Competing in the Global Dairy Market

1
Competing in the Global Dairy Market

• Presentation to Abare Outlook 2008 Conference
• 5th march 2008
• Mal Beniston Murray Goulburn Cooperative

2
A little background to Murray Goulburn

• Established in 1950
• Co-operative structure with 2,800 farms
• Australias largest manufacturer and exporter of
  dairy products
• 2.4 billion turnover
• Milk intake 3.6 billion litres
• 9 manufacturing sites located in Victoria and
  Tasmania

3
The focus should be on farm profitability not
necessarily on high prices
4
A low cost supply chain is a key essential
element of competing and winning in the global
market
5
A low cost supply chain is a key essential
element of competing and winning in the global
market

• World demand for dairy is strong and growing
• Demand and supply are balanced trending toward
  insufficient supply
• Australia has a good reputation globally
• The fundamentals have never looked better
• Despite this there are some challenges to our
  fundamental competitiveness

6
A low cost supply chain is an essential element
of remaining viable in a commodity based industry
Within our control
Our customers domain
The Aussie Scorecard
Losing Ground
Close / up to worlds best
We have a challenge at home
7
The challenge is at home consecutive droughts
has made its mark on supply and manufacturing
efficiency
8
For many years a low cost of milk production
underpinned our global competitiveness.We are
rapidly losing this position
9
Milk yields from pasture based dairy farmingare
low compared to grain fed competitors
10
A strong argument exists to look at different
farming methods to improve productivity and
combat the effects of droughts / global warming

• Arguably, in parts of Australia the traditional
  family owned and operated farm unit of 350 cows
  are no longer viable.
• In USA we see the emergence of large corporate
  herds of 10,000.
• Intensive feeding
• 24 hours milking
• Economies of scale
• Located in some areas even drier than Northern
  Victoria in drought!
• We need to study these models and consider
  different farming models to remain competitive on
  the world market
• At the Industry level consolidation of milk
  collection and manufacturing will lead to cost
  savings and efficiencies. This however is much
  easier said than done!

11
Part of the future of dairy farming in Australia?
12
Fundamentally the global dairy business is
commodity driven with booms and busts with net
returns impacted by exchange rate
13
To compete and win in this dynamic market a
nimble responsive approach is needed to get the
last dollar into our farmers pockets

• Customer / Market Management
• Focus on countries / customers that need and pay
  for quality and service love these to death!
• Avoid countries / customers who are opportunistic
  with high risk use and exploit only when needed!
• Product Mix Management
• Focus on a core base of ingredients that deliver
  sustainable returns for MG this tends to be
  cheese and proteins
• Avoid producing ingredients that are subject to
  wider volatility e.g SMP
• Arbitrage milk between Ingredients to optimise
  returns above the core base.
• Move up the value chain customise and specialise
  BUT maintain a low cost supply chain

14
The pitfalls of specialisation and its risk to
core competitiveness
High
Volume
Low
Commodities
Specialty
15
The pitfalls of specialisation and its risk to
core competitiveness
High
Volume
Risk, costs and Profits
Low
Commodities
Specialty
16
In Summary

• Australia remains well placed in the global dairy
  market
• The medium to long term demand vs supplybalance
  has never looked better for producers
• Our fundamental competitiveness is under threat,
  but the challenge is largely at home and within
  our control
• We can recover lost ground and grow again
• A sea change in how we produce some of our milk
• Consolidation of our manufacturing base

17
Some food for thought to finish
(With thanks to Professor Julian Cribb)

• SWIFTS DICTUM
• "And he gave it for his opinion that whoever
  could make two ears of corn or two blades of
  grass to grow upon a spot of ground where only
  one grew before, would deserve better of mankind,
  and do more essential service to his country than
  the whole race of politicians put together."
  (Jonathon Swift, Gullivers Travels, 1726)

18
Competing in the Global Dairy Market

• Presentation to Abare Outlook Conference
• 5th march 2008
• Mal Beniston Murray Goulburn Cooperative