Bega Cheese boss, Barry Irvin, is not ruling out buying more dairy processing plants as tight milk supplies and record farmgate prices force other industry players to consider rationalising their operations.
"We hear people are reviewing their capacity, and that's not unusual when you hit these sort of competitive times," he said.
"We always remain alert to opportunities, although we are very comfortable with our own plant assets."
Bega, now one of Australia's biggest branded food businesses, operates 20 dairy and food processing sites of its own around Australia, including eight milk plants, three cheese factories, two dairy powder plants, two juice plants, two peanut processing sites and its big spreads and sauces plant at Vegemite Way in Port Melbourne.
Mr Irvin noted there were rumours other dairy companies may have excess dairy capacity on the market - speculation which did not surprise him.
Asked if Bega Group was interested in buying anything which came up for sale, he said: "We never, say never. We're not looking at extra capacity for the sake of it, but there are always areas we'll take a look at".
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However, given the dairy sector's shrunken milk pool, rising production costs and tight profit margins, especially for bulk commodity producers, he would be more comfortable seeing some processing operations retired from production altogether rather than sold and "moved around to new owners".
"Those who are entirely, or heavily, commodity-based are very exposed if global prices come down, and that will be a key factor in any capacity rationalisation," Mr Irvin said.
His comments followed Bega Group posting a $24.2 million after-tax full year profit late last month, with revenue from its bulk products activities slipping from 27 per cent to 18pc in 2021-22.
Profit drop
Although total group revenue for the year jumped 45pc to exceed $3 billion as Bega absorbed the former Lion Dairy and Drinks business, company profits actually fell almost 70pc on the previous financial year's result.
Now a national milk processor, Bega weathered milk supply and market distribution challenges, including floods, export frustrations, and $40m in COVID-19 related costs within its factories and product supply networks.
The Bega executive chairman's processing capacity observations follow Canadian-based Saputo flagging it was looking at streamlining its Australian activities because milk intake was down, which would hurt efficiency if milk supplies remained tight.
President and chief executive officer, Lino Saputo, did not expect Australian milk production to rise and said his company was continuously re-evaluating its network so the right infrastructure was in place for the milk intake it anticipated in the next few years.
New opportunities to streamline the Australian operating model were being evaluated as Saputo assessed its footprint and targeted higher value markets.
We are leaning more towards rationalising to improve efficiency than to increase our total asset base
- Barry Irvin, Bega Group
Mr Irvin conceded Bega, too, was looking at continuing to rationalise or restructure some activities, including opportunities within its big domestic supply and cold chain network.
"We are leaning more towards rationalising to improve efficiency than to increase our total asset base," he said.
In the past year the company has scaled back its processed cheese capacity (although its domestic sales continued to grow) and sold off property assets worth about $7m from its cold chain and warehouse portfolio.
Also still for sale is the $150m Port Melbourne spreads and sauces factory and six hectares of land - the home of Vegemite - which will be leased back as part of a 15-year arrangement.
More to do
Mr Irvin said Bega was very happy and comfortable with the way the $560m Lion Dairy and Drinks investment had been integrated into the business and the cost savings achieved so far, but more synergy opportunities would be followed up.
"There are more stages of improvement in the business and integration opportunities available ... there is more to do," he said.
Efficiencies were also being achieved by switching available milk intake to optimise supplies in the most rewarding market areas, particularly during the past year's export channel disruptions.
Infant formula production capacity from the Tatura site had been "right sized" as export demand subsided and Mead Johnson's Reckitt Australia business ended its contract to buy the powder product.
Lactoferrin production also dropped as prices dipped, but chief financial officer, Pete Findlay, said the company remained "very bullish" about the lactoferrin market and Bega's options.
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
