Bread and butter: Investors pile into Australia's dairy sector

Wed Aug 27, 2014 5:00pm EDT
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By Byron Kaye and Jane Wardell

SYDNEY Aug 28 (Reuters) - A tiny financial services firm on the Sydney bourse has unveiled plans to sell shares as it re-lists as a dairy company, counting on investor interest to develop an industry struggling to keep up with Asia's exploding demand for milk, butter and cheese.

The stars are aligning for companies aspiring to enter Australia's A$4 billion ($3.7 billion) dairy sector but which lack the financial heft to wage an outright takeover of a big producer. Offshore pension funds are now on the lookout to acquire strategic stakes in the sector, as well as players in the global dairy industry itself.

Six months ago, Saputo Inc took over Warrnambool Cheese and Butter Factor Co Ltd after a very public fight for Australia's oldest dairy producer. The Canadian company views Australia as a platform to tap growing demand in Asia's emerging markets.

"There's been a renewed interest in Australian dairy assets," said Michael Harvey, a dairy analyst at Rabobank, noting a significant portion of the interest is coming from outside the industry.

"That's about managed money and superannuation funds wanting to invest in agriculture, and they see dairy and Australian agriculture as a great way to do that."

Hoping to ride on this rising wave of investor interest, small-cap APA Financial Services Ltd will re-list as Australian Dairy Farms Group this year. APA currently has just two farms in Victoria state, but it plans to grow fast.

Dairy producers are looking to ramp up stagnant local production in the face of Asia's fast-growing middle class, which is expected to consume more Australian dairy as it develops Western tastes while distrust of local food safety procedures prevails.

Already China is the world's biggest dairy export market with 1.5 million tonnes shipped in 2013, or 13.4 percent of global imports. By 2050, Chinese appetite for milk-based products may be so high the world's exporters may not produce enough dairy to meet it, some forecasters warn.   Continued...