Australian Dairy FAQ

1. Why should I invest in the dairy industry in Victoria?
Victoria produces 66% of Australia’s milk and is the main area of large-scale dairying producing for the export market.

The Victorian dairy industry offers superior opportunities in three main areas:

i. Cheaper land prices than New Zealand.
ii. Improvements in returns through changes in farm management, especially pasture management.
iii. Superior returns on capital invested.

2. Why not invest in the NZ dairy industry?
Over the past two years increasing land prices in New Zealand and falling milk prices have typically decreased the return on capital to 5% or less. We want the returns, at least in the near future, to be much better than this before we can recommend investing in the NZ dairy industry. There are still some good opportunities in NZ, but they are few.

3. Is the Australian Dairy Industry sound?
Yes. The Australian dairy industry is well developed and is underpinned by a local market that uses 45% of its production. It is the third largest global exporter of dairy products.

Suppliers generally have a choice of three or more processing companies they can supply. The three largest companies include Murray Goulburn, Bonlac (Fonterra is a 50% shareholder) and Dairy Farmers Group. They process 70% of the exported milk.

4. Australia is a long way away – how can I be sure my investment is being well managed?
Travel time and costs to Australia is similar to a number of areas in New Zealand’s South Island.

Each project will have an equity manager living on the farm. Franklin Group will employ a local consultant who will supervise the farm manager and provide local input to the farm management.

Franklin Group, as overall project manager, will coordinate the communication and management and control the financial aspects of the project.

5. What are the risks of drought?
While all the farms we will consider will be irrigated, there is always a risk that their performance or their profitability may be affected by drought. The effects of drought could be through a reduction in the amount of water available for irrigation through to an increased cost of purchased feed.

There are a number of ways of minimising these effects, including:

i. Sufficient gradient on the irrigated pasture to ensure efficient watering.
ii. Recycling unutilised water.
iii. Adequate water rights and additional on-farm bore water.
iv. Good quality pasture species to make efficient use of the water.
v. Growing water-efficient fodder crops.

6. What are the issues with making an investment overseas?
The requirements of the Australian Foreign Investment Review Board are not onerous and should be met easily by most investors.

The more important considerations are to have your investment structured correctly for your situation. Each investor should take advice for their own situation.

We have taken advice from a tax specialist, who is very experienced in tax matters on both sides of the Tasman, on the best way to establish the investments to have a safe structure and to minimise the total tax cost.

7. How do I get my money out if I want to?
Each shareholder is free to sell their shares at any time at the best value they can obtain. Shareholders do have to offer their shares to the other shareholders first and need to repeat that process if they reduce their price. If no shareholders wish to buy their shares they are free to sell to anyone.

If 75% of the shareholders agree to sell, then the whole project will be sold and the funds distributed to shareholders.

8. What are the returns?
The projected operating returns, based on the assumptions made for milk production, operating costs and based on current milk prices, are in the range of 13-16% before tax. Any capital gains (or losses) are additional to this return. Returns are not guaranteed.

9. When can I expect a dividend?
Typically we would expect the project to be able to pay a dividend to shareholders within 12-18 months. The decision to distribute profits and the amount of the distribution will be made by the shareholders.

10. What say do I have in the project?
The company is owned and under the control of the shareholders. Any major decisions will require the support of at least 75% of the shareholders for them to be actioned. Other decisions will require a 50% vote.

The shareholders, through their directors, set the policies of the company and it is up to the managers to manage the farm to achieve those policies. The managers will report to the directors of the company and its shareholders on a regular basis so that everyone is kept informed about the farm, its performance and any issues as they arise.