Why Australian Dairy Farms Group (ASX: AHF) surged last week

Shares of Australian Dairy Farms Group (ASX: AHF) surged more than 20 percent last week as the company has announced it is converting six Victorian dairy farms to organic production. This is part of a company initiative to move toward production of organic infant formula. In fact, the company is now the largest single entity organic dairy farming operation in Australia.

This is a big deal, because the company aims to reposition itself to becoming a supplier of the organic dairy market, shifting away from the commoditized non-organic market. CEO Mr Peter Skene has stated that this is “the first significant step in making the company a major player in producing and distributing organic premium-quality branded foods”.

Australian Dairy Farms currently only has a modest share in the in the traditional milk market- however the company believes that there is a major market opportunity in manufacturing these organic, specialty products. The company will have vertical supply chain and control in a high value, high barrier to entry market.

This is a smart strategic decision as non-organic milk prices have been on the decline for the last 15 years, while consumers are continually purchasing more organic items than ever before. This shift in corporate governance makes Australian Dairy Farms a stock worth checking out.

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Motley Fool contributor mpinto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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