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Bega story goes here

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Cappo goes here and aheer

Cappo goes here and aheer

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Bega Cheese is set to build an international food business expansion agenda following its $534 million takeover of national processor Lion Dairy and Drinks. E...

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Barry Irvin

Barry Irvin

Bega Cheese is set to build an international food business expansion agenda following its $534 million takeover of national processor Lion Dairy and Drinks.

Executive chairman Barry Irvin says Bega's philosophy should include operating in global markets, although he concedes there will be "quite a bit of bedding down activity" on the home front after the NSW South Coast-based dairy processor officially takes over Lion's dairy and fruit juice business and doubles its size in January.

"We don't have any current plans to buy into international geographies, but we should have the ambition to compete anywhere around the world, just as international food companies are represented in Australian markets," Mr Irvin said.

"With the size of the business now scaled up, once we get the required momentum we should be a great Australian food company looking elsewhere at opportunities."

The big consolidation under one Australian-owned company was also a good deal for farmers, primarily because the dairy industry needed the most efficient supply chain possible to make the supply chain profitable for all players, from farmers to retailers and exporters.

Mr Irvin, himself a dairy farmer, said the former farmer co-operative, which listed publicly nine years ago, understood farmers well, and the importance of having profitable, supportive farmer suppliers.

Bega's annual revenue is forecast to leap to about $3 billion when it absorbs Japanese-owned Lion's big milk and short shelf life dairy product range, and Australia's largest cold chain distribution network.

It gains 13 processing plants and prominent brands such as Dairy Farmers, Pura, Dare and, Big M milk products, and Yoplait and Farmers Union yoghurt, plus juice names Berri and Daily Juice.

The deal will increase Bega's annual milk intake 75 per cent to 1.7 billion litres, from suppliers in six states.

The deal was locked in last week for almost half the price Lion originally wanted 18 months ago and at a $66 million discount to what the China Mengniu Dairy Company offered to pay before its bid was scuttled by federal government foreign investment concerns.

Although he has not ruled out selling off some parts of Lion's dairy and juice portfolio, Mr Irvin said the new assets would be a far better fit with Bega than with Kirin, a company largely focused on alcoholic beverages.

He said Lion's former National Foods and Dairy Farmers milk businesses, which originally cost previous buyers a total $3.6b but never delivered the profits they promised, would complement Bega's strong manufacturing activities.

"Our culture is about value adding every litre of milk," he said.

"If you have extra volumes, you work out where you can make half a cent margin here or there.

"White milk may be considered a high turnover, low margin business, but it's certainly not the lowest margin game.

"We've had a lot of experience in low margin markets, including cheese and milk powder, and we've made good money."

While Lion had been heavily dependent on bottled milk revenue and has been squeezed hard by $1 a litre supermarket brand competition, Bega's manufacturing base including high value nutritional powder, and a big export focus gave it a lot more earnings options to work with.

"Our production planning guys constantly look at what's the best product to make use of the milk available and we flex with market conditions."

However, he was not promising any special favours on farmgate payments for Lion milk suppliers.

"The bottom line is I've always been very truthful to farmers about what is realistic," he said

"I would never say we can control the market or what it's going to pay in the future - that would be wrong.

"If you think you can defy the market with your own expectations of prices you will end up sending the company broke.

"The best chance we have to increase returns to farmers is to ensure everyone in the supply chain is profitable, which means we need a highly efficient supply chain with as many product and market options to sell our milk into as possible."

He said ownership by an Australian company with a close affinity with the industry, plus the greater stability Bega's asset integration would bring to the sector would, "without question deliver greater value" to the milk sector.

Although Bega has budgeted to achieve synergies worth about $41m by combining the two big milk processors' milk networks and their corporate structures, Mr Ivin has ruled out shifting Bega's headquarters from its 4000-strong home town in south eastern NSW.

One of the first synergies activated would be combining the company's Melbourne business offices, which include its spreads, sauces and dips business, with Lion's management team.

"But our head office will continue to stay in Bega," he said.

"We will honour the brand's base and heritage and Bega's role as a key production site.

"Senior executives will continue to be based at Bega, although we do have a significant corporate presence in our food and dairy businesses in Melbourne."

Mr Irvin, who has spent most of the past year based at home on his Bemboka farm said coronavirus had proven to the business community, it was not imperative to have executives based in the same city office.

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