Hard, sharp characteristics at Warrnambool's table

While Kirin wants to push Canada out, Fonterra’s concern is to keep Australia in check. The international agenda could drive Warrnambool shares to any level but there are risks.

No other country in the world would allow one of its future growth domestic industries to become an international plaything.

The Canadians, via Saputo, have an inefficient dairy industry and have used Argentina for an export base. They now want to have a dabble in Australia via their bid for Warrnambool Cheese.

The Japanese Kirin group bought into the Australian dairy industry some years ago but some of its plants are high cost and it has watched Australian dairy exports be hit hard.

But there is no way the Japanese want to see the Canadians come into 'their patch' so they have bought 10 per cent of Warrnambool. Such a move is usually designed to make sure you are at the table in any international carve-up of Australian dairy.

Over in New Zealand Fonterra has reorganised the New Zealand dairy industry by gaining scale among farmers and installing modern plant. That way they have ripped Australian exporters to shreds because we have limited scale among our farmers and many of our plants are old, high-cost and scattered.

Fonterra would not be that happy at seeing the Canadians and Japanese playing in Australia but without scale it would still allow the New Zealanders to smash Australia.

Fonterra has a stake in Australian dairy but most of its money is in New Zealand.

What would really worry Fonterra is if Murray Goulburn gained control of Warrnambool because then Australia would gain scale and modern plants to match New Zealand in export markets. Fonterra will work hard to make sure Australians are kept in their place.

Warrnambool has efficient plants and the farmers in the district are some of the best in the world. The Warrnambool board loves the Canadians because they will keep the local management in place and invest in the town. And of course they are also currently the highest bidder. Murray Goulburn has 17 per cent of Warrnambool and may bid higher because it wants to lead Australian dairy and its farmers to prosperity. But Bega also has 18 per cent of Warrnambool and has similar ambitions to Murray Goulburn. It started the latest round of bidding.

This is a game where rival international agendas are now in play and the internationals have bigger pockets than the locals.

In theory the Warrnambool share price could go to any level. But there are risks. Australia may decide to act in its own national interest and look for a national champion as New Zealand has done. And second, no international wants a rival to acquire Warrnambool, so everyone could conceivably sit pat for a year or two.

But before Warrnambool gets to the Foreign Investment Review Board level the GrainCorp takeover by the Americans must be determined. GrainCorp directors like the Americans because they have bid a price that is much higher than the previous market and plan to invest in infrastructure. By contrast Australian institutions are reluctant to invest in rural infrastructure. That may be changing.