Archer Capital has exited Brownes Dairy, the largest dairy company in Western Australia, to Australia Zirhan Co., a Chinese consortium backed by dairy giant Shanghai Ground Food Tech and private investment company Changchun Lianxin Investment Consulting among others.
Financial terms of the deal have not been released, however, the deal, which is the first deal in Australia for Ground Food, is reported to represent the largest inbound food deal in China this year.
Founded in 1886, Brownes Dairy is an iconic name in Western Australia. The company collects 144 million liters of milk from more than 61 dairy farms each year, and makes a line of products including white milk, yogurt, flavored milk, cream, and juice.
Brownes is one of the last remaining independent large-scale dairy companies left operating that is not farmer-owned, reports FarmOnline. And under the leadership of company managing director Tony Girgis, Brownes has raised productivity, reduced costs, and has restructured its operations to include only one production facility. The overhaul has seen the company bring its earnings before tax, depreciation, and amortization to approximately $15 million. However, due to its isolated nature, the dairy industry in Western Australia has not faced the same volatility as in other regions, possibly protecting the company to a degree.
Looking Abroad
It is reported that Ground Food is planning to reintroduce cheese production at Brownes to help meet demand on the Chinese market.
“They’ve got ambitions to grow into cheese — the next rapidly growing area in China at the moment — and if you follow the international news there’s been a number of international players clamouring to get into supplying cheese to China,” Tony Girgis managing director of Brownes, told ABC.
“Not only will we seek to expand into new products such as cheese, but we will also be better positioned to take advantage of export opportunities and promote the WA dairy industry to a much wider audience,” said Girgis.
It was this long history and strong brand recognition that drew the investors to Brownes, which signals its potential to grow the dairy industry in Western Australia, and given its geographic location in proximity to Asia to realize growth through exports.
“As it has done for 130 years, Brownes will remain an important part of the WA community and continue to contribute to the sustainability of the local dairy industry,” Girgis said in a company statement. “This deal is a significant step in positioning Brownes for growth well into the future and we are excited at the opportunities offered to the business, our suppliers, employees and consumers.”
Under the terms of the deal, Girgis and current management will remain in place at Brownes, and business is expected to not only carry on as usual, but expand in the future.
“Day-to-day there will be no disruption to our employees and suppliers and we expect to be able to make more positive announcements in the near future,” said Girgis. “Furthermore, the decision to retain Brownes’ management provides ongoing structural certainty and is a vote of confidence in the business’s current position and its future direction.”
Building Bridges
Although Australia has long been seen as well-situated to benefit from supplying food to China’s vast market, true connections between the two markets began to take off after November 2014 when the two countries sealed a free trade agreement that has the potential to add A$20 billion to Australia’s trade income from China, and more widely opened Australia’s ag industry to Chinese investors.
The relaxation of access to China’s market has seen connection being made not only in dairy production, but across a range of ag sectors.
In 2015, Australia’s Agriculture Minister, Barnaby Joyce signed a live cattle export agreement with China that will open a ‘massive new market’ that is expected to contribute approximately $2 billion to Australia’s economy, and which made Australia the first country to export feeder and slaughter cattle to China.
Then, in February 2016, Costa Group, Australia’s largest produce company, partnered with California-based multinational berry group, Driscoll’s to launch a joint berry production venture in China.
And in May 2016, Australia Aulong Auniu Wang (AAAW), the cattle arm of Chinese supermarket and department store giant Dashang Group, acquired the key Australian Wagyu beef operation Kuro Kin in an off-market deal. This acquisition builds upon AAAW’s $45 million acquisition last year of the 30,000-hectare Glenrock Station, which is stocked with 5,000 head of Angus cattle. The group also owns the Clear Hills station and a 15 percent stake in Beston Food Group.
But perhaps the highest profile deal happened in December 2016 when Australia’s Treasurer Scott Morrison granted approval for the sale of the S. Kidman cattle empire to Australian Outback Beef (AOB) – a joint venture between mining magnate Gina Rinehart and China’s Shangjai CRED for A$386.5 million.
-Lynda Kiernan