Add Category
After 10 months of shopping around for a buyer, Canadian diary giant Saputo this week announced its decision to close King Island Dairy in Tasmania by mid-2025.
The King Island business has been around for over 120 years, directly employs almost 60 people — with many more employed down the supply line — and its products can be found in major supermarkets across the country.
One industry experts says "producing cheese on an island in the Bass Strait is always going to be a tough sell". (Facebook: King Island Dairy)
It is a beloved business for the island and, with a population of roughly 1,700 people, the broader flow-on effects from its closure have the community concerned.
"It affects all services, because the less employees we've got on the island, they'll probably employ less staff at shops, and so forth," King Island deputy mayor Vernon Philby told the ABC.
"We're going through probably the worst drought in 100 years anyway, and the community is already suffering."
Saputo, which bought the business in 2019, said the decision to close the business "had not been taken lightly" and every possible option had been thoroughly reviewed.
So, why has King Island Dairy failed?
Brand had 'not maintained its position'
Saputo was founded in Canada and has operations across North America, the UK and Argentina.
In Australia, it is responsible for some well-known dairy brands, including Devondale, Cheer, Cracker Barrel, Liddels and Mersey Valley.
Saputo chief executive officer and president Carl Colizza stepped into the role in August this year and the latest financial report showed its revenues were up 9.5 per cent, totalling $CAD4.6 billion ($5 billion).
However, Saputo's president and chief operating officer international and Europe Leanne Cutts said the closure of the King Island business was the most viable way to strengthen the competitiveness of its Australian operations "based on changing industry and market conditions".
In a statement on Thursday, Ms Cutts said the company had invested more than $40 million in all of its Tasmanian operations over the past five years.
However, compared to Saputo's other Tasmanian brands like Mersey Valley and Tasmanian Heritage, King Island Dairy had "not maintained its position in today's ultra-competitive food industry", she said.
Saputo owns a number of Australian dairy brands, including Cracker Barrel, Devondale, King Island Dairy, Mersey Valley and several others.. (ABC News: Ebony ten Broeke)
Island's cheese a tough sell, industry expert says
According to the Australian Food and Grocery Council, this "ultra-competitive" food industry is bound up with a shift in consumer habits.
The council's chief executive officer, Tanya Barden, said the cost of living and rising business costs had heaped pressure on regional manufacturers in particular.
"They're moving away from premium products, moving away from private label products so manufacturers are getting squeezed from both ends, losing some of the demand and facing higher cost pressures," Ms Barden said.
TasFoods invests in a growing list of Tasmanian agribusinesses and its founder, Rob Wooley, said Saputo's focus on corporate, industrial-scale businesses meant the King Island operation did not fit their strategy.
"I think it was just competing with these companies that really run these businesses on an industrial scale, and it slipped to the bottom of the list," Mr Wooley said.
Nick Haddow is a prominent Tasmanian-based cheesemaker. (Landline: Fiona Breen)
Nick Haddow, who runs Bruny Island Cheese in Tasmania's south, says that despite the higher business costs that come with running a business on the remote King Island, Saputo's reliance on marketing to the major supermarkets is the wrong model for a regional brand.
"When you have an asset that's been built … and a business plan and a marketing strategy that largely involves Coles and Woolworths, then producing cheese on an island in the Bass Strait is always going to be a tough sell," Mr Haddow said.
Mr Haddow said he had no doubt a dairy business could be maintained on the island, but that it had to be marketed with a different strategy.
"Seeing a business model that concentrates on the quality of the location, the heritage of the brand, producing super-premium products marketed with a very different strategy than to the current one, I think is absolutely the way to go," he said.
"This [closure] has not happened overnight.
"This has been a downward trajectory based on a flawed model for quite some time."
Saputo 'needs to help farmers'
TasFarmers president Ian Sauer said he wanted to see "good corporate responsibility" from Saputo.
"Sometimes big corporates don't want to get involved in the smaller boutique stuff," Mr Sauer said.
"They're just after volume. We think this is a brand that's well worth keeping."
Mr Sauer remains hopeful a buyer will emerge for the business and said other boutique dairies in Tasmania and Australia could provide a model for any future purchaser of King Island Dairy.
"We think the same can happen on King Island," he said.
"We want to see Saputo work to find a buyer, a buyer that will be invested into the King Island brand, which is not only known in Tasmania and the mainland, but also internationally recognised.
"Saputo needs to be helping those farmers transition into new enterprises on the island, which will be more than likely beef."