, efficient farms, can be developed in this region. This business case assumes the purchase of farms with no specific dairy infrastructure, such as farms currently farming beef cattle, as the return on capital from beef is lower than from dairy.

Farms in this region graze rain-fed pasture supplemented with feed concentrates for six months and feed out silage and hay supplemented with concentrates during the summer and early autumn. Hay and silage is conserved from excess pasture growth in spring and grain is purchased from other farmers.

The key physical assumptions behind the 1000 cow farm model in the South-West region are set out in Table 3.

Table 3 Key assumptions for South-West farms (1000 cow farms)

Parameter TotalFarm area 770 ha

Total number of milking cows

1000

Labour 10.3 FTE + managerMilk produced per year 8.313 million litres

Milk solids 582 000 kg

Annual cattle sales 846 head

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Source: DAFWA consultant’s report, available on request.

Independent industry specialists believe the most promising areas in the South-West for new dairy production appear to be east of the towns of Busselton, Bunbury and Augusta. Areas around the towns of Bridgetown-Manjimup and Northcliffe also have considerable potential, although transport distances to processing sites would be longer (see Figure 2).

Great Southern region

3000 cow farms

This region has larger farms and cheaper land than the South-West region and offers potential for a large scale expansion of the dairy industry. While this region is currently predominately used for wool production, numerous small dairy farms existed in the region in the early to mid-1900s. The location identified for new dairy production is on the western side of the Great Southern region which has annual rainfall in the 500–650mm range. (Figure 2)

Figure 2 Great Southern region of WA (DAFWA mapping services)13

This region offers a cost effective feed base and the opportunity to adopt intensive production technologies used in other parts of the world. Having larger properties would allow feed produced on the farm, at the cost of production, to supply the dairy herd instead of purchasing supplementary feed at market prices.

The production system envisaged is similar to large beef feedlots currently operating in the Great Southern region, which have in excess of 10 000 head. Although a feedlot dairy system is new to WA, it is common practice in other parts of the world. For example, similar dairy production systems operate in the United States, Europe and the Middle East. A United States Department of Agriculture census of 60 000 dairy farms in 2012 found that 1700 farms were feedlot dairies with a milking herd size above 1000 cows. Herds in excess of 2000 cows accounted for 33% of the total herd and 35% of total production (USDA Farms, Land in Farms and Livestock Operations 2012 summary, February 2013).

The feedlot system for the Great Southern region would involve dry land grazing when pasture growth is adequate, with feedlot operation in summer/autumn using grain and alkalage (an ensiled, ammoniated whole crop feed source) or silage produced on the farm. The average size of a property under this milk production option is 8750 hectares.

The south of the Great Southern region is renowned for growing high quality oat crops which can be made into silage or hay. An average of 8.5 tonnes dry matter per hectare of silage or hay can be produced. Large quantities of feed wheat, feed barley, lupins, triticale, oats and peas are also grown.

It is assumed that each farm/feedlot has 3000 milking cows, as this has been shown to be an optimum number in other countries. Milk production per cow is assumed to be 8750 litres per lactation.

A 3000 cow dairy herd will require around 150 million litres of drinking quality water annually. Coupled with the requirements for washing down and cleaning the dairy, the annual water requirement is likely to be about 350 million litres. To meet this requirement, the farm plan includes the construction of 20 farm dams of 50 000 cubic metres each with a 25 hectare man-made catchment. Topography in the region, particularly the more southern areas, is well suited to capturing surface water.

As the Great Southern dairy feedlot is a new concept to the state, an international consulting firm with broad experience of dairy feedlots was contracted to review the analysis above. Emerald Agriculture concluded that, “The Great Southern region of WA is suitable for the establishment of large feedlot dairy farms designed to be competitive in an international arena”.

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Opportunities for investmentInvestment opportunity A – integrated business producing 100 million litres of bulk fresh milk

Milk production

All milk for the bulk plant could be drawn from the South-West. Twelve new 1000 cow farms would be required to supply milk for a 100 million litre bulk milk processing plant. Alternatively existing dairy farms could be purchased or expanded in a joint arrangement, to supply some or all of the milk required.

