Article by: Hari Yellina
Bega Cheese is forecasting a financial year of cost overruns, offering a somewhat worrisome warning that buyers may expect further food price hikes this year. According to Bega, direct expenses associated with the coronavirus pandemic would reach more than $40 million in 2021-22, up from $20 million in COVID-related disruption costs announced in February. Floods, rapidly growing transportation and logistics costs, strong worldwide demand for dairy exports, and the closure of the Shanghai port are among the many variables putting pressure on Bega’s dairy and spreads balance sheet right now.
The invasion of Ukraine by Russia, as well as other freight delays induced by COVID-19 in China and elsewhere, are causing export trade disruptions, despite the fact that overseas commodity prices are unusually profitable at the present. In fact, despite supply chain issues, Bega has assured its shareholders that worldwide markets are currently offering better returns than domestic sales. Last week, management was obliged to offer record farm gate milk prices for 2022-23 to promote more volume from producers in Victoria, South Australia, and NSW, due to shrinking milk supplies in Australia, especially after many east coast farms and supply chains were flooded with rain and flooding.
Farmers in the Bega Valley will earn $9 per kilogramme of milk solids, a $1.40 increase over last year’s offer, while those in the Riverina, Victorian, and SA will receive around $8.40/kg. By the end of April, further farmgate price information for other east coast suppliers will be available. In the last six months, decreased Australian milk supply and stronger overseas markets had increased competition for milk, according to executive chairman Barry Irvin, which meant most dairy businesses, including Bega, were offering bigger price incentives to farmers.
Higher farmgate costs, as well as international market impacts and disruptions, meant consumer prices would rise at home, however the extent to which the pressures were reflected in supermarket pricing would vary by product. The Vegemite brand, peanut butter, honey, Zoosh salad dressings, the Bega cheese range, and a variety of fresh and flavoured milks, yoghurt, dairy dessert, juices, and plant-based beverages sold under the Dairy Farmers, Pura, Dare, Farmers Union, and Vitasoy brands are among the grocery and dairy lines offered by Bega.
Mr Irvin added that not only had this year’s floods in NSW and Queensland hindered customer deliveries in eastern Australia, but that rail and road flooding in central Australia in February had also hampered shipments to customers in Australia and abroad. Despite the fact that the floods and COVID-related problems were now mostly subsiding and were expected to be resolved within the current fiscal year, severe lockdowns in Shanghai had raised concerns about the security of shipments to Chinese buyers.
Fortunately, the Bega Cheese company’s versatility and expertise had proven to be quite beneficial. With the acquisition of the Lion Dairy and Drinks operations for $560 million in 2020, Bega’s domestic dairy market became a national concern. Mr Irvin explained, “The company has managed a lot of external obstacles while adapting to prospects, particularly in global commodity markets.” “Bega Cheese’s balance sheet remains robust, and the firm continues to execute its capital program, which is focused on improving site and supply chain efficiencies, increasing capacity, and developing new products in high-growth areas.” Bega Cheese expects normalised earnings before interest, taxes, and amortisation to be between $175 million and $190 million in the current fiscal year.