Cheese relief: Bega tips end to sharp dairy price increases

Milk and cheese lovers can breathe a sigh of relief after Bega Group’s executive chairman expressed confidence that the days of steep dairy price increases have come to an end.

Food inflation shot up by 9.2 per cent on average during 2022, but dairy had the sharpest surge of all, with shoppers paying 14.9 per cent more at the checkout, according to ABS data.

Dairy prices are expected to stabilise in 2023, Bega executive chairman Barry Irvin said.Credit: iStock

Rising global commodity prices and heavy floods led to dairy giant Bega copping a 30 per cent increase in farmgate milk prices from July. While this rise was passed through to consumers, there was a three-month lag that resulted in profits plummeting 74 per cent to $7.3 million in the first half of the 2023 financial year compared with $28 million the year before.

To boost its margins, Bega would have to pass through more price increases this year, but these would reflect “normal inflationary pressures” and not be of the same magnitude as those passed through last year.

“The very large price increases that we saw have been executed,” Bega executive chairman Barry Irvin said. “The reflection of the exceptional lifts have been done now. It’s really business as usual.”

While Bega’s revenue rose 11 per cent to nearly $1.7 billion, the 74 per cent dive in profits and 26 per cent drop in earnings (EBITDA) sent the share price tumbling on Thursday, closing down 7.8 per cent to $3.32.

The $1 billion cheese maker, which owns fridge favourites including Dairy Farmers milk, Daily Juice Co, Pura and Dare iced coffee, will depend on the strength of its brands to drive sales volumes as shoppers pull back on their spending and reconsider their household budgets amid rising interest rates and cost-of-living pressures at 20-year highs.

“When we bought the Lion dairy and drinks business a couple of years ago we really demonstrated where we wanted to be, and that was with strong brands with strong consumer loyalty,” Irvin said, pointing to the popularity of brands such as Yoplait, Vegemite, and its peanut butters.

“There [are] some great brands in there for us to invest in and make sure that we’re responding to customers. And the really nice thing is that we’ve actually grown in volume as brands this year and the customers have stayed loyal even with those price changes that we’ve had to put through.”

Under new chief executive Pete Findlay, who recently took over the top job after three years as chief financial officer followed by a brief stint as chief operating officer, some of the smaller brands in the dairy giant’s vast portfolio may come under the spotlight, the executive chairman signalled.

“He well fits our culture where he’s a very disciplined professional and he will make sure the strategies that have been put through are implemented. He’s somebody that likes to get on with things,” Irvin said.

“There would be some smaller brands that would come under review, but those big iconic brands that we own, we’re really happy with.”

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