7/29/2019 There's Something About Dairy

1/2

Theres Something About Dairy

Matt Brennan

The appeal of dairy worldwide exceeds the number of users on Facebook and the number of

YouTube hits ofPSYs Gangnam Style () combined. Some dairy products can even beloosely defined as a cultural experience, with the presence of live AB cultures in most natural

yoghurts, whilst for others, dairy has a sacred role in the morning ritual of breakfast. Take a stroll

through the dairy section of the supermarket, and not only is it a pleasant experience on a hot day,

but the dairy section showcases a baffling exhibition of variety that is only limited to marketers

imagination and consumer fussiness.

Early mathematicians attempting to catalogue todays selection of dairy would throw away their

abacuses in frustration, as new flavours of ice cream, cheese and yoghurt in particular are being

plonked on the shelves in exponential proportions. Bronx based ice cream business Hagen-Dazs,

which is widely regarded as one of the best in the world, has now produced a delightful range ofover 60 flavours of ice cream (despite all these flavours, the top selling flavour of Hagen-Dazs

continues to be vanilla) and this figure doesnt include the discontinued varieties.

It is well known the importance of cows to Indian culture; the cow arguably had a higher place in the

caste system than the Pariah (untouchables), who occupied the bottom rung. It is Australias

neighbour across the Tasman Sea, New Zealand that is in top of the world market in terms of dairy

product exports. Dairy cattle outnumber people, with approximately 6.2 million cows for around 4.5

million people in New Zealand. Whilst the cow population is making inroads in New Zealand on the

sheep population, Sheep still outnumber dairy cattle on a basis of close to 5:1 (and outnumber

people on a basis of just under 7:1).

In New Zealand, deregulation in 2001 allowed the two largest dairy companies to merge under the

brand Fonterra, and control roughly 95% of the market in New Zealand. According to Dairy Australia,

this model is followed although not to the same extent, with over 35% of the national output

derived from the Murray Goulburn dairy company. It makes business sense to form operational

consortiums, as the raw material (milk) is not unique, so businesses can have some influence at the

bargaining table and hold power over the retailers and major brands which purchase their milk.

It is the birthplace of Australian comedian Dave Hughes where the oldest and only listed dairy

company on the ASX is based, the Warrnambool Cheese & Butter Factory Company (WCB). WCB is

an end user of dairy products, as well as manufacturing cheese and butter; they focus on whey

protein, creams and skim milk powders. With over 50% of their products being exported overseas,

with particularly strong relations with China and the Middle East, it is partly expected that the

Warrnambool Cheese & Butter Factory Company is not a household name outside Victoria.

Nonetheless, WCB has an impressive market capitalisation of over $200 million, and the approval of

competitors and suppliers alike, with Bega cheese and Murray Goulburn having a 29% controlling

interest between them.

7/29/2019 There's Something About Dairy

2/2

Say Cheese: Just like the ASX 200, WCB has experienced solid share price growth recently

From the graph above, the momentum behind WCBs share price is just trailing that of the ASX 200

which has risen nearly 25% over the past 6 months. What is pleasing for WCB shareholders, is therecent increase in volumes traded per day (represented by the green bar graph at the bottom), with

liquidity being a major issue for shareholders in the past which only accentuated the sharp

fluctuations in price shown above. The only off-putting factor which is not visible on this chart, is

that WCB has yet to make an announcement (when this article was written) to the market in the

month of February, with the last one coming on January the 14th

(which triggered the price drop

from $3.65 to $3.50).

The robustness of the dairy sector does not seem to be slowing down with the business and

consumer aspects of the dairy market are growing hand in hand. The opportunity to invest in the

business aspect of the dairy sector through an ASX listed company has been kept secret for quitesome time, and though both segments of the market are prone to occasional shocks (there was a

product recall of a certain brand of cheese in NSW due to a listeria outbreak in late January) the

business aspect allows those who are lactose intolerant to enjoy the dairy sector growth too.