Challenge Dairy remains focused on growing its trade with China despite the dismantling of a joint venture in Capel with Chinese dairy company Sanyuan earlier this year.
Challenge Dairy remains focused on growing its trade with China despite the dismantling of a joint venture in Capel with Chinese dairy company Sanyuan earlier this year.
The venture, which was tipped to generate $200 million in exports, had not traded positively since commencing in July last year, mainly because of a 30 per cent rise in the Australian dollar and depressed commodity prices.
Challenge Dairy chairman Larry Brennan said it had been a mutual decision to dissolve the $25 million dollar joint venture in March.
Mr Brennen told WA Business News the joint venture had required greater capital expenditure, which was something neither party was willing to do.
He denied reports that Sanyuan had run out of money but said the company had undergone management and structural changes and was unwilling to increase its stake until the venture was profitable.
“They had a significant investment in Australia which was losing money,” he said.
The cooperative, which posted a $3.6 million loss last year, did not have the “time or money” to increase its stake in the 50/50 joint venture, Mr Brennen said.
Despite the closure Mr Brennen said things were back on track for Challenge.
The cooperative had undergone a change in management, including the appointment of new CEO Peter Giddy, and was expecting to break even this year and to post a profit next year, he said.
Mr Brennen said all commodities produced were now trading profitably and Challenge was increasing its supply of products direct to domestic retail markets, including a new waxed cheese range.
“When you consider the year we have had, to break even is a great result,” he told WA Business News.
Mr Brennen said that, as well as increasing its domestic sales, Challenge remained focused on further developing its export markets.
Challenge currently exports cheese, butter and milk powder to South-East Asia, the Middle East, Europe, the US and Trinidad.
Despite the dissolution of the Sanyuan deal the growing Chinese market remained in the cooperative’s sights, Mr Brennan said.
“There is a huge opportunity for Challenge up there,” he said
“Every time you do the sums there are an awful lot of zeros attached.”
Mr Brennen said Sanyuan, which has a cheese contract for the McDonald’s fast food chain in China, would continue to figure in Challenge’s Chinese plans.
“We have agreed to continue the opportunity between the two businesses to establish further supply of dairy products and other projects that may be of great benefit to both entities,” he told WA Business News.
Challenge retains a supply deal with Sanyuan for a range of cheeses but Mr Brennan, who recently returned from China, would not give details on the “other projects” currently being discussed with Sanyuan.
