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Big stink over small dairy company's internat -

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LEIGH SALES, PRESENTER: A Victorian country town is the unlikely scene of a battle between titans of international industry.

The struggle for control of a relatively small dairy manufacturer in Warrnambool is making the Australian dairy industry nervous about where the sector's heading.

Warrnambool Cheese & Butter has been quietly churning out dairy products for more than a hundred years and it's now a takeover target for the giants of global dairy and the who's who of the local industry as well.

Greg Hoy reports.

GREG HOY, REPORTER: You'll find it at the end of the Great Ocean Road, a land of milk and money, and Warrnambool Cheese and Butter factory has lived off it fat of this land since 1888.

DAVID LORD, WARRNAMBOOL CHEESE & BUTTER: Has a very proud history. We take into the plants up towards a billion litres of raw milk from over 600 farms in the region.

GREG HOY: Churning rivers of milk into cold, hard cash, making everything from cheeses and butter to high-tech milk extracts. Warrnambool Cheese & Butter Co. has become the nation's second-largest dairy exporter. This has made it a red-hot takeover target, particularly as the market booms in response to growing Asian demand.

GARY HELOU, MD, MURRAY GOULBURN: The big demand, though, is coming really from China. They've gone from nothing to the world's biggest dairy importer. That import appetite will double yet again. Australia should be positioned to profit from this growing trade.

ROMA BRITNELL, DAIRY FARMER: It's similar to what the mining boom's just gone through. They're calling it the dining boom. We should be the ones preparing ourselves and getting organised just like those major multinationals are. They're smart. We need to be as smart.

GREG HOY: The close contest for control of Australia's oldest surviving dairy processor is now between this nation's largest dairy farmer cooperative, Murray Goulburn, the former cooperative and now small company, Bega Cheese, but both are dwarfed by the hungry giants of the global dairy industry, New Zealand's Fonterra, Japan's Lion and Canada's Saputo.

Since September, the competitors have been out-bidding each other. The Warrnambool board has recommended its shareholders accept the latest offer by Canadian giant Saputo. Though this would almost double the company's value, it has sent a tremor across Victorian dairy farms and beyond.

ROMA BRITNELL: The future ownership of Warrnambool Cheese & Butter is a critically important issue, really unfolding in our region for the whole Australian dairy industry.

GREG HOY: Roma Britnell and her family have worked the green pastures of Woolsthorpe near Warrnambool for two decades. They say it will be a tragedy if Australia loses control of another major dairy processor.

ROMA BRITNELL: Because it's symbolic at the moment of the tipping point of control out of farmer-owned and farmer-influenced into multinationals who don't have as great an investment in farming and in the future and direction of the Australian farming community like in the dairy industry.

GREG HOY: Concern at the prospect of the country's fourth-largest dairy company falling into foreign hands triggered this recent turnout of dairy farmers in Warrnambool.

BERNHARD LUBITZ, DAIRY FARMER: The minute we put - say yes to Saputo, that's just like a white flag and saying, "We're surrendering. We don't care about our future. We don't care about the assets that we strive for. Our industry's for sale."

LORRAINE ROBERTSON, DAIRY FARMER: Very passionate about the Australian dairy industry and I'd like it to stay local.

GREG HOY: What worries them most is how their industry is shrinking. 10 years ago, Australia and New Zealand each produced 11 billion litres of milk a year. Since then, New Zealand, led by its farmer cooperative, Fonterra, has expanded into Australia and doubled production to 20 billion litres. The Australian industry meantime has fragmented and shrunk by a quarter.

BERNHARD LUBITZ: We need one big co-op. Our opposition is New Zealand. They're here, they play hard and we have to fight against them.

GREG HOY: This, they say, would require an Australian bidder taking over Warrnambool Cheese & Butter so it can take on the global giants. Australia's biggest dairy exporter and farmer cooperative, Murray Goulburn, has matched the Canadians' bid and claims dairy farmers need their own all-Australian champion.

GARY HELOU: There are too many processors in this country. They are sub-scale. Being a dairy cooperative owned by farmers, it's our ethos, it's our central theme to maximise milk price. So basically we distribute all the profit back to the farmer-owner through milk price.

GREG HOY: The big handicap for Murray Goulburn, however, is last time it suggested merging with Warrnambool, the ACCC said it wouldn't allow it, as this might cut competition for dairy farmers' milk in the district and possibly the price they are paid.

ROMA BRITNELL: I think the ACCC have got it wrong. So my message to government is: "Back off out of the way on this one and support us so we've got a good environment around us to be globally competitive."

GREG HOY: This time around, Murray Goulburn will challenge the ACCC in a direct approach to the higher Australian Competition Tribunal.

GARY HELOU: If Saputo from Canada take over, it'll be a foreign-owned, small-scale business that is there for the benefit of the financial shareholders of Saputo back in Canada. They'll be looking at minimising milk prices to maximise their own profit.

GREG HOY: The Canadians, however, have succeeded in wooing some local dairy farmers, many of whom, like John McConnell, are also shareholders in Warrnambool Cheese & Butter.

JOHN MCCONNELL, DAIRY FARMER: Now I heard Saputo, he sounded exciting, he sounded - he had a vision for the future and he's got me very tempted.

GREG HOY: Saputo has also won the new Federal Government's blessing, along with that of the Warrnambool board.

As an Australian, though, are you concerned that the level of Australian ownership in the dairy industry is shrinking?

DAVID LORD: If we have a foreign investor here who is prepared to invest in our infrastructure and expand our infrastructure at a greater rate than we can on our own, with our own resources, then I think that's a positive thing for shareholders and I think it's a positive thing for the industry at large.

GREG HOY: The competition tribunal's decision on Murray Goulburn's bid will take a minimum of three months. Warrnambool directors have recommended shareholders don't wait and accept the Canadians' offer while it's still on the table. If they do, another slice of a growing Australian industry will float off into foreign ownership.

ROMA BRITNELL: It's all about food security and we in Australia are not thinking about the vision for Australian agriculture and getting our best position ready.

LEIGH SALES: Greg Hoy reporting.