DAIRY OPPORTUNITIES IN SOUTH AUSTRALIA

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1 DAIRY OPPORTUNITIES IN SOUTH AUSTRALIA

2 PREMIUM FOOD & WINE FROM OUR CLEAN ENVIRONMENT Agriculture is South Australia s most significant industry worth over $16 billion annually, supplying Premium Food & Wine to the world. 20% of Australia s grain produce 7 million tonne average grain production per year with 80% exported to China, Asia and Middle East 62% of Australia s wine exports Premium wine growing regions with exports to UK, North America and emerging markets in China and Asia Premium livestock producer Beef, lamb, dairy, pigs, poultry, wool exports to Japan, China, US, UK, Europe, other Asia Australia s premium seafood Tuna, rock lobster, abalone, prawns and kingfish from pristine Southern Ocean exporting to Japan, Hong Kong and other Asia. Leading horticulture production Potatoes, tomatoes, capsicums, mushrooms, almonds, citrus including world leading greenhouse and water technologies Australia s first commercial forestry 200,000 hectares of softwood and hardwood plantations exports to Japan and others World leading R&D and education University of Adelaide/Waite Institute, South Australian Research & Development Institute, Australian Wine Research Institute 2

3 DAIRY ADVANTAGE AND OPPORTUNITY IN SOUTH AUSTRALIA Premium opportunity to increase dairy production and export from an environment of natural advantages. World leading dairy yields 20% higher than rest of Australia, 2-3 times higher than the global average Dairy land availability Capacity to grow the industry multiple times with conversion of prime land Export logistics advantages Close proximity to high growth markets of China and Asia Potential for growth in processing Fresh milk, powder, UHT, cheese, other Internationally recognised food safety record Food safety standards ensure quality, reliability and differentiation Source: PIRSA, ABARES, Dairy SA, Dairy Australia 3

4 ASIAN DEMAND GROWTH DRIVING OPPORTUNITY Growth in world demand for dairy products is outstripping supply leading to an impending supply gap/growth. South Australia has a leading capability and advantage to contribute increased production. China s Growing Dairy Imports (Kt) Global Whole Milk Powder Consumption (Kt) The continued growth in population and living standards in China and Asia will underpin growth for high protein foods including dairy Global Skim Milk Powder Consumption (Kt) 4 Source: FAO, OECD, International Dairy Federation

5 AUSTRALIA POSITIONED TO SUPPLY CHINA AND ASIA Global Dairy Imports (milk equivalent basis) Global Dairy Exports (milk equivalent basis) Source: FAO, OECD, International Dairy Federation 5

6 WORLD LEADING DAIRY IN SOUTH AUSTRALIA South Australia is the high yielding niche of Australian dairy with significant capacity to grow in regions of natural advantages. South Australia Australia South East Central & Mid North Total Total Milk Production (million litres) Cows (thousand) , ,650 Farms ,398 Production / Cow (litres/year) 7,760 5,538 6,684 5,525 Production Per Cow (litres/year) 6 Source: PIRSA, International Dairy Federation, Dairy SA, Dairy Australia, Dairy NZ

7 NATURAL ADVANTAGES GENERATING PREMIUM YIELDS Milk production of nearly 7,000 litres per cow per year is 20% higher than the rest of Australia, 70% higher than New Zealand and 2-3 times higher than the global average. This premium yield reflects South Australia s natural advantages in genetics, climate, irrigation and feed. Genetics Climate Irrigation Feed Leading Holstein Friesian and other breeding lines developed from long term world class genetics programmes. Prime dairy regions with ideal climates of average annual rainfalls and average temperatures of 16 C 25 C. Prime dairy regions with natural underground water irrigations including the South East Unconfined Aquifer / Otway Basin and River Murray irrigation and aquifer system. Prime dairy regions grow leading feed stocks including natural perennial rye grass, lucerne, wheat, barley, peas and other hays. Source: PIRSA, International Dairy Federation, Dairy SA, Dairy Australia, Dairy NZ 7

