Alterra on the hunt for land for new style dairy system in WA

ASX listed Alterra are on the hunt for dairy land in WA suitable for a new style of dairy farming known as System 5.

System 5 works on the theory that if cows are comfortable and not exposed to extreme heat and cold and not made to walk many kilometres a day to be milked or get feed, then they will produce up to 50% more milk taking the average production per cow per year from around 6500 litres up to 10 000 litres. 

Under a System 5 dairy, all feed is grown, harvested, stored and then carried to the cows in rations tailored to maximise animal wellbeing and milk production.

The “cut and carry” model substantially reduces a cow’s energy consumption and maximises their rumination.

As cow comfort is the key to system 5, the cows are kept in a cool, controlled environment which provides for improved health and reduced injuries and illness.

System 5 does not currently operate in WA but has become commonplace in many other parts of the world, particularly in the United States and it is now starting to gain a foothold in the eastern states of Australia.

Alterra says that the West Australian Department of Agriculture and Food’s position is that the likely future of large scale dairy operations in WA lies with System 5, potentially making Alterra a trail blazer in the region.

The company recently engaged an international System‐5 dairy management and engineering firm to assess their existing traditional dairy operation at Capel Farm for its potential to be converted to a system 5 operation.

They are now using the knowledge gained from the System 5 consultancy firm to also assess 3 other properties with a view to making a final decision about just one property to build their first large scale System 5 dairy.

Meanwhile the small scale traditional dairy operated by Alterra at Capel Farm has been placed on care and maintenance in order for the company to focus on the site selection process for a System 5 dairy. The herd has been sold down with 160 quality heifers retained that will form the core of a System 5 herd.

The company’s vision is to become a long term high volume exporter of milk into China and they are currently developing a relationship with Chinese importer Green Lake Pty Ltd.

Green Lake is developing a chain of Australian branded produce stores across China known as “Capel Farm” stores and they are looking to contract long term milk supply out of WA.

Alterra’s strategy is to negotiate and lock down a minimum 5 year off take agreement with the Chinese before commencing the building of a System 5 dairy thereby substantially de-risking the project.

Importantly their corporate operation is currently underwritten by income from their unrelated carbon business.

The company has existing forestry management contracts in Australia out till 2027 which generates $2.7 million per annum of management fees from blue chip clients where all production, pricing and scheme risk is taken by the client.

They have no debt, around $2.4m in the bank and a significant agri-business knowledge bank potentially placing them in a solid position to pursue a System 5 dairy in WA.

Alterra Executive Director Andrew McBain said “The Company is in a strong position with no debt and long term contracted revenue from non‐dairy activities. In our view, the current market capitalisation of the Company reflects the existing agri‐forestry business only, with no upside factored for the dairy expansion."

"The medium to long‐term drivers in relation to increased demand for Australian dairy into Asia, continues to excite us and we will remain focussed on our long‐term objective to be the “go to” company in WA for domestic and export supply.”  said Mr McBain

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