United Dairy Power boss targets massive Chinese market
- From: The Australian
- March 18, 2014
THE Hong Kong entrepreneur who now controls Australia's largest privately owned milk processing company, United Dairy Power (UDP), wants to use it as a springboard to break into the multi-billion-dollar powdered milk market in China.
William Hui, who last month paid about $70 million to take control of UDP from its founder Tony Esposito, said he was willing to spend a further $20m to bolster capacity at the group's factories or seek alliances to help UDP expand into the milk powder business.
In his first ever media interview, Mr Hui -- who is also the chairman of Singapore-listed Swing Media Technology, a company that makes and trades CDs, DVDs and other media products -- said he was also talking to his bankers about potentially providing finance to UDP's suppliers to help them bolster milk supplies.
He said the company could consider purchasing farming properties in the future as part of its expansion plan for UDP, designed to cash in on the booming demand for powdered milk products in China.
The infant milk formula market in China is set to double to more than $25 billion by 2017. But while the global price for whole milk powder jumped 65 per cent over the past year, Australia's production of milk powder fell 22 per cent over the same period.
Mr Hui stressed that the company remained committed to maintaining capacity in the local market and would only forge ahead with its expansion plans if it could source bigger milk supplies. UDP, based in South Melbourne, has processing facilities at Poowong in Victoria and Murray Bridge and Jervois in South Australia.
Mr Hui's purchase of the company last year followed a fierce bidding war for the listed Warrnambool Cheese & Butter, a battle eventually won by Saputo after the Canadian giant beat off local rivals Murray Goulburn and Bega Cheese.
The purchase comes as several Chinese state-owned enterprises and private companies are in negotiations to bankroll construction of new milk powder plants in NSW through a plan being brokered by Dairy Connect, a not-for-profit organisation that represents the NSW dairy industry.
Mr Hui, who was introduced to UDP in August last year by Huashan Capital co-founder David Chen, confirmed there were other investors in China willing to follow his lead to purchase or invest in Australian dairy assets.
"We know there are lots of investors in China," he said in an interview with The Australian.
"In the coming five years there will be a lot of Chinese coming to this market. In the past five years it has been in mining, but in the coming five years it will be in dairy.
"Whether it is a big company or a medium-sized company in China, they will be interested because the dairy product from Australia is very good.
"The environment here is very good for the cows and the milk. China has already been importing a lot of cows from Australia."
Mr Hui said his purchase was a private one and unrelated to Swing Media or his other business, Chinarise Capital, which trades mobile phone handsets and components in Hong Kong.
Established in 1999, UDP purchases milk from the Kirin-owned Lion-National Foods Group but also provides transport and logistics services as well as manufacturing facilities.
The company manufactures dairy products including cheddar, the Caboolture brand of mozzarella cheese, butter and whey powder.
Mr Hui's growth plan will see a major expansion of production to allow diversification into milk powder, which will be exported to China.
"We now still mainly rely on the local market," he said.
"If we get more milk supply then we will divert to the China market.
"Our factories have the potential to produce more but supply is at the maximum already.
"We need to look for the milk supply, increase our production and then we can go to China.
"Right now we have about 150 farmers, suppliers, and we are talking to them about supplying more. We are also talking to our bankers to see if they can allow us to provide finance to farmers, assistance to them, to help them grow as well," Mr Hui added.
While he said there were no plans to purchase dairy properties and emphasised that "having a processing company is very different to having a farm", he said it could be an option for the future.
"We won't buy farms now but we could in the future. But we are new to this industry," he said.
"Once we expand our facilities then we will consider buying some farms." Mr Hui's chief financial adviser and Chinarise CFO, Johnny Chan, said the company was in dialogue with Austrade about providing more support to the local farmers to help them bolster supply.
But he said the government needed to do more.
"I think the government should give more support to the farmers, to help them to grow. They shouldn't just rely on the foreign investor financing the farmers."
Mr Hui said the company remained committed to the local market. It is being run by the existing management team, led by chief executive Mark Smith.
Earlier this month it increased prices for suppliers.
"We won't cut off production or capacity for the local market because we already have good profitability here," he said.
"We don't want to cut that off and ship to a new market.
"Locally we are still growing. Locally we still have demand we can't supply to. We cannot have enough supply for our customers -- so we want to make sure our local customers are happy first." Tighter food safety rules in China have also made it more difficult for importers of dairy products, especially after a contamination scandal involving New Zealand dairy giant Fonterra last year.
"We need to be very careful because of new regulations governing the import of dairy products into China," Mr Hui said.
"Other people have been getting into big problems. We don't want to jeopardise everything we have established."