Supply chain logistics, floods in northern and central Victoria, and global market dynamics are believed to be behind Saputo Dairy Australia’s decision to close the Maffra and Leongatha processing plants.
The potential closure of the Maffra processing plant has been expected in the local community since Murray Goulburn owned it — pre-2016.
The Maffra workforce is a combination of long-term, short-term and contract workers. Within the workforce, a number of contractors are tradespeople, and they share their time between the Maffra factory and work outside the processing facility.
The closure of the Maffra processing plant would affect about 60 local jobs, which is a concern for a local workforce that relies on agricultural production.
Unfortunately, Saputo’s announcement on November 9 came out of the blue for some, including the local Wellington Shire Council and South Gippsland Shire Council. The councils were informed at the same time as suppliers and the media.
The farms in the Macalister Irrigation District, in Wellington Shire — a combination of family and corporate farms — are collectively the third largest dairy producers in Victoria.
However, a lot of that milk is collected by Fonterra, which has its own market issues to deal with. Saputo and other processors compete for the remaining milk pool.
The MID is a snapshot of the Victorian milk pool. Victorian dairy farms account for about 64 per cent of Australian milk production, supplying 100 processing facilities operated by a large number of competing companies.
Many of the dairy farmers in the MID who supply milk to Saputo said they would continue to do so. The reality is, most of that milk has been transported in recent times to Leongatha anyway.
Saputo’s main markets — domestically and globally — are in cheese production, and the Maffra and Leongatha plants produce milk powder.
Trends in milk powder production have seen the European Union account for more than 20 per cent of the total global market, and consumer demand in the Asia-Pacific region increase by more than 20 per cent year on year.
Companies in Australia wanting to compete in that export market will need to invest in technologies, and it’s likely Saputo decided the aged Maffra and the Leongatha factories are not capable of upgrading for the necessary financial returns.
The Maffra facility has been under review by Saputo decision makers for much of this year.
Strategically, it is the closest facility to the NSW dairy pool, but the cost of transporting milk from suppliers out of Gippsland wouldn’t compare to the cost of ongoing maintenance, equipment upgrades and production at the Maffra processing facility.
Rationalisation initiatives to be introduced at the Leongatha factory from early 2023 will see that facility stops producing milk powder.
Saputo is also feeling the pressure to support dairy farmers in central and northern Victoria who have been affected by flooding.
Saputo will be looking for milk supply to keep its other factories operating at capacity, so a move to rationalise its physical assets would not be unusual in those circumstances.
Another key issue is the contraction of the dairy industry, which is seeing herds sold in Gippsland, south-west Victoria, northern Victoria and the NSW southern coast.