Australian Dairy Farms plans to go organic and enter infant formula market

The chief executive of dairy farm operator Australian Dairy Farms (ASX: AHF) Peter Skene has revealed the company plans to draw on external supplies of organic milk so it can achieve targeted volumes ahead of a three-year process to convert its farms to organic.

Mr Skene spoke with Small Caps this morning and said that by drawing on external organic milk supplies, the company expected to reach year-one volumes before the three-year conversion was complete for its farms.

Australian Dairy Farms added 5.5c or 50 per cent to 16.5c by the time of the call this morning after announcing it would convert all six of its dairy farms to organic and enter the organic infant formula market.

Mr Skene said we welcomed this morning’s gain in the company’s share price, “I’m glad to see it’s being supported.”

Mr Skene said the current plan was “not just a thought bubble” for the company, it was part of a 18-month plan the company had been developing.

“The market we are currently (in) has become highly competitive…we’re moving up the value chain,” he said.

Australian Dairy Farms said in its announcement its directors were confident that by converting its six farms to organic and introducing operational changes the company could reposition itself from being a conventional milk market player to an organic infant formula producer and organic milk processor.

Mr Skene said the company’s farms were acquired for about $25 million, with its cattle worth about $5 million and its Camperdown, Victoria dairy currently maintaining a value close to its $11 million acquisition value.

Australian Dairy Farms acquired a new site last November where it plans to build infrastructure to dry, tin and produce infant formula, with Mr Skene saying the company had an opportunity to work with strategic partners to reduce capital expenditure, with details to be revealed to market.

He said the company had not yet submitted a planning permit for the site.

Mr Skene described the organic market as no longer small and niche and said while the company was still deciding upon its product offerings, it planned to target the Australian market first.

He said fresh milk, organic butter and organic cheese were possibilities for other product offerings besides infant formula.

Australian Dairy Farms was trading at 19.5c just before lunchtime, adding 8.5c or 77.3pc, after swinging as high as 25c during trading and breaking the ceiling on a 12-month 17.5c ceiling on the company’s securities.