Bega Cheese boss Barry Irvin urges Australian to buy branded milk over private label as prices are set to rise

The dairy producer has been in discussions with supermarkets for months as it seeks to recover a 30 per cent hike in its own costs.

Bega Cheese Executive Chairman, Barry Irvin says buying branded milk will shore up the future of Australia’s dairy industry: supplied

Australians are weeks away from paying more for popular milk brands, including Pura and Dairy Farmers, with Bega Cheese seeking to recover a 30 per cent spike in the prices it pays farmers from the big supermarket chains.

But as the household staple becomes more expensive, Bega executive chairman Barry Irvin is urging shoppers to buy its brands over cheaper private label products to shore up the industry.

Dairy farmers have been a big pawn in supermarket pricing, with many leaving the industry during the past decade following the $1 a litre milk wars, which compounded other difficulties on the land, including drought.

As a result the national milk pool has shrunk considerably, with sourcing supply highly competitive, pushing farmgate prices 30 per cent and sparking a profit warning from Bega last month.

Coles, Woolworths and other supermarket chains have now ended the savage discounting of the household staple, hiking the price of private label milk by 25 cents a litre last month and Mr Irvin has been speaking to the major retailers in the past two months about increasing the price of Bega’s brands, which include Pura and Dairy Farmers.

“In general the supermarkets recognise the importance of our secure supply and indeed good quality product and a relationship that sees new products developed and sustainability programs and alike adopted,” Mr Irvin said.

“Our endeavour in life is to have a kind of partnership that ensures that. I think that in general that would be the same view of the retailers but of course, we all have our pressures in terms of needing to make returns and, and satisfy the objectives that we have within our businesses.”

But it can take up to 12 weeks for a price rise to flow after securing an agreement from supermarkets, meaning Bega’s price rises are potentially a few weeks away.

In the past month, farm gate prices have surged 30 per cent from a record opening price of $8.40 a kilogram milk solids, exceeding Bega’s expectations of a 20 per cent rise. Bega is forecasting earnings before interest, tax, depreciation and amortisation to be $175m to $190m on a normalised basis this financial year. In the following year, it’s expecting earnings to fall or be flat, forecasting a range of $160m to $190m.

“Of course we try to become more efficient, take out cost where we can and absorb some of the cost increases – that’s expected of us,” Mr Irvin said.

“And then there comes a point, which is the case at the moment, there are substantial input pricing pressures that you have to pass them through because there is no way you can actually find the efficiencies or savings or whatever to absorb it. If we want to be in business for the long term and continue to invest in our business we clearly need to make sure we’re getting a return, selling our product for at least what it costs us or a little better than that.”

Mr Irvin said he recognised the the impact of Reserve Bank rate rises on household budgets, which come as grocery prices rise more than seven per cent.

But he said buying a branded product over a private label alternative meant consumers were supporting regional communities while allowing Bega to strengthen supply and production.

Crucially, Mr Irvin said it would help avoid a “downward spiral” similar to the one that triggered the collapse of Murray Goulburn in 2016, formerly Australia’s biggest co-operative before its remnants were sold to Canadian dairy giant Saputo.

“We know that everybody, especially in these times, are carefully watching their pennies and where they spend their money,” Mr Irvin said.

“But when you look at some of these iconic Australian brands that have been around for 100 years, it is worth paying those few extra cents because those are people that invest right back down the supply chain and indeed have a view about the industry in the long-term,” he said.