8 SOUTH EAST REGION EXPANSION OPPORTUNITY The South East dairy region has the capacity to increase production by up to 1 billion litres from a base of 350 million litres via the conversion of prime farm land to dairy. Regional Advantages Opportunity exists for further highly suitable land to be converted into dairy in this region which is currently being used for lower returning agricultural operations. High production yields Suitable climate and rainfall Irrigation availability This area is the state s highest dairy yielding with nearly 8,000 litres per cow per year which is 40% higher than the Australian average. Feed and fodder availability Processing facilities available and opportunity for more Strategically located between Adelaide and Melbourne Existing industry skills, technology and management 8 Source: PIRSA, Dairy SA, Dairy Australia, Dairy NZ

9 DAIRY FARM LAND OPPORTUNITIES South East Region Illustrative example to develop a 1,000 cow dairy in the South East on 450ha, producing 7.5 million litres of milk per year. Capital Cost Revenue $13 million (Comprising land, water and infrastructure $6m, plant & equipment $5m, cow herd $2m)* $3.5 million per annum Central Region Opportunity for dairy production to double in the River Murray Swamps / Central region. Currently 4,230ha under production providing 100 million litres of milk. 4,000ha of additional suitable land has been identified with irrigation capability. EBITDA EBIT Return on Investment Expected Capital Gain on Land $1.3 million per annum $1 million per annum 7% 4% - 5% per annum * Assumes quality land, irrigation, feed stocks and robotic dairy technology. 9

10 PROCESSING AND EXPORT OPPORTUNITIES Significant opportunity exists to process and export more South Australian dairy products (fresh milk, powder, UHT, cheese, other) with the support of local farmers seeking to further their industry. Dairy Processing Currently only 2% of milk production is processed for direct export from South Australia. Dairy Exports 10 Source: PIRSA Food Scorecard

11 ASIAN EXPORT FREIGHT ADVANTAGE South Australia has a natural logistical advantage for exports into China and Asia. Containerised shipping time to Shanghai is marginally less than New Zealand and the United States and significantly less than ports in Europe. Region Distance to Shanghai (km) Time to Shanghai (days) South Australia 9, New Zealand 10, United States 10, Europe 19, Source: Searates.com 11

12 OPPORTUNITY TO DEVELOP UHT MILK PROCESSING Illustrative example to develop a 55 million litre capacity UHT milk processing plant. Opportunity exists to double the value of purchased milk and yield premium returns with a relatively small capital outlay and operating costs. Capacity Production Rate Operational Plant Utilisation 90% UHT Price (AUD) Milk Solid Price (farm gate) 55 million litres 10,000 litres per hour 20 hours/day $1.00/litre $5.70/kg Capital Cost $25 million* Revenue $56.1 million per annum EBITDA $5.8 million per annum EBIT $4.2 million per annum Return on Investment 17% * Includes working capital 12 Picture courtesy GEA Process Engineering

13 OPPORTUNITY TO DEVELOP MILK POWDER PROCESSING Illustrative example to develop a 30,000 tonne capacity milk powder processing plant. Opportunity exists to target key export markets, particularly China, where there is a significant demand and price premium for milk powder products. Capacity Milk Processed Production Rate Operational Plant Utilisation 90% WMP Price (AUD) Milk Solid Price (farm gate) 30,000 tonne 217 million litres 5 tonnes per hour 20 hours/day $4,211/tonne $5.70/kg Capital Cost $70 million* Revenue $117.7 million EBITDA $8.1 million per annum EBIT $3.3 million per annum Return on Investment 5% * Includes working capital Picture courtesy GEA Process Engineering 13

