Beston cash crunch forces SA farmers to wait for milk cheque

South Australia’s biggest dairy processor has blamed tough markets for delaying payments.

Dairy farmers are frustrated and disappointed as Coles, Woolworths and Aldi raise their milk prices another 10c, with none of the profits going to farmers.

South Australia’s biggest dairy processor Beston Global Food has blamed a cash crunch for delaying payments to the state’s farmers for their monthly milk cheques.

It is the second time in recent months the under-pressure Beston has asked farmers for patience, as it blamed a consumer shift to cheaper products and overdue payments from its own customers as the reason behind the slower payments.

In a letter sent to farmer-suppliers this week, Beston chief executive Fabrizio Jorge said the combination of difficult trading conditions, continued working capital pressures and overdue payments has forced Beston to move to a payment plan.

This will involve 85 per cent of the milk cheque to farmers being paid this week, with the remainder to be paid by the end of the month, although he did not give a specific date.

“As an organisation we have not left any stone unturned to maximise our on-time payments to each one of you and rest assured that we have not taken this outcome lightly,” Mr Jorge said.

He said Beston played a critical role in the state’s milk market.

“I am confident that together we will continue to support each other during these times of challenging conditions.”

Beston itself remains vulnerable. In February it posted a first-half loss of $8.1m from its core milk processing business. It also had a negative cashflow position, meaning it was using its debt facilities to fund operations.

The company faced the twin pressures of higher-than-expected milk supply from its farmers at a time of high global farmgate prices.

The Australian’s DataRoom column this week reported Beston’s banker National Australia Bank has been trying to sell $55m worth of debt owned by the company, but has struggled to find a buyer. Beston employs around 300 people.

The move by Beston comes amid a broader shake-up in the dairy industry, with New Zealand giant Fonterra planning to put its entire Australian operations here on the block. Fonterra is one of the big three milk processors in Australia and a sale could dramatically reshape the profitability of milk processors.

A shortage of milk and higher export prices has forced processors to pay top dollar to farmers to lock in much needed supply. However, surging costs have clashed with consumers facing a cost of living crisis, with many opting for discounted brands in the supermarket.

Much of the so-called house branded dairy is being manufactured using lower cost New Zealand milk.

Mr Jorge makes this point in the letter: “Currently, a pack of Coles Salted Butter (250g), made in Australia, is sold for $4.30 on the shelf and while the same product made in New Zealand is sold for $3.70, or 15 per cent cheaper”.

He notes the shift of Australian consumers towards “cheaper and affordable offerings” with some 60 per cent of all retail dairy products now sold under private, or house-branded, labels.

Mr Jorge declined to comment further.

Originally published as Beston cash crunch forces SA farmers to wait for milk cheque