Challenge Dairy believes a new joint venture with Singapore’s QAF is the first step in its plan to tackle the value-added market.
Challenge Dairy believes a new joint venture with Singapore’s QAF is the first step in its plan to tackle the value-added market.
This week the dairy cooperative won overwhelming shareholder support for the deal, with 92 of the 94 shareholders backing it at a special meeting held on September 24.
In addition to providing a much needed $13 million capital injection to Challenge Dairy, the QAF deal will also pave the way for increased exports, particularly into the Chinese market.
News of the QAF joint venture comes less than a year after the collapse of a $25 million deal with China’s Beijing Sanyuan Foods.
Challenge Dairy chairman Larry Brennan said the QAF deal meant “the coop now has stability for the next three years” and would result in an increase of four cents in the milk price.
Mr Brennan said the QAF deal was intrinsic to turning the business around from commodity based products, to value-added products.
He said Challenge currently produced 100 million litres of milk each year, 20 per cent of which was turned into skim and whole milk powder.
However, the milk powder business provides minimal return and Challenge had been looking for a value-added export market for that 20 million litres of milk in the Asia Pacific region.
“What this [QAF deal] means is that we have a business plan to spend $13 million over the next three years to allow Challenge Dairy to move from selling mostly bulk products in milk, butter and cheese and move to value-added product, into cut, wrapped and shredded cheese,” Mr Brennan said.
“All of those would be retail products into the export market.
“We were hoping that San Yuan was going to do that and hopefully we have learnt some lessons this time.
“Through the [QAF] investment in Challenge Dairy in WA, we can look forward to growing the dairy business in Singapore, Malaysia and the Asia Pacific Region.”
Mr Brennan said Challenge, which posted a $3.6 million loss last year, had worked hard to restructure the business.
“Challenge Dairy cooperative has had a pretty chequered career but we have now addressed the issues in management: we have an excellent managing director, more accounting horsepower and we now have a front end to our business in the sale and marketing team,” he said.
“We needed a capital injection into this business to give us the ability to change from a commodity supplier and we needed to access to some instant marketing and distribution.
“The QAF deal solves this problem.
“That have us instant access to market; we’ve concertinaed that supply chain down with QAF.
“The fact that they have a long-term vision for the dairy industry. They have a proven track record in the pork, baking and milling industries.
“They are serious long-term investors and they have a very strong front-end business in Ben Foods, the sales and marketing company.
“QAF wants to invest into the dairy industry in China and by investing in WA we can bring a level of expertise and technical knowledge that QAF can invest in China.”
QAF will have a 51 per cent stake in the joint venture and Challenge will have 49 per cent.
Mr Brennan said Challenge directors were satisfied that legally binding provisions in the shareholders’ agreement would protect the cooperative’s interest and provide a suitable balance.
“We’ve a clear business plan that we can now go forward with confidence,” he said.
