Australian cheese manufacturers defy difficult market

Rising dairy prices and softening local demand have combined to produce challenging conditions for Australia’s largest cheese manufacturers, with cheese manufacturing revenue expected to decrease by an annualised 0.7% over the five years through 2015–16, to total $5.5 billion.

However, the decline has been offset by increased demand from Asia, increasing cheese exports to $1.2 billion in the same period, an estimated annual growth rate of 10.8%.

According to IBISWorld, Australia’s two largest cheese manufacturers, Murray Goulburn Co-operative Co Limited and Bega Cheese Limited, have weathered these challenging conditions with a variety of strategies such as global expansion and the pursuit of acquisitions.

Murray Goulburn’s cheese manufacturing revenue is expected to outperform the industry, growing by 2.5% in 2015–16 to $1.2 billion, mostly due to rising dairy prices and growth in international demand for dairy products.

More than half of Murray Goulburn’s revenue is generated from exporting processed foods; to meet the increased export demand, the company has maintained a steady yearly increase in production volumes by providing its dairy farmers with financial support, bulk purchase of grain and interest-free fodder loans. The depreciation of the Australian dollar since late 2013 has also helped Murray Goulburn capitalise on the growing demand for Australian dairy exports.

Cheese manufacturing revenue at Bega Cheese is estimated to grow by 2.8% in 2015–16, to $948.5 million. Unlike Murray Goulburn, Bega Cheese does not focus on exports, with about 80% of its production targeted at domestic markets like supermarket chains and other food-service providers.

In 2007, Bega acquired a large slice of Tatura Milk Industries Limited and in 2008, signed a supply agreement with Kraft Foods Australia. In 2011, Bega Cheese merged with Tatura Milk in an effort to increase efficiency. In 2012, the company expanded its Tatura facilities to supply to the Middle East and has since maintained a supply partnership with Fonterra Brands (Australia) Pty Ltd. In the same year, Bega also cut a five-year deal with Coles to provide private-label cheese.

IBISWorld expects the next five years to feature growth in Australian dairy consumption, stabilisation of dairy prices and further increases in exports. Locally, consumer demand will be stimulated by product innovation, while a rise in exports to Asian markets will drive international trade. The strategies that Murray Goulburn and Bega Cheese have employed will see them well placed to capitalise on these trends.