The Korumburra factory could be set for expansion thanks to the injection of funding for capital that comes with the deal.

The Korumburra factory could be set for expansion thanks to the injection of funding for capital that comes with the deal.

BURRA Foods has fielded hundreds of phone calls from distressed Murray Goulburn and Fonterra suppliers in the past week after the firms made wildly differing announcements last week.
While it was all doom and gloom for MG and Fonterra suppliers, Burra Foods CEO Grant Crothers was talking up the potential for the firm and its suppliers after a Chinese company offered to take a 79 per cent stake in Burra.
The Inner Mongolia firm, one of China’s biggest dairy farming companies, Fuyuan Farming, has bid for a majority share of Burra Foods, in a deal which is subject to Foreign Investment Review Board approval.
Under the arrangements Mr Crothers and Japanese company ITOCHU Corporation would retain a combined 21 per cent share of Burra Foods.
Mr Crothers said the tie-up was good news for Burra and its suppliers.
“We needed better market access (into China) and we also needed more capital for development,” he said, noting that a condition of the arrangement was that Burra Foods would retain its existing management.
“We had a number of suitors who wanted to work with us but unfortunately none of them was Australian.”
He said it was disappointing to see that no Australian investors had the tolerance for dealing with the volatility in the dairy industry, but, as it turned out, the Hong Kong-based Chinese firm offered a better fit for Burra Foods.
“Burra Foods is a very viable operation as it stands but we needed more capital to go the next step and this allows us to go further up the chain.”
Mr Crothers said Burra Foods was already selling into Asia but faced a complex regulatory environment when attempting to increase its sales into China, hence the decision to connect with Fuyuan.
“The new shareholder structure will provide Burra Foods with vastly improved access to new high value milk and nutritional powder markets, facilitating low risk growth up the value chain, and access to additional capital,” Mr Crothers said.
“We have always been about maximising value from the milk solids we collect and process and have taken a very cautious approach to China, appreciating the significant risks that come with the increasing opportunities available.”
He said the move had a huge upside for Burra Foods and its suppliers, also noting that while the firm had expanded its employment at Korumburra to 140, he expected to see that grow as a result.
“There are only winners in this deal as the new structure enhances the future for our loyal milk supply partners, provides ongoing employment for our dedicated staff, while ensuring increased and stable supply to our existing customers whether they are located in Australia, Japan, China or other parts of the world.”
Asked if he would be able to take on any suppliers looking to exit Murray Goulburn or Fonterra, he said he empathised with their position but noted the “phone was running hot”.
“We’re not in a position to accept that much at this stage, but yes, we’re open for business,” he said.
It is understood that while some MG and Fonterra suppliers have offered to change to Burra Foods immediately, the firm has been knocking them back for lack of capacity.
Mr Crothers said the proposed Northern Towns pipeline that will secure the Korumburra (and Burra Foods) water supply, announced only a fortnight earlier, was just a happy coincidence.
“This (the Fuyuan deal) was going to happen anyway, but that’s not to dismiss how critical water is to our operations.
“I’ve long said the infrastructure in South Gippsland was circa 1950s, so it’s overdue.
“Water security was a risk issue for the business, but this will make it stronger. The ducks are starting to line up.”
Mr Crothers said there would be no figure on the number of new jobs created or extra suppliers required.
“We opened in 1991 with five staff and less than 1 million litres.
“We now have 140 staff and process 300 million litres. In another 25 years’ time, we will have grown again.
“There’s no commitment or scorecard when it comes to how many people we employ or how many litres we process – it’s about the value.”
Local management, it would seem, will remain constant, although Burra Foods’ Hong Kong base, established 12 months ago for the Chinese, will get busier.
“The new investors are keen to retain the existing management team, including myself, and they’re looking to this to continue to provide its expertise. They respect what we’ve achieved so far.”
Asked whether the deal will create a monster too big for Korumburra, Mr Crothers said that was unlikely.
“Our roots are very deep in South Gippsland. You don’t move a site quickly or cheaply.
“The site has been good to us. It does have its limitations, but there are some expansion opportunities there.
“We’re firmly committed to South Gippsland.
“The key message is that this is a global dairy player with parent investors from Europe entrenched in global dairy trade.
“They see excellence in South Gippsland milk and at Burra Foods.
“It’s where the milk is. South Gippsland does milk very well, and so long as it stays that way – which I’m sure it will – this will be Burra Foods’ home.
“We are nothing without our supply partners and customers and are now in an even stronger position to meet their current and future needs with a solid business model that improves access to markets, technology and capital,” Mr Crothers said.
“Over the 25 years of growing Burra Foods from a very modest base, we have worked hard to live by our values, one of which is ‘nobody is smarter than the market’ where we respond to the market’s needs.
Both Burra Foods and Fuyuan will provide directors for a new board once FIRB approval is granted and the sale is completed.