Based on the South-West dairy farm model of 1000 cows presented in Table 4, establishment costs for 12 new 1000 cow farms in the South-West would be A$145m. Cash operating costs/litre are assumed to be 34.9 c/litre (Table 7).

Fresh bulk milk plant establishment costs

High temperature short time (HTST) processing is assumed to be with a single pasteuriser with 30 000L/h capacity with separation and fat standardisation using aseptic storage and aseptic downstream processing to aseptic packaging. An extended shelf life (ESL) process, including homogenisation, would involve the use of two process plants each of 15 000L/h capacity. This is necessary as the maximum run time is shorter than HTST pasteurising plants.

A preliminary capital cost assessment for the processing and packing plant is around A$42m for HTST and A$46.5m for ESL (details of the capital requirements are available on request). This estimate does not include the costs of land or key services to the site (estimated at A$1m and A$4m respectively). This is a preliminary estimate dependent on further investigation and subject to definitive cost estimation.

A number of sites appear suitable for a bulk milk processing facility located in Perth’s southern suburbs and close to the Fremantle Port.

Plant operating costs

Annual operating costs for a 100 million litre plant are estimated to be A$11.9m for HTST and A$13.7m for ESL (Table 4).

Table 4 Bulk fresh milk plant operating costs (A$million)*

Cost component HTST ESLTotal (A$m) $11.9m $13.7mTotal (c/L) 11.9c 13.7c* This cost does not include interest, taxation or depreciation

Financial analysis

A new integrated business producing 100 million litres a year of milk for export in bulk, could be established for between A$192–$196m and would have an estimated cash operating cost of approximately 51c/litre FOB Fremantle port (Tables 5 & 6).

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Table 5 Bulk milk business and establishment costs by operating cost components (HTST)

ScenarioEstablishmen

t cost (A$m)

Operating cost (A$m)

Operating cost (c/L)

HTST plant and farm milk production $192m $18m 51.0

Farm milk production No data No data 34.9 Milk processing No data No data 11.9

Milk transport and FOB charges No data No data 4.2

Source: Industry consultant’s report to DAFWA, available on request

Table 6 Bulk milk business and establishment costs by operating cost components (ESL)

ScenarioEstablishmen

t cost (A$m)

Operating cost (A$m)

Operating cost (c/L)

ESL plant and farm milk production $196m $20m 53.0 Farm milk production No data No data 34.9 Milk processing No data No data 13.7 Milk transport and FOB charges No data No data 4.2

Source: Industry consultant’s report to DAFWA, available on request

Investment opportunity B – integrated business producing 30 000 tonne of whole milk powder

Milk production

An integrated business producing around 250 million litres of milk and processing this into 30 000 tonne of milk production could source milk from ten new dairy farms with a total of 10 000 milking cows in the South-West region and seven new dairy farms with 20 000 milking cows in the Great Southern region. (Table 7)

The analysis assumes that all milk is produced on new farms in the South-West and Great Southern regions, rather than drawing milk supply from any existing dairy properties which might be purchased. However the cost of milk produced from large new farms or from purchased farms in the South-West region would be similar.

The cash costs of milk production in the two regions shown in Table 7 cannot be directly compared, as it has been assumed that the farms in the Great Southern region will produce all of the feed required, while supplementary feed needs to be purchased at higher market prices for farms in the South-West region.

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Table 7 Cash cost on new farms supplying raw milk to a whole milk powder business (Assumptions based on milk production in the South-West and Great Southern regions)

Item South-WestGreat Southern feedlot & grain growing

Number of farms 10 7

Total land purchased (hectares) 7700 58 340

Average farm herd size (cows) 1000 3000

Total herd 10 000 20 000

Milk production (ML) 83 173

Milk powder equivalent (tonne) 10 375 21 625

Farm land cost price (A$/ha) A$9 978 A$3 937

Farm land cost total (A$million) A$76.8m A$229.7m

Total establishment cost ($m) A$121m A$425m

Farm milk production cash cost total ($million)

A$29.0m 36.6

Farm milk production cash cost cents per litre*

34.9* 21.2*

Farm milk production cash costsA$/t milk powder equivalent

A$2 795 A$1 695

The weighted average cash operating cost per litre from combining milk produced in the two regions as above is 26c/L.

