Cash Cow: SSF secures JV in China

When dairy business Sustainable Soils and Farms couldn’t find investors in Australia to back a project for sustainable dairy farming in the Murray-Darling Basin, the business looked to China, writes Sophie Loras.

When Sustainable Soils and Farms set out to develop a new approach to dairy farming in the Murray-Darling region, focusing on more sustainable irrigation practices as well as reforming the collapsing dairy sector of northern Victoria, the business faced a brick wall from Australian investors.

It was in the midst of the global financial crisis and uncertainty over future government regulation of the region, in which farmers would continue to be encouraged to sell back their water rights, meant no-one in Australia was prepared to take the risk.

Instead, SSF turned to China where it was able to secure in August, a A$75 million joint-venture agreement with China’s Tianyi Group, to establish a dairy farm business in northern Victoria to export milk products exclusively to the Chinese market.

SSF has already purchased five farms in the Leitchville area where it has formed the first of 10 pods to produce organic milk to China. It will still have to wait at least three years to produce milk carrying full organic labeling.

The Leitchville farm has 350 cows and is steadily increasing to 500. The company hopes to have 10 hubs of 1000 milking cows across the region within the next five years in order to produce 75 million litres of milk per year.

“We had set out to develop a new approach to dairy farming in the Murray-Darling. A lot of us have experience in policy as politicians and can see that the Murray Darling basin is turning into a disaster zone,” says Neil O’Keefe, the chairman of Sustainable Soils and Farms and former member for the federal seat of Burke.

“We have also been, for a long time, interested in reform to our dairy industries,” Mr O’Keefe says.

Mr O’Keefe admits there have been numerous skeptics but the project has received recognition from both the Victorian and federal governments as a demonstration project.

“If it works, it will show just how this industry can develop,” says Mr O’Keefe.

The initial contact with China came through connections from former Melbourne Lord Mayor, John So and former Maribyrnong MP Bob Sercombe.

SSF had been advised to look at investment opportunities in China as the country sought, and continues to seek, ways to lock up its future food security.

On SSF’s first foray into the China market 12 months ago, the business briefed senior Chinese politicians in Shanghai and Beijing and through Mr So’s personal contacts established the existing relationship with China’s Tianyi Group in Henan province.

“Through translators, we were gob smacked to learn that they have the same problems in the Yellow River basin as we do in the Murray-Darling and they were looking for similar ways to improve irrigation practices and increase organic food production,” says Mr O’Keefe.

“There are major opportunities as Chinese demand more high quality clean green produce and it was very clear that Australian labelling is well trusted in China by Chinese consumers.”

The joint-venture – SSF Tianyi Pty Ltd – is unique in that it covers 50-50 ownership for farms in Australia and in China.

The Shangqiu municipal government – where Tianyi Group has its production facility – has earmarked plans for a state of the art processing facility for the dairy industry in the region.

Conscious of Fonterra’s problems in 2008 when it was implicated in the Chinese dairy sector’s melamine scandal, Mr O’Keefe says both sides in the JV have been keen to implement measures to avoid a similar turn of events.

“Where it is possible to have the milk produced and sealed in Australia, it will be done and where it can’t be done, for example with fresh milk, both sides will have scientific observers and quality control experts observing the processes in both countries,” says Mr O’Keefe.

The signing of the memorandum of understanding in August, between Sustainable Soils and Farms and the Tianyi Group, was witnessed by Greater Shepparton Mayor, Geoff Dobson. While the Victorian city has no direct role in the venture, it is hoped the deal will open further agricultural opportunities for the farming communities of Greater Shepparton for export to China.

“Council is committed to growing the local economy and anything that we can do to attract economic investment into our region we will,” said Mayor Geoff Dobson.

“The spin offs from large investments like theses are huge – both in the short and long term,” he said.

“I think we are going to see a lot of encouragement along other lines as a result of this joint venture,” says Mr O’Keefe.

“I am personally very excited by this and as a Labor MP I have always supported the China relationship so I’m thrilled that we are a part of it and opening it up even more.”

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