The executive chairman of Bega Cheese, which owns the Dairy Farmers, Big M and Farmers Union milk brands along with Vegemite, says labour shortages on dairy farms are contributing to rising milk prices for households.
Barry Irvin said there had been a 9 per cent drop in the volume of milk being produced by dairy farmers in Australia in the past two years, a reduction of 700 million litres.
Fierce competition for the shrinking pool of milk which all players, including private-label brand owners such as supermarket chain Coles, are chasing is keeping farmgate prices high, along with rising input costs and inflation.
This is at a time when global dairy prices for products such as skim milk powder have fallen about 30 per cent in the past three to four months. But Mr Irvin said the “disconnect” between pricing in the two different parts of its business – branded products and bulk dairy commodities – would prompt write-downs of between $180 million and $280 million at Bega Cheese.
The company is reviewing some operations at dairy plants at Koroit and Tatura in country Victoria as it assesses the final extent of write-downs across the company.
Mr Irvin said competition for milk by processors around Australia would remain fierce, in an industry where consolidation of processing capacity had been only “minor” thus far.
“The competition for milk will remain very strong,” he said.
Labour shortages hit herds
Mr Irvin was in the Gippsland region in Victoria on Tuesday visiting farmers, and said there was anecdotal evidence that some were now milking 500 cows on their farms, down from 700, and still able to make a decent living. They simply could not find the labour needed to milk the higher numbers of dairy cows previously kept on their properties.
“Higher prices don’t always encourage a lift in volumes of milk,” he said.
Bega also announced on Tuesday that it had sold its Vegemite factory site in Port Melbourne for $115 million in a sale and leaseback deal with property funds management group Charter Hall. It is a 15-year deal with a 10-year option.
In 2017, Bega paid $460 million for the Vegemite brand and a handful of other grocery products from global food giant Mondelez International.
Mr Irvin said the bulk commodity side of the Bega dairy business was “at best break-even” at current prices, but the branded side of the business was lifting market share and volumes.
“The branded business will outrun the impact on the bulk business in the short term,” he said.
Bega reaffirmed that its 2022-23 profits would come in at the low end of a guidance range of EBITDA between $160 million and $190 million.
Bega chief executive Peter Findlay said there would be about $20 million in one-off costs as Bega took the final steps in the integration of the Lion Dairy and Drinks business acquired in 2020. The acquisition brought big brands such as Dairy Farmers, Yoplait, Big M, Masters and Farmers Union iced coffee into the stable, as Bega reduced its reliance on bulk commodities.
Mr Findlay said three internal divisions were now in effect being merged into two, as the group stepped up a push into the non-grocery food service channel. “It means we can go to the market in a more focused way,” he said.
