New Zealand dairy giant Fonterra, the world's biggest dairy cooperative and a major exporter, has lodged a bid for the Australia's largest dairy processor the troubled Murray Goulburn.
Fonterra, which is already attracting dairy farmers away from Murray Goulburn and rapidly increasing its Australian milk supply, confirmed it had thrown its hat into the ring as a byer as it released its annual results for fiscal 2017 on Monday.
Fonterra posted a $NZ745 ($A682 million) net profit from its worldwide operations.
"We have placed an indicative, non-binding proposal into the mix, with Murray Goulburn," Fonterra Australia's managing director Ren?? Dedoncker told Fairfax Media.
"And we'll now leave that with the Murray Goulburn board and give them some space and respect just to review that, with other proposals that they've got.
"But there is potential in that space. But I guess what we're not doing is waiting for that, we're continuing down our own path of investment, and at the same time we'll see what happens on the other side."
Murray Goulburn has sought bids as part of a strategic review after a disastrous couple of years where it was caught paying too much to farmers for their milk in the face of a deep global slump in dairy prices.
The company has promised to update investors on the progress of the review at its annual general meeting in October.
Asked what was attractive about Murray Goulburn to Fonterra, Mr Dedoncker said: "It's more about our strategy. We know cheese and we know whey and nutritionals, those three areas, better than anybody else. And it's products that come from that that serve consumer food service and ingredients, that's fundamentally our strategy. And our investment that we're making is all in line with that. Where there's any synergy from Murray Goulburn, in respect to that strategy, that's where there's value. But it's limited to that as well."
While a number of companies have been named in media reports as being interested in Murray Goulburn, Fonterra is the first to have publicly declared its interest.
Fonterra also revealed on Monday that its Australian milk volume, the amount of milk it receives from farmers, is on track to jump by about 25 per cent this year to about two billion litres.
"That 25 per cent increase in milk I think talks to the confidence of farmers in terms of their attraction to moving across to Fonterra," Mr Dedoncker said.
"In the last 90 days we've had over 200 farmers join. And some of those farmers produce four-to-five million litres of milk in their own right, on their own farm. The vast majority of that 200 are Victorian farmers, that have come across."
Fonterra also had "a significant waiting list" of more Australian dairy farmers wanting to supply it.
Mr Dedoncker said Fonterra's milk supply in the current financial year could in fact be greater than two billion litres "if we have a good season".
In its annual review the dairy co-operative's chairman, John Wilson, lauded the performance of its Australian arm.
"In Australia the successful turnaround of our local business contributed to a four per cent increase in normalised earnings in Oceania," he said.
But on trade matters Mr Wilson expressed concern about the "trend towards rising protectionism and reduced international co-operation, both of which could slow global trade growth. Connecting our premium dairy products with global consumers relies on quality trade agreements in our key markets".
Fonterra also revealed that revenue jumped 12 per cent in fiscal 2017 to $NZ19.2 billion, and normalised earnings before interest and tax were $NZ1.16 billion, down 15 per cent.
Adam Jenkins, president of the United Dairyfarmers of Victoria, said he was watching closely to see how the Fonterra bid for Murray Goulburn would play out.
Mr Jenkins said the surge in Fonterra's milk volume was another sign of the significant churn in where farmers sent their milk.
"A fair proportion of that has gone to Fonterra," he said.
