As Shanghai’s Stockmarket continues to head south and China’s regulators and central bankers endeavour to hold the fort with moves such as devaluation of the yuan, what are the implications for Australian food companies with strong China connections?
This past week, three different situations present themselves as potential case-studies to illustrate different strategies.
Hope Dairies
Earlier this year, mining magnate Gina Rinehart, head of Australia’s iron ore mining giant Hancock Prospecting, committed her agribusiness group Hope Dairies to invest AUD $500 million for setting up a dairy operation in the Mary Valley in Queensland. The proposed investment was to develop an export business in milk powder-based infant formula production destined for the Chinese market.
Hope Dairies had purchased 3000ha of land with the original plan of using it for 16 000 dairy cattle. It was expected that the farm could produce up to 30 000 metric tonnes of infant formula per year.
Yet, at the beginning of August 2015 it was confirmed that this plan would be put on hold.It has been announced that the new plan is to utilise the same land to raise Wagyu cattle for beef in Australia’s domestic and international markets.
Although there is strong demand in China still for infant formula, the decision by the management for Hope Dairy to put on hold the development of its dairy processing capability is probably attributable to the bigger malaise affecting the global dairy market. There is an international oversupply of milk and the EU is building up dairy stockpiles, an event which has not occurred since 2009.
The returns to dairy farmers worldwide are shrinking. For example, New Zealand’s Fonterra announced on the 7 August 2015 that it had reduced its forecast total payout to farmers for the 2015/16 season, due to oversupply and weak demand.
Futures market analysts say the Global Dairy Trade average price could yet sink as low into the range of US$1250 to US$1500 per tonne. Despite volatility, the average price on auctions in early August 2015 was US$2746, after a 10.8 per cent fall.
There is concern that the EU stockpiles will eventually find their way into China and India. This would undermine returns for dairy products being sourced from other countries such as the USA, New Zealand and Australia. The irony is that the European stockpile is partly the result of pressures from these same countries to compel the EU to do away with its domestic production quota system. The EU abolition of protectionist domestic production quotas on 1 April 2015 has not led to a reduction in subsidised production but, rather, created a growing stockpile that will hang over free international markets.
Bright Food Company
The Chinese state-owned Bright Food Company first purchased a 75 per cent stake of Australia’s Manassen Foods in 2011. Manassen Foods currently distributes in Australia the well-known food brands including Coffex, Country Cup, Paul Newman’s Own and Wokka.
Bright Food Company is the owner or distributor in China or Australia of the products of the following well-known Australian businesses or brands:
○ Manassen
○ Sunbeam Food Group
○ Mildura Fruit Juices
○ MFC Mildura Food Group
○ A View to Food
○ The Margaret River Dairy Company
○ Simon Johnson
○ Calendar Cheese Company
○ Black Pearl Epicure
○ Australia on a Plate
○ Bob & Plate’s 100% Yum
○ Hutchinsons
○ Mundella Cheese and Dairy
○ The Simply Fine Food Company
It is strongly believed that Manassen Foods is headed for an imminent public float and listing on the Hong Kong Stock Exchange.
Bright Foods was established in Shanghai in 2006. It has other major international investments including a 60 per cent stake in the UK’s Weetabix breakfast cereal. In 2014 the company acquired a majority ownership stake of Israel’s Tnuva, a milk and dairy product manufacturer and in October 2014 Bright Foods brought a majority share of Italy’s Salov which makes olive oil.
The share price of Bright Food Company on the Shanghai Stock Exchange has been severely dented in the collapse of share prices on the Shanghai market.
If the Hong Kong float story about Manassen is correct, it is interesting to speculate why the company is seeking funds in Hong Kong. The first question is why any interest in Manassen is being off-loaded at all, when it is a fairly recent acquisition by Bright Food Company? The second question is why Hong Kong? The third question is whether Manassen shares will be offered in Australia? And the fourth question is whether Australian investors will be attracted to a Shanghai-based food distribution business?
Beston Global Food Company
The third situation of a company linking Australian foods destined for customers in China is the imminent float of the Beston Global Food Company. This company was established in Australia three years ago looking to export Australian meat, seafood, dairy and other food products, especially taking advantage of growing populations in Asia. Since its start, Beston Global Foods has taken up stakes in a number of Australian food companies including B-d Dairy, and lobster company, Ferguson Australia. Earlier in 2015 Australian Food News reported that the company had acquired South Australian-based United Dairy Power. The company has aspirations to sell increasing quantities of its food products into China.
The company has now announced that over AUD $100 million will be raised on the ASX in the Initial Public Offering (IPO), with shares to be offered at 35 cents each.
It will be interesting to watch the progress in this space.
