Focus: Parmalat could milk Harvey Fresh in Oz and overseas
Harvey Fresh has built export business to markets in Asia like Singapore
Parmalat, majority-owned by French dairy giant Lactalis, has made a significant move to bolster its business in Australia 15 years after it first entered the market. Parmalat has snapped up Australian dairy and fruit juice firm Harvey Fresh, a deal industry watchers believe could help the Italian firm's local business and help it expand its presence in Asia. Dean Best reports.
Five months after rumours emerged Parmalat was in talks to buy Australian dairy and fruit juice maker Harvey Fresh, a deal was announced on Monday (31 March).
Parmalat, in which French dairy giant Lactalis owns a majority stake, revealed it had agreed to pay EUR79m for the business, which manufactures a range of branded dairy products and acts as an own-label supplier to Australian retailers like Coles, the country's number two grocer.
The Italian group, which first entered Australia in 1998 after the purchase of milk supplier Pauls, said its latest acquisition would make it "a fully national player".
Parmalat admitted it had "a marginal presence" in Western Australia, where Harvey Fresh, set up in 1986, is the second-largest dairy processor in the state.
The company said the deal could also "improve the group's export capability to the Asiatic markets" - and industry watchers endorsed both sides of the strategic rationale for the deal.
"There are two motives which make the acquisition quite attractive for Parmalat. Firstly it gives them a stronger presence in the local WA dairy market. But it also provides a platform to increase Parmalat's export presence into Asia from Australia," Michael Harvey, senior dairy analyst for Rabobank in Australia, tells just-food.
Parmalat, Harvey explains, has been a business "largely focused on the domestic market on the east coast" and said the deal would give it a "stronger national footprint and some more exposure into export markets".
Western Australia is seen as one of the more attractive states for investment. Above-average population growth means the state is growing faster than elsewhere in Australia.
However, despite the recently booming mining sector in and around the city of Perth, the milk sector in the state has proved "challenging" in recent years, according to Jo Bills, director at food industry consultants Freshagenda, says.
"Western Australia is an interesting market in that it has a smaller proportion of milk sales through supermarkets - 48% by volume compared to 53% nationally. While that should be a good thing, it has always been a challenging market for milk processors – it is quite crowded. There are three major processors duking it out, and traditionally a lot of branded product used in promotions, so retail prices have always been lower in WA, despite the fact that with the mining boom Perth people are used to paying a lot for just about everything," Bills tells just-food.
Bills cites data from January 2011 to the middle of 2012 that shows the average retail price of a two-litre bottle of branded milk was lower in Western Australia than in New South Wales and Queensland.
However, since then, average prices in Western Australia have risen, thanks, Bills suggests, to Harvey Fresh's local rival Brownes Food Group.
"More recently there seems to have been a bit of value restored to the market. I think probably led by Harvey Fresh rival Brownes. They have been very public about restoring value to the market and 'saving WA dairy' - and they seemed to have caused a bit of a shift," Bills explains. "Harvey Fresh have often been singled out as the culprits in bidding for market share by lowering prices, perhaps the fact that they were looking to sell has tempered that strategy somewhat, and they have been happy to ride the wave in margin with Brownes."
The deal for Harvey Fresh could, Bills and Rabobank's Harvey agree, boost Parmalat's export business out of Australia.
Parmalat exports products including cream and UHT milk; in February, Parmalat unveiled the A$25m expansion of a plant in Rowville in Victoria, which it said would help drive exports into Asia.
Australia's dairy sector has been eyeing increasing demand for dairy products in Asia and a number of processors have invested in recent years to position themselves to capture that growth. Asia was a key factor in the battle for Australian dairy processor Warrnambool Cheese and Butter Factory, which saw Canada's Saputo fight off competition from Australian firms Bega Cheese and Murray Goulburn to buy the business.
Harvey says Australia's position "on the doorstep to rapidly-expanding dairy markets in Asia" has put the country's dairy sector "in bright lights" and "heightened" the M&A activity surrounding the industry. "Harvey Fresh has a export business into Asia which is a natural bolt on to the Parmalat business given the trade opportunities opening up across Asia’s burgeoning dairy markets," he said.
Bills says the "biggest opportunity" for Parmalat "could be fresh exports". She explains: "Harvey Fresh has built a reasonable export business to some higher income Asian markets such as Singapore in fresh and UHT milk – packaged and bulk eurotainers. Logistics are an issue, but WA has proximity and the state government is looking at fresh food processing and export as a post-mining boom, economy-diversifying opportunity."
With WCB and now Harvey Fresh falling into the hands of new owners, could other Australian dairy processors be next?
Bills suggests Parmalat could "have their eyes" on Brownes, which Fonterra sold to private-equity firm Archer Capital in 2010.
She also points to Lactalis's background in cheese. "As they are owned by Lactalis there has been an expectation that they would move into cheese – someone has been buying up Bega shares lately so you never know. This would give them a little more diversification and another export opportunity."
Two facets provided to Parmalat from its move for Harvey Fresh.
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