Melbourne-based fund manager Prime Value has snapped up another big Tasmanian dairy farm from struggling Chinese-backed operator Van Dairy Group, and it’s billionaire owner Xianfeng Lu.
The fund manager’s dairy arm, Prime Dairy, has agreed to pay about $15 million for a 700ha farm at Woolnorth in northwest Tasmania – the final asset in the $230 million unlisted fund promising investors total returns over the medium to long-term of more than 12 per cent.
Prime Value’s Kirsti Keightley says the dairy industry is in good shape.
The latest acquisition follows Prime Dairy buying 11 Tasmanian dairy farms for $62.5 million from Van Dairy Group in 2021.
In February, the ABC reported that Van Dairy (which paid $280 million in 2016 to buy 25 dairy farms from Van Diemens Land Company) had lost a 25-million-litre milk contract with Fonterra. Van Dairy battled environmental and workplace issues in 2021.
For Prime Dairy, the latest acquisition takes the fund’s portfolio to 5,000 hectares of high rainfall farmland in northwest Tasmania and southwest Victoria.
This gives it enough land to reach its goal of and running and milking a herd of 10,000 dairy cows.
The unlisted fund started off buying farms in 2020, at the same time as the Dairy Code of Conduct was introduced in response to the milk price crisis of 2016 sparked by processor Murray Goulburn, when it slashed the price it paid farmers for their milk to less than $1 a litre.
This crisis led to a huge exodus of dairy farmers from the industry, but also paved the wave for corporate players to buy up farms and create businesses of scale.
Following significant investment in the former Van Dairy farms, Kirsti Keightley, general manager of dairy investments for Prime Dairy said the trust was delivering annualised returns of 9.4 per cent.
Over the longer-term Ms Keightley said she was confident of achieving total returns above 12 per cent based on historical capital growth rates of 7 to 8 per cent and cash returns of 5 to 7 per cent.
Ms Keightley said many of the trust’s investors had connections back to the dairy or farming sector.
“The introduction of a minimum milk price has taken a lot of the risk out of dairy farming,” Ms Keightley told The Australian Financial Review.
While the industry was still shrinking (apart from in Tasmania) she said it was now a stable and profitable sector that could support both small family operations milking 200 cows and much larger corporate operations.
“You don’t have to be big to make money in the dairy industry,” she said.
“We have a growing population and milk supply is not keeping up with demand. You can’t just turn on a tap and create more milk.”
Unlike the majority of the dairy industry, the trust’s cows are pasture-fed, meaning the animals are “outside and healthy and happy”.
Milk produced by Prime Dairy – production is up 35 per cent this year on the 40 million litres produced in 2022/23 – is supplied to Fonterra and Saputo, with the majority of it going into cheese and butter products.
Ms Keightley, who also runs a family dairy farm, said Prime Dairy was one of six or seven corporate dairy farm owners in Tasmania.
“We operate a very hands-on business that is run by dairy farmers, who can milk cows and drive tractors. It’s set up like a family dairy farm,” she added.
While Prime Dairy and Ms Keightley are bullish about the outlook for the dairy industry, the value of milk production is expected to fall by 7 per cent to $5.5 billion next financial year due to lower farmgate milk prices, according to the Australian Bureau of Agricultural and Resource Economics.
This is despite forecasts that global demand for milk will exceed supply in 2024/25.
Source: The Australian Financial Review