Saputo tells farmers it will pay fairly for milk

Saputo chief executive Lino Saputo has said the Canadian dairy company would have no business without paying farmers a competitive price for milk. He will address Warrnambool Cheese & Butter suppliers' concerns at a series of meetings this week.

The world's 10th biggest dairy processor entered the takeover battle for WCB with a $7-a-share bid earlier this month, and lifted its bid to $8 a share cash (worth $450 million) on Friday to overtake Murray Goulburn's $7.50-a-share offer.

Between 30 per cent and 40 per cent of the WCB register is in the hands of Warrnambool locals - many of whom are dairy farmers - and Saputo's top brass are attending a series of supplier meetings in Victoria's south-west to answer questions and clarify the company's intentions.

On Tuesday, Mr Saputo declined to comment on the share raid on WCB by Japanese-owned beverage and dairy company Lion.

"I can't comment on what others might be doing," he said. "We have put forward a compelling offer to all WCB shareholders and made our intentions clear that Saputo wishes to invest in the Australian dairy industry."

Last week, Warrnambool farmers told Fairfax Media a strong Australian farmer-owned co-operative was what the industry needed, rather than another corporate beholden to its shareholders.

Mr Saputo said he faced similar worries when the company acquired Argentina's third-largest dairy processor, Molfino Hermanos, for $US50.8 million in 2003.

In Argentina, Saputo went to dairy farms and said: "If you can produce the milk we will be the home for that milk and pay a price that is competitive and allows you to reinvest in the business."

Since Molfino was acquired, Saputo has invested more than $120 million in capital expenditure to double manufacturing capacity at its two facilities, and milk production has increased from 400 million litres to 1 billion litres.

"We are not dairy farmers but we understand dairy farmers need to make a good living," Mr Saputo said. "Without dairy production, all we have is brick and mortar and stainless steel. We recognise that the dairy farmer has to believe in their business and has to believe there is some value in growing that business, and that is what we've done in Argentina.

"We are the middleman between the dairy producer and the end user. Without a strong dairy farmer, we don't have a business."

He said that for a dairy processor, 85 per cent of the cost of manufacturing lay in the cost of milk but cost control came from technology and innovation rather than trying to squeeze farmers.

"We have a team of 50 R&D people on an ongoing basis identifying how to extract more yield from the same amount of milk. We live and die by our yields, especially when you talk about cheese manufacturing," he said.

Mr Saputo moved to allay concerns about a foreign company entering the Australian market, saying the situation would remain largely unchanged if Saputo was to acquire WCB.

"If Saputo were to own Warrnambool it would almost be a status quo, there would be no consolidation. Warrnambool would be our main platform in Australia and Warrnambool would still be a buyer of milk. Management would stay in place and we're hoping the suppliers would view this as the best home for their milk," he said.

Saputo has been eyeing opportunities in Australia for more than a decade, and would be loathe to miss out on WCB.

But 18 per cent WCB shareholder Bega Cheese has said it has no intention of selling and may even look to raise its offer of $2 cash and 1.2 Bega shares when it clears the competition regulator, which is expected at the end of the month.

Murray Goulburn, which owns 17 per cent, declared its hand last week and is unlikely to give up yet, while Lion's seizing of a 10 per cent stake in WCB on Tuesday appears directly aimed at locking Saputo out of the Australian market.