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.

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.