Farmers back in charge at Challenge Dairy

WESTERN Australian farmers have regained control of one of the state’s big three dairy processing companies after Challenge Dairy Cooperative moved to majority ownership of Challenge Australian Dairy Pty Ltd.

The Capel-based dairy manufacturer is jointly owned by the farmers’ cooperative and Singapore company QAF.

QAF held a 51 per cent shareholding since investing in Challenge in 2004 but its stake has been diluted to 49 per cent following the issue of new shares to the cooperative.

The ownership change has resulted in Challenge co-founder and dairy farmer, Larry Brennen, becoming chairman of the company.

It followed a difficult period for Challenge, which increased sales but incurred an operating loss in the year to December 2009, according to QAF’s annual report.

“Challenge incurred losses in FY2009 due to depressed selling prices, which are in line with difficult worldwide industry conditions”, QAF said, without disclosing details.

Challenge acting chief executive Max Ger told WA Business News that 2009 was “a very, very tough year but we have been able to stabilise the business and 2010 is looking a lot better”.

Mr Ger said the ownership change was partly designed to motivate the farmers’ cooperative into playing a bigger role in the business.

“I think it will lead to a much stronger Challenge Dairy,” he said.

The group’s strategy has been to invest in retail brands and value-added dairy products for Australian and export markets to reduce its reliance on commodity dairy products.

That strategy worked well in the year to December 2008, when Challenge lifted sales by 40 per cent to $74.6 million and boosted net profit by 45 per cent to $1.8 million, according to accounts lodged with the Australian Securities and Investments Commission.

Challenge is one of three large dairy processors in WA, along with Brownes, which is owned by New Zealand cooperative Fonterra, and Masters Dairy, which is controlled by Japanese brewer, Kirin.

The Brownes business has been under review since April last year, when Fonterra sold the Peters and Cadbury ice-cream brands.

Fonterra currently collects 130 million litres of WA milk per year for its Brownes business, which employs 300 people.

A fourth player in the WA dairy market is Harvey Fresh, which is best known for its fruit juice products.

In the year to June 2009, Harvey Fresh increased sales 22 per cent to $100.3 million but a spike in costs led to a 30 per cent slump in net profit to $2.7 million.