China rejects Murray Goulburn milk, formula

Beleaguered dairy processor Murray Goulburn is blaming administrative errors for the rejection of shipments of its milk and infant formula in China last year, dismissing suggestions it was being punished for bypassing Chinese bidders in favour of a $1.3 billion takeover offer by Canadian giant Saputo.

Murray Goulburn confirmed the incidents, which saw as much as 32 tonnes of milk in one shipment, turned back, due to “process failures” but said they took place before the deal with Saputo was announced in October.

Dairy analysts and media in China have suggested the decision to choose Saputo over Chinese firms looking at buying the dairy co-operative could have repercussions for Murray Goulburn’s sales of milk and milk powder in China. However, sources said there was no link to the co-operative’s change of ownership and problems with shipments between June and September last year.

Murray Goulburn, which produces about 1 billion tonnes of dairy product annually, agreed to a $1.3 billion takeover bid by Saputo in October. Chinese company The Inner Mongolia Yili Industrial Group had also been looking at the business and was considered a front-runner at one stage. China Mengniu Dairy was also reportedly looking at the company.

A November monthly report by China’s Administration of Quality Supervision Inspection and Quarantine, published last week, said 32 tonnes of Murray Goulburn’s Devondale milk brand was rejected because it did not have the required documentation. An August report noted a small amount of milk powder was not allowed to offload at a port in Shanghai because it was over the expiry date and an incident in September when three batches of milk were returned.

A Murray Goulburn spokesman said certification error involving 32 tonnes of UHT milk actually occurred in June and was the result of a processing error. “There was no issue with product quality. Failures of either documentation or product quality in shipments are rare and any incidents are fully investigated in order to prevent recurrence,” the spokesman said.

“These incidents are rare failures of process and involved shipments of products dispatched from Australia many months prior to the announcement of the Saputo transaction on 27 October 2017.”

Song Liang, a Beijing-based independent diary analyst, said the decision to sell Murray Goulburn to Saputo instead of a Chinese bidder was strange given the importance of the Chinese market.

“It would have given much easier access to the huge Chinese market. Murray Goulburn would have entered into a golden development period. However, this did not happen. The Chinese government and Chinese companies are not happy with the deal to sell to Saputo,” Mr Liang told The Australian Financial Review.

Murray Goulburn is one of dozens of companies reporting incidents with shipments into China, often due to clerical issues or problems when loading products at the country of origin. However, exporters are wary of any sign that the Chinese authorities will clamp down on dairy imports. China is seeking to revive its domestic dairy industry although demand for imports remains robust.

New regulations for infant formula brands came into force on January 1, which means many of the foreign brands competing in the Chinese market could be locked out. However, Australian exporters believe their higher-quality brands are not at risk.

Saputo wants to restore Murray Goulburn’s status as the nation’s biggest dairy processor after the co-operative ran into trouble under former chief Gary Helou, who resigned in March 2017. The deal, which is expected to be finalised early this year, still requires Australian Competition and Consumer Commission and Foreign Investment Review Board approval.


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