![Bega Cheese is tipping farm gate milk prices to rise next financial year.](/content/dam/images/1/3/h/y/3/i/image.related.afrArticleLead.620x350.gui13g.png/1487743656137.jpg)
Bega Cheese has tipped milk prices to rise next financial year, which would lift struggling farmers back in to the black, but is forecasting a flat full year profit as it suffers from lower infant formula sales and the loss of a key supermarket contract to rival Murray Goulburn.
Bega took a pen to its new infant formula joint venture with Blackmores, writing off $7.1 million.
The write-off acted as a drag on the company's 8.2 per cent jump in interim profit to $15.7 million and the joint-venture will weigh on its full-year result, with Bega forecasting infant formula sales to drop in the second half as it, like Bellamy's, suffers from regulatory changes in China.
Bega executive chairman Barry Irvin, fresh from last month's $460 million dealt to buy Vegemite and a stable of Kraft-branded products from Mondelez International, said if the recent strength in global dairy prices was sustained there could be a lift in farm gate milk prices.
"That will put suppliers in a more profitable position or at least at break even," Mr Irvin said.
Bega increased its milk intake in the past year. While Mr Irvin would not say from which processors, or by how much, it is understood to have picked up supply from Murray Goulburn and Fonterra.
Both of those processors angered farmers last year by cutting prices late in the season – triggering inquiries from regulators and politicians.
Mr Irvin said he has been disappointed in the leadership of the dairy sector, with the controversy surrounding Murray Goulburn and more recently Bellamy's.
"It has created a sense of an industry in crisis," Mr Irvin said.
"This is an industry that is globally competitive and deals with global challenges, generally, quite well. The industry hasn't covered itself in glory with how the leadership has dealt with it."
Bega is working on a "corporate opportunity" designed to cut the company's debt and strengthen the balance sheet, which could be a divestment.
Bega is reviewing its Bemore partnership, struck with Blackmores in January last year, but launched just a month before last April's major upheaval in the sector triggered by regulatory changes in China. Blackmores made a $2 million write down on Wednesday.
"We have taken a conservative view of the nutritional business," Mr Irvin said.
"There are challenges there. We do have bulk ingredients and raw materials as well. We have made sure we have provided for the full spectrum of the supply chain."
Mr Irvin said demand for formula had not changed but there had been a global supply response as "daigou", or shoppers sending product back to China, sourced product from retail shelves stretching from Australia to the Netherlands.
He said after a couple of years of an "exceptionally strong market" it had returned to more normal conditions, a situation that was "hard to pick".
"In the dairy game it shows that you need a conservatively balanced business," Mr Irvin said.
Infant formula sales would fall in the second half. This, combined with the loss of a cut and pack cheese contract with Coles to Murray Goulburn, will hurt profit, which is expected to be flat for the full-year.
A senate probe into Murray Goulburn's price cut and impact across the industry is expected to deliver its findings on March 30.
"What disappoints me is that there was a well established process between farmers and processors that have evolved over a generation and the actions of two companies have caused all of that to be called in to question," Mr Irvin said.
He said farmers had lost trust in companies, including Bega which did not follow Murray Goulburn and Fonterra to cut the farm gate milk price.
Bega declared a fully franked 5¢ interim dividend, payable on March 15, up from 4.5¢ a year ago.
Competitor Warrnambool Cheese & Butter is poised to de-list from the Australian Securities Exchange after finally convincing Japan's Lion to sell its 10.2 per cent stake to majority holder Saputo.
Saputo,the Canadian dairy giant, was forced to lift its takeover offer from $8.85 per share to $9.05 per share in order to mop up the 12 per cent of shares it did not already own.
Lion said it would make a small profit selling the stake, which it acquired in 2013 during a bidding war for Warrnambool that included Bega and Murray Goulburn.
Minority shareholder Sandon Capital has said Warrnambool was worth more than $13 per share.