Plant location

Three potential locations were considered for the development of a 30 000 tonne per annum milk powder plant. All three sites are in the South-West region and are accessible for farms in both the South-West and Great Southern regions.

A powder plant could be designed and constructed in two years from the finalisation of all land acquisition and government approvals. Depending on the location, the land purchase and any associated rezoning and provision of infrastructure services, could take at least a year from a decision to proceed with the project.

In practice, the construction of the powder plant will be tied to the output of milk from the farms. Peak and stable milk production is not anticipated for at least four to five years. A careful phasing of all stages will be a critical part of the development of an integrated milk production and manufacturing process.

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Milk powder plant establishment cost

The capital requirement for a six tonne per hour milk powder plant, including land and delivering services to the land, is estimated at between A$88.5–$94.1m (Table 8).The estimate is at a conceptual level and will vary with final location and design.

Table 8 Milk powder plant establishment costs by location (A$ million)

Item Dardanup Collie Busselton

Land purchase 0.5 0.5 1.0

Key services 0.5 1.2 5.6

Plant 87.5 87.5 87.5

Total cost (A$m) 88.5 89.3 94.1

Source: Industry consultant’s report to DAFWA, available on request

Milk powder plant operating cost

The operating cost is estimated at A$565 per tonne of milk powder produced. This includes the costs to run the plant but does not include any finance charges, interest on capital or long–term allowance for replacement of plant and equipment.

Financial analysis

The annual cash operating cost, including farm milk production, milk transport, milk powder processing, powder transport and delivery to Fremantle port is approximately A$2800 FOB per tonne of milk powder (Table 9).

Table 9 Operating cash costs by component for integrated milk powder supply chain

Scenario Establishment (A$m)

Annual operating

(A$m)

Operating cost

(A$/t powder)

Ten South-West and seven Great Southern farms

652 87 2800

Farm milk production No data No data 2053

Powder processing No data No data 565

Milk transport and FOB charges No data No data 182

Source: Industry consultant’s report to DAFWA, available on request

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Cash operating costs

Table 10 Summary of the integrated supply chain cost structure. *Based on a weighted average milk price of $0.26c per litre from production in the South-West and Great Southern

Item Farm production Processing Transport Cost FOB Fremantle

HTST bulk milk $0.35 $0.119 $0.04 $0.51/litre

ESL bulk milk $0.35 $0.137 $0.04 $0.53/litre

Milk powder $2053* $565 $182 $2800/tonne

Capital costs

Item Type Cost

Bulk milk (100 million litres/year) Farms A$145m

Bulk milk (100 million litres/year) Processing plant HTST A$42m or ESL A$46.5m

Milk powder (30 000 tonnes/year) Farms A$546m

Milk powder (30 000 tonnes/year) Processing plant range A$88.5-$94.1m

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Investment opportunity C – tailored investments with existing processors and producers

From discussion with industry, it is clear that the potential exists to create a specific investable dairy proposition for businesses. This proposition could include the purchase or investment in existing farms, specific stake-off agreements with existing processors and other investment in the supply chain. DAFWA can assist with introductions and facilitation of tailored dairy investment on a strictly commercial in confidence basis.

Other benefits to investorsInvestment in WA provides the investor with the ability to develop a dedicated supply chain from feed and milk production to product manufacture and export. This allows the investor to ensure continuity of supply and product quality.

The high health status of the WA dairy herd, strict bio-security measures and stringent food safety controls, reduce the risks to supply which could arise from disease outbreaks or food safety concerns in other regions.

Other important informationIt is extremely important that all applications for regulatory approvals are underpinned by a clear and concise intent to achieve full disclosure based on a properly developed project proposal. This is because regulators need full disclosure of all required information from a properly developed project for quick and efficient processing of an application.

