Challenge signs China deal

25 Jun, 2003 10:00 PM

WA's dairy industry has finally received some good news - Challenge Dairy's joint venture with China's Sanyuan Foods has been confirmed.

Challenge issued a letter to shareholders last week, which said the Chinese had signed the deal and Sanyuan Challenge Australian Dairy (SCAD) was expected to be operational in the next few weeks.

Acting Challenge chief executive officer David McIntyre said the agreement would lead to some increases in Delivery Right Units and 100pc supplier milk prices shortly after the start of operations.

Challenge suppliers suffered a cut to their milk price, after the joint venture was delayed a number of times.

Mr McIntyre said price targets had now been set for three years through agreement with Sanyuan that price improvement needed to occur if supply to SCAD was to increase to a level that warranted the construction of a new manufacturing facility.

"Mr Xing, the chairman of Sanyuan Foods and the inaugural chairman of SCAD, stressed his desire to move to the construction of the new factory as soon as possible," he said.

"He is fully aware that the profitability objectives of our new joint venture company and the returns to Challenge shareholders for their milk will not be satisfactory until we can efficiently produce value added products for the consumer market."

He said future milk pricing would be discussed at a board meeting next week.

"Under current world commodity pricing and exchange rate concerns, we continue to expect trading to be tight over the first half of 2003/04, but we now have a more positive outlook in the future if we improve our operational efficiency and enter new markets as quickly as possible," he said.


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