Drought was a key reason behind the profit warning because it has severely reduced total milk production. This has forced dairy processors such as Bega to compete harder and pay more for milk to farmers to secure supply for its processing factories.
Australia's milk production has fallen because many dairy farmers have reduced the size of their herds due to soaring feed costs,financial pressures and the ability to gain some revenue from selling cows.
"We have previously advised that conditions impacting financial year 2019 would continue into financial year 2020. This has proven to be the case,but at a faster and deeper rate,"said Bega chairman Max Roberts.
We are seeing softening in demand for products destined for certain export markets which will adversely impact earnings.
Bega chief executive Paul van Heerwaarden
"To remain competitive Bega Cheese today announced an increase in its Southern Region milk price and other initiatives to sustain and grow milk supply. This higher milk price will directly impact Bega Cheese's earnings in financial year 2020,"he said.
The company released the trading update on the same day as its annual general meeting. Chief executive Paul van Heerwaarden said while Bega's branded food business was growing,"we are seeing softening in demand for products destined for certain export markets which will adversely impact earnings in financial year 2020".