A comprehensive, integrated development application could be used to attain concurrent development approval from Local Government, Department of Environment Regulation (DER), Department of Transport (DoT) and Department of Water (DoW). This could result in the time required for a total approval process of three to six months.

The Department of Agriculture and Food, Western Australia is skilled in assisting proponents to seek approvals and will work closely with proponents for the inception of the project.

The time period for all regulatory bodies to access a proponent’s application commences from the point at which they receive all the information required to make a decision is in an appropriate format. This time period should not be confused with the point at which the proponent makes first contact with the regulators.

Proponents from overseas also need to comply with the requirements of the Australian Government’s Foreign Investment Review Board.

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Key risks and mitigants

Risk Mitigant

Reaction of existing industry members There will be opportunities for co-investment with existing farmers to increase milk production and for arrangements with existing milk processors for co-investment, contract packing etc. There are several other industry benefits including improved profile of the industry, better availability of farm and processing support services and more jobs in a regional economy.

Milk powder is not currently produced in WA

All inputs are available to establish a competitive whole milk powder business. The technology is available from major equipment suppliers already operating in Australia and skills can be sourced from other Australian states.

Milk powder production competing with New Zealand

New Zealand (NZ) has advantages due to the scale of its dairy industry and international markets. However, there are very strong competitors in the NZ industry and the current drought in NZ highlights the benefits of a spread of production.

Competition from alternative locations in Australia

There are strong competitors in other states. Establishment of a dedicated supply chain from farm to marketplace is an advantage in WA as is a geographic spread of production to reduce supply risks.

Lack of existing scale All inputs are available to develop a competitive new integrated milk production and processing business.

Availability and cost of labour The South-West and Great Southern regions have the largest populations outside of Perth. Labour costs in WA are similar to those in other Australian States.

Approvals Provided all information is available to the regulating agencies, approvals could be received within 90 days. DAFWA will assist an investor to seek the approvals

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Risk Mitigant

required.

Climate change Rainfall and runoff in the Great Southern region have been predicted to reduce by 5–9% from 1990–2030. This is taken into account in the conservative approach taken to obtaining water for the farms.

How to progressInterested parties can contact the Dairy Industry Transformation Project Manager, at the Department of Agriculture and Food, Mr Terry Burnage on +61 (0)8 93683585 or terry.burnage@agric.wa.gov.au

Services provided by the Department of Agriculture and Food, Western Australia to assist investors in the agri-food sector:

provide detailed information on opportunities

assist with pre-feasibility plans to assess opportunities

coordinate approval process in government

supply contacts such as project managers, joint venture partners, financiers, immigration specialists, accountants etc

access to relevant research and development information

information and advice on Western Australian government natural resource management and biosecurity legislation and regulations, and the responsibilities and obligations

information on Australian government quarantine and export regulation requirements.

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DisclaimerThis business case provides indicative modelling on a large new dairy supply chain in Western Australia. The business case and any additional information or documents that the state of Western Australia through the Department of Agriculture and Food, Western Australia (DAFWA) may supply, are to be used only as preliminary and indicative information, to be considered and used by prospective investors in the Western Australian dairy industry in conjunction with other information and appropriate financial, legal, industry and other expert advice tailored to their individual circumstances and intentions. Prospective investors should conduct (or engage appropriate professional advisers to conduct) their own analysis and due diligence on any proposed investments, including the process for obtaining approvals. No part of this business case or any additional information or documents that DAFWA may supply constitutes or should be relied on as financial, investment, legal or other advice.

The Chief Executive Officer of the Department of Agriculture and Food and the state of Western Australia accept no liability whatsoever by reason of negligence or otherwise arising from any use or release of material (which in this disclaimer includes this business case, any information in it or other part of it, and any other information, advice or material, oral or written, DAFWA may supply in relation to any aspect of the Western Australian dairy industry, regulation of it or investment in it) or any error, inaccuracy or omission in the material. Although reasonable care is taken to make the material accurate, the Chief Executive Officer of the Department of Agriculture and Food and the state of Western Australia do not make any representations or warranties about its accuracy, reliability, completeness or suitability for any particular purpose.

Copyright © Western Australian Agriculture Authority (WAAA).  

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