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Increased health awareness across the globe has prompted people to turn towards farm fresh produce and natural food items like milk and milk products. This has fared well for the Australian dairy industry, which plays a leading role in the global market.
The country is known to produce premium quality dairy products as its vast, clean, and green pastures are ideal for grass-fed cows. The milk produced in Australia’s Victorian region is usually seasonal and exported, while that from the New South Wales region is for domestic consumption.
Looking ahead, Statista projects the the country’s dairy products and eggs market worth $12.22 bn to grow at a CAGR of 4.84% between 2023 and 2028.
Australian dairy has a strong export market
Australia also ranks as the world’s third-largest exporter of dairy products after the European Union and New Zealand. Data from Dairy Australia points out that the country exported the majority of its dairy products to Southeast Asia, followed by China and Japan in 2021-22. Other export destinations included the Middle East, the Americas, Europe and Africa.
Notably, China became one of the biggest importers of Australian dairy after an infant formula scandal by the Chinese Mengniu Dairy Company shocked the nation in 2008. Despite broader political issues between the two countries, Australia remains a key dairy exporter to China, with total exports expanding by 45% over the past five years until 2022.
All in all, the Australian government projects that the volume of dairy exports will rise by 2% year-on-year to 679 kilotonnes in 2023–24, led by export growth in butter, cheese, and skim milk powder.
Government incentives and underlying risks
To incentivise the industry, the Australian government provides dairy farming business grants. Also, the ongoing Western Australian Dairy Industry Five-Year Development Plan is designed to enhance sustainability within the sector and attract more investments.
That said, the country’s dairy industry is also reeling under labour shortages and reduced milk supply as the El Nino weather conditions have impacted cattle feed. Moreover, Australia’s record high farmgate milk prices at $9.93 kg per milk sold in 2022-23 have spurred risks of importers turning to cheaper supply from New Zealand, the US, and Europe.
Top dairy stocks to invest in Australia
Amid expectations of a rise in export value for Australian dairy products, investors can look at these three dairy stocks to tap into the growth prospects.
Bega Cheese
Founded in 1899, Bega Cheese processes and distributes dairy and associated products across Australia through two main segments, Bega Cheese and Tatura Milk. Its products are sold across 40 countries, including China, Malaysia, and Singapore. The product portfolio of Bega Cheese includes milk-based beverages, cheese varieties, dairy powder, yoghurt, and spreads.
For the fiscal year ended June 2023, Bega Cheese saw a year-on-year revenue increase of 12.2%, totalling AUD 3.38 bn ($2.15 bn). Additionally, the company’s loss before tax climbed to AUD 256.8 mn ($163.27 mn) from an AUD 33.8 mn ($21.49 mn) posted in the same period last year.
With a market capitalisation of AUD 878.53 mn ($558.59 mn), the company is listed on the Australian Securities Exchange (ASX: BGA). Its shares declined 13.7% over the past one year. The company’s stock has a price-to-book ratio of 3.64.
Fonterra Co-operative Group
Established in 2001, Fonterra is a New Zealand-based co-operative owned by over 10,000 indigenous farmers from Aotearoa. The group also has a subsidiary in Australia. The co-op produces and sells cow milk, speciality cheese, yoghurt, infant formula, and iced coffee. It is one of the largest dairy exporters in the world. Fonterra’s leading brands include Anchor, Anmum, De Winkel, Farm Source, and Fresh ‘n Fruity.
The co-op saw a 12.2% year-on-year increase in its revenue, reaching 24.5 bn NZD ($14.44 bn) in the fiscal year ended June 2023. During this same period, the group’s profit after tax surged by 170.5% year-on-year, amounting to NZD 1.5 bn ($0.88 bn). Full-year milk collections for the co-op stood at 1,480 million kgMS. Fonterra CEO Miles Hurrell said, “There were a number of key drivers that helped us deliver this result, including favourable margins in our ingredients channel, in particular the cheese and protein portfolios.”
The Fonterra Shareholders’ Fund (FSF), based in New Zealand, operates as a managed investment scheme. The primary function of the fund is to obtain economic rights and distribute units to investors. Apart from the NZX Main Board, the units of this fund are also listed on the Australian Securities Exchange (ASX: FSF).
FSF has a market capitalisation of AUD 308.997 mn ($196.47 mn). Over the past year, the fund’s stock has experienced a 4.3% gain. FSF’s shares have a price-to-earnings ratio of 8.48 and a price-to-book ratio of 0.97.
Nuchev
Nuchev is a leading Australian health and nutrition solutions company. Established in 2013, the company produces and sells goat milk infant formula (GIF) products across Australia and Asia. In 2019, the company launched Australia’s first stage four junior goat milk drink for children aged three to seven years.
While listing in 2019 on the ASX, Nuchev’s prospectus indicated that it is specifically aiming at the Chinese GIF market, which is predicted to grow at a CAGR of 18.8% to reach $9.2 bn by 2023.
Nuchev saw a 9.6% year-on-year drop in its revenue, reaching AUD 8.79 mn ($5.59 mn) in the fiscal year ending June 2023. During this same period, Nuchev’s operating loss narrowed to AUD 8.41 mn ($5.35 mn) from AUD 11 mn ($6.99 mn) posted in the preceding fiscal year.
The company, with a market capitalisation of AUD 16.881 mn ($10.73 mn), has its shares traded on the Australian Securities Exchange (ASX: NUC). Nuchev’s stock slid 4.3% over the past year, while in the last six-month period, the stock surged 25%. Also, the company’s shares have a price-to-book ratio of 1.32.
Editor’s note: All stock movement figures as of November 10, 2023.
