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Bidding war gives hope to dairy farmers -

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ELEANOR HALL: Well it wasn't so long ago that the future of their industry looked bleak.

Now dairy farmers from south west Victoria are watching as an international bidding war has tripled the value of Australia's oldest dairy company.

Warrnambool Cheese and Butter has seen its share price rocket, with Canadian company Saputo offering the highest bid so far.

Martin Cuddihy has the latest.

MARTIN CUDDIHY: Just across the Victoria-South Australia border, in Mount Gambier, dairy farmers have been listening to a presentation.

The Canadian company Saputo has been spelling out its plans for Warrnambool Cheese and Butter.

The family owned enterprise is leading the bidding war at the moment with an offer of $8 a share.

Belinda Moore is an agribusiness analyst at RBS Morgans.

BELINDA MOORE: Saputo said that they intend to maintain and even grow the Warrnambool Cheese and Butter factory, maintain strong relationships with and keep on all the employees, maintain solid relationships with the Warrnambool dairy farmers and community and really all stakeholders.

MARTIN CUDDIHY: Warrnambool Cheese and Butter is the oldest dairy processor in Australia.

It employs almost 500 people and was floated on the ASX in 2004.

Prior to the bidding war between Bega, Murray Goulburn and Saputo, its shares were trading at about $3.50.

BELINDA MOORE: Warrnambool Cheese and Butter's certainly a strategic asset. It's in one of the best dairying regions in the country. It's one of the most efficient dairy producers at a single site. And then lastly, it's got a very large exposure to the international dairy market, meaning you can really leverage that Asian dairy boom that we're seeing.

MARTIN CUDDIHY: Whether the company is foreign or domestic owned, farmers say they need to be considered.

Kerry Callow is a dairy farmer from south west Victoria.

KERRY CALLOW: It's really hard for farmers to retain ownership of productivity gains. Back at Farm Gate we are largely a price taker. So, hence why it is really important that we keep control and influence over our manufacturing sector as much as what we can.

MARTIN CUDDIHY: Kerry Callow is also the President of the United Dairy Farmers of Victoria.

She says it's important farmers keep some control.

KERRY CALLOW: We sure as hell can make sure that is some drivers there that returning price to farmers is the upmost importance to those companies.

MARTIN CUDDIHY: By that do you mean you think that farmers will get a better price if Warrnambool Cheese and Butter stays Australian owned?

KERRY CALLOW: Certainly the Warrnambool Cheese and Butter is a major player in the area. But we need to understand that a company, whether it be Warrnambool Cheese and Butter factory or whatever, is largely responsible to its shareholders.

A cooperative structure is responsible, it takes product and value adds on behalf of the farmer. And their driver is to return as much profit back into the hands of farmers.

Now you need a really strong, at least one strong cooperative in the marketplace to benchmark the price.

MARTIN CUDDIHY: Mark McGovern is a senior lecturer at Queensland University of Technology.

His field of expertise is foreign investment.

MARK MCGOVERN: Some foreign investment can work well. But the question is always a fairly simple one. If a foreign investor comes in, how do both sides gain? Now that's something which seems to be completely ignored in most of the discussions.

It's basically saying do they meet some criteria if IRB says tick and everything seems to work through.

So Australia needs to move past this naiveté. We've got great assets and this includes not just the land, but the resources that are associated with the infrastructure, the people, and all that sort of stuff.

They're attractive to foreigners. And they always will be. So if we want to enhance our asset base, and foreigners can help us do that, then there's something to be looked at. But if we're simply taking an existing asset and changing its owners, all we're doing is swapping the income strengths.

ELEANOR HALL: That's Mark McGovern from the Queensland University of Technology, ending that report by Martin Cuddihy.