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 and 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

3

DAIRY ADVANTAGE AND OPPORTUNITY IN SOUTH AUSTRALIA

Premium opportunity to increase dairy production and export from an environment

of natural advantages.

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

World leading dairy yields 20% higher than rest of Australia, 2-3 times higher than the global average

Global Whole Milk Powder Consumption (Kt)

Source: FAO, OECD, International Dairy Federation 4

ASIAN DEMAND GROWTH DRIVING OPPORTUNITY

The continued

growth in

population

and living

standards in

China and

Asia will

underpin

growth for

high protein

foods

including dairy

0

50

100

150

200

250

300

350

400

450

500

2003 2008 2013 2018

Whole Milk Powder (WMP) Skim Milk Powder (SMP)

China’s Growing Dairy Imports (Kt)

4,000

4,500

5,000

5,500

6,000

2012 2017 2022

WMP - Forecast Consumption

WMP 2010 - 12 Average Consumption

Global Whole Milk Powder Consumption (Kt)

Supply

Gap

3,000

3,500

4,000

4,500

5,000

2012 2017 2022

SMP - Forecast Consumption

SMP 2010 - 12 Average Consumption

Supply

Gap

Global Skim Milk Powder Consumption (Kt)

China’s Growing Dairy Imports (Kt)

Global Skim Milk Powder Consumption (Kt)

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.

AUSTRALIA POSITIONED TO SUPPLY CHINA AND ASIA

Global Dairy Exports (milk equivalent basis)

New Zealand

European Union

USA

Australia

Belarus

Argentina

Saudi Arabia

Rest of world

Global Dairy Imports

(milk equivalent basis)

China

Russian Federation

Saudi Arabia

Mexico

Algeria

Venezuela

Indonesia

Egypt

USA

Japan

Rest of world

Source: FAO, OECD, International Dairy Federation

Global Dairy Imports

(milk equivalent basis)

Global Dairy Exports (milk equivalent basis)

5

Source: PIRSA, International Dairy Federation, Dairy SA, Dairy Australia, Dairy NZ 6

WORLD LEADING DAIRY IN SOUTH AUSTRALIA

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

South Australia Australia New Zealand Global

Production Per Cow (litres/year)

South Australia Australia

South

East

Central &

Mid North Total Total

Milk Production

(million litres) 350 216 566 9,200

Cows

(thousand) 45 39 85 1,650

Farms 110 158 268 6,398

Production / Cow

(litres/year) 7,760 5,538 6,684 5,525

South Australia

South East Central & Mid

North

Total

Current Hectares

(thousand) 31 71 107

Potential Hectares

(thousand) 300 12 312

Total 331 83 419

Production Per Cow (litres/year)

South Australia is the high yielding niche

of Australian dairy with significant

capacity to grow in regions of natural

advantages.

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

Leading Holstein Friesian

and other breeding lines

developed from long term

world class genetics

programmes.

Prime dairy regions with

ideal climates of

28”- 33”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.

Climate Irrigation

Prime dairy regions grow

leading feed stocks including

natural perennial rye grass,

lucerne, wheat, barley, peas

and other hays.

Feed

NATURAL ADVANTAGES GENERATING PREMIUM YIELDS

Source: PIRSA, International Dairy Federation, Dairy SA, Dairy Australia, Dairy NZ 7

Source: PIRSA, Dairy SA, Dairy Australia, Dairy NZ 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

High production yields

Suitable climate and rainfall

Irrigation availability

Feed and fodder availability

Processing facilities available and

opportunity for more

Strategically located between

Adelaide and Melbourne

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.

Existing industry skills, technology

and management

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.

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 $13 million

(Comprising land, water and

infrastructure $6m, plant & equipment

$5m, cow herd $2m)*

Revenue $3.5 million per annum

EBITDA $1.3 million per annum

EBIT $1 million per annum

Return on

Investment

7%

Expected

Capital Gain on

Land

4% - 5% per annum

DAIRY FARM LAND OPPORTUNITIES

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.