14 SUPPORT TO INVEST IN SOUTH AUSTRALIAN DAIRY South Australia has a range of initiatives and advantages to support new investment into the state including low costs and existing infrastructure in key dairy regions. Industry Support Government Support Low Costs Infrastructure South Australian Dairy organisations and members actively support and develop the industry in South Australia. Foreign investment is welcomed as a key mechanism to support industry growth. Key industry organisations: South Australian Dairy Farmers Association Dairy SA Dairy Australia Dairy Authority of South Australia Primary Producers SA A Coordinator-General has recently been appointed to help stimulate private sector investment for projects with a construction value in excess of $3 million. A Case Manager is appointed for each project to help streamline and support the approvals processes. Government agencies involved include: Primary Industries and Regions South Australia Department of State Development Ranked one of the lowest cost states in Australia for business and living. Adelaide the 5 th most liveable city in the world and Adelaide has the lowest cost of living of all capital cities. Average wages are 6% below the Australian average and below all mainland capital cities. Adelaide and South Australia are at the centre of Australia s air, road and rail transport links. Strategic proximity to Asia supported with a number of ports, including Port Adelaide. Food Safety Standards and Export Regulations Food Safety Standards South Australia is recognised internationally for the quality of food safety standards and processes, ensuring strong differentiation in international markets. Producers and processors in South Australia adhere to the national guidelines under Food Standards Australia & New Zealand (Primary Production and Processing Standard for Dairy Products). Export Regulations Exports are controlled by the dairy program within the Australian Department of Agriculture. Process of registration is by way of application to Dairy Authority of South Australia (DASA). If food safety plan and systems are in place, accreditation is relatively fast. 14

15 THE STATE OF SOUTH AUSTRALIA AT A GLANCE KEY LOCATION FOR SUSTAINABLE BUSINESS Industry Highlights 7% of Australia s population 81% of Australia s uranium reserves 69% of Australia s copper resources 62% of Australia s wine exports 38% of Australia s wind power capacity 32% of Australia s defence industry 20% of Australia s grain production Largest most mature onshore hydrocarbon province World class education, R&D and health systems State population 1.6 million Adelaide population 1.2 million Adelaide ranked 5 th most liveable city in the world DIVERSE INDUSTRY BASE Minerals & Energy Agriculture Renewable Energy Advanced Manufacturing Defence Education Health Source: EIU: A Summary of Liveability Ranking and Overview August

16 CONTACT DETAILS Investment Attraction South Australia The Conservatory Level 9, Grenfell Street Adelaide 5000 South Australia T: E: investinsa@sa.gov.au Primary Industries and Regions South Australia Level 14, Grenfell Centre 25 Grenfell Street Adelaide 5000 South Australia T: Justin Ross Director Agriculture, Food and Wine Primary Industries and Regions SA Telephone justin.ross@sa.gov.au Michael Blake Meat and Livestock Account Manager Agriculture, Food and Wine Primary Industries and Regions SA Telephone michael.blake@sa.gov.au John Hunt President South Australian Dairyfarmers Association Inc Telephone president@sada.asn.au Developed in association with the South Australian Dairyfarmers Association Inc Published November 2016 The information contained in this presentation has been compiled by the Department for State Development (DSD) and Primary Industries & Regions South Australia (PIRSA) and originates from a variety of sources. Although all reasonable care has been taken in the preparation and compilation of the information, it has been provided in good faith for general information only and does not purport to be professional advice. No warranty, express or implied, is given as to the completeness, correctness, accuracy, reliability or currency of the materials. Facts, illustrations and information should not be relied upon and readers should seek their own professional advice and due diligence prior to making any investment decision. DSD, PIRSA and the Crown in the right of the State of South Australia does not accept responsibility for and will not be held liable to any recipient of the information for any loss or damage however caused (including negligence) which may be directly or indirectly suffered as a consequence of use of these materials. DSD and PIRSA reserves the right to update, amend or supplement the information from time to time at its discretion. This document has been prepared with the assistance of Rural Solutions SA and the South Australian Dairy Farmers Association Inc.