Massive dairy investment
DAIRY investment syndicate Manuka's successful decision to invest in Chile rather than Australia has seen it become Chile's largest grass-based producer supplying five dairy companies.
Speaking at the Dairy Innovators Forum 2011, one of four company directors, Arthur Bryan, said shareholder returns were now 3.5 per cent and real growth and asset value was expected to double in value in the next three to four years.
After first buying 180 hectares in Chile in 2005, Manuka now owned 22,500ha.
The company produced 82 million litres of milk in 2010 and was forecast to exceed 100m this year.
By 2019 the target was to reach 43,000 cows producing 220m to 240m litres annually on the present land-holding.
In addition to his Chilean investment, Mr Bryan owns dairy farms in Waikato, New Zealand (NZ) with 1400 milking cows.
He started off building up his NZ holdings using equity in his existing farm to buy more farms that were often neglected and below market value.
As Australia had similar problems with fluctuating milk prices, Chile was an attractive proposition when he joined a syndicate to facilitate further expansion.
With the world population forecast to increase 50pc by 2050, Mr Bryan said the relationship between food, fossil fuels and water would become more important.
"Grain is used in 90pc of milk produced in the world and one of the attractions of Chile was that we didn't need to put as much grain in," Mr Bryan said.
Chile also welcomed foreign investment and had a stable efficient tax system.
"As it turned out, Chile was signing a reciprocal tax agreement with NZ so tax paid in Chile was credited against tax here in NZ," Mr Bryan said.
"Obviously we needed good soils for the type of farming and a climate with reasonably well distributed rainfall and suitable temperatures to replicate the NZ grassland model because that's what we knew and understood."
Land was available at a reasonable price with the most expensive farm bought for the equivalent of NZ$3300 an acre and the cheapest at NZ$1300/ac.
"When you compare that with the NZ environment at that point, NZ land was $15,000 to $20,000/ac so this stuff was good buying," he said.
Today Manuka's Chilean operation includes 17,500 milking cows, 35 operating cowsheds, assets around US$300m, about 25pc of milk produced by share-milkers and 215 employees.
Mr Bryan said the company was land-rich with 7000ha effectively milked today and on track to expand to 16,000 ha by 2019.
"There's no reason for the company to stop at those boundaries," he said.
Mr Bryan puts success down to a strong management team and structure and positive human resource environment.
Monthly accounting and reporting systems allow close supervision of any developments.
Mr Bryan said one of the challenges in Chile was gaining community acceptance but there had been significant progress in the company's local reputation.
"It's easy to get bad press and when you're buying their land, people want to look at the negatives and you have to manage it," Mr Bryan said.
He said the CEO's top leadership, strong personality, multilingual and PR skills had been useful.
Another challenge was breaking down the existing social structure to provide growth opportunities for young people.
Mr Bryan said the problem of people who had been living on haciendas for generations claiming residential rights did not apply and had been dealt with.
Efficiency and production costs needed improvement and consideration when deciding to invest.
One property Manuka bought had been run as an inefficient dairy enterprise.
"They had autumn and spring calving but autumn calving went from first of January to the first of June and spring calving went from the first of June to the first of January," Mr Bryan joked.
He estimated pasture growth was around 12 tonnes/ha/year with winter growth rates well ahead of expectation but said they could be improved with good management.
As the supply of available cows is mainly large North American animals more suited to confinement dairying than grassland, Manuka is improving the genetics of its herd with NZ Jersey semen .
"Walking, grazing and reproduction are probably the key differences we've got with what these animals have been selected for," Mr Bryan said.
He said Manuka was currently fund-raising for continued development and broadening the shelf base.
"The shelf base today is a private company but logically putting it on the Chilean stock exchange wouldn't be too far away."
"We think Manuka today is now in a position where we can welcome any investment from outside without any hesitation."