9

* Assumes quality land, irrigation, feed stocks and robotic dairy technology.

Source: PIRSA Food Scorecard 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.

Currently only 2%

of milk production is

processed for direct

export from South

Australia.

Dairy Processing

Dairy Exports

34%

2% 64%

Dairy Processing

Domestic

Direct Export

Interstate

3%

88%

1% 8%

Dairy Exports

Milk

Cheese

Butter

Other

Source: Searates.com

ASIAN EXPORT FREIGHT ADVANTAGE

Region

Distance to

Shanghai

(km)

Time to

Shanghai

(days)

South Australia 9,900 24

New Zealand 10,000 25

United States 10,500 26

Europe 19,500 40

11

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.

12

OPPORTUNITY TO DEVELOP UHT MILK PROCESSING

Picture courtesy GEA Process Engineering

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%

Capacity 55 million litres

Production Rate 10,000 litres per hour

Operational 20 hours/day

Plant Utilisation 90%

UHT Price (AUD) $1.00/litre

Milk Solid Price

(farm gate)

$5.70/kg

* Includes working capital

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.

OPPORTUNITY TO DEVELOP MILK POWDER PROCESSING

Picture courtesy GEA Process Engineering

Capital Cost $70 million*

Revenue $117.7 million

EBITDA $8.1 million per annum

EBIT $3.3 million per annum

Return on Investment 5%

13

Capacity 30,000 tonne

Milk Processed 217 million litres

Production Rate 5 tonnes per hour

Operational 20 hours/day

Plant Utilisation 90%

WMP Price (AUD) $4,211/tonne

Milk Solid Price

(farm gate)

$5.70/kg

* Includes working capital

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.

14

Industry Support

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

Government Support

The South Australian

Government supports investors

throughout the investment

process via a Case

Management approach.

Government agencies involved

include:

• Primary Industries and

Regions South Australia

• Department for State

Development

Low Costs

Ranked one of the lowest cost

states in Australia for business

and living.

Adelaide is also ranked the most

liveable and safest city in

Australia, and the 5th most

liveable city in the world.

Average wages are 10% lower

than eastern states, and 20%

lower than WA.

Infrastructure

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.

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.

SUPPORT TO INVEST IN SOUTH AUSTRALIAN DAIRY

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

• Adelaide ranked 5th most liveable city in the world

THE STATE OF SOUTH AUSTRALIA AT A GLANCE

15 Source: EIU: A Summary of Liveability Ranking and Overview August 2012

KEY LOCATION FOR SUSTAINABLE BUSINESS

DIVERSE INDUSTRY BASE

Minerals &

Energy Agriculture

Renewable

Energy

Advanced

Manufacturing Defence Education Health

State population

Adelaide population

1.6 million 1.2 million

CONTACT DETAILS

Invest in South Australia

The Conservatory

131-139 Grenfell Street

Adelaide 5000

South Australia

T: +61 8 8303 2419

E: investinsa@sa.gov.au

www.invest.sa.gov.au

Primary Industries and Regions South Australia

Level 14, Grenfell Centre

25 Grenfell Street

Adelaide 5000

South Australia

T: +61 8 8226 0900

www.pir.sa.gov.au

Published July 2014

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.

Justin Ross

Director

Agriculture, Food and Wine Primary Industries and Regions SA

Telephone +61 8 8226 8157

Email: justin.ross@sa.gov.au

Michael Blake

Meat and Livestock Account Manager

Agriculture, Food and Wine Primary Industries and Regions SA

Telephone +61 8 8226 0714

Email: michael.blake@sa.gov.au

Developed in association

with the South Australian

Dairyfarmers Association Inc

David Basham

President South Australian Dairyfarmers

Association Inc

Telephone +61 8 8293 2399

Email: president@sada.asn.au