The Australian dairy industry faces significant challenges, with some companies, like Beston Global Food Co., finding themselves on the brink of collapse. Voluntary administration is often seen as a last resort, offering struggling businesses a chance to restructure and possibly recover. However, for many dairy companies, the combination of rising production costs, market volatility, and changing consumer preferences makes survival increasingly difficult.
This article explores the reasons behind the voluntary administration of dairy companies, with a particular focus on Beston, and examines the broader implications for the Australian dairy sector.
Why Dairy Companies Face Voluntary Administration
What is Voluntary Administration?
Voluntary administration is a process where a financially struggling company appoints an external administrator to take control of its operations and assess its viability. It typically happens when a company is near insolvency but still sees a chance to restructure its debts, cut costs, and attempt to trade its way out of financial trouble.
Often, voluntary administration is a last-ditch effort to avoid liquidation and bankruptcy.
For a dairy company, voluntary administration may be triggered when operational costs surpass income due to factors like falling milk prices, rising production costs, or increased competition. When these financial pressures become too overwhelming, administrators are brought in to explore ways to save the business, sell off assets, or, in the worst cases, close operations.
Shutting down a dairy farm company is a difficult decision. Voluntary administration can offer temporary relief, giving the company time to reassess, negotiate with creditors, and potentially develop a recovery plan. However, several common factors often push dairy companies, in Australia and beyond, into voluntary administration.
Overleveraging
Dairy farms and processing companies often need to take on significant debt to finance their operations, whether for purchasing equipment, land, or processing facilities. However, when the income generated from dairy products is insufficient to cover these debts, the company risks defaulting. Overleveraging can lead to a financial crisis, leaving voluntary administration as the only option to prevent immediate collapse.
Environmental Challenges
The dairy industry is heavily reliant on favourable environmental conditions. Droughts, floods, and other extreme weather events can significantly impact a dairy farm’s production capacity. Water shortages, in particular, are a major issue for Australian dairy farms, especially in areas with limited water sources or vegetation. Reduced milk production due to environmental factors often leads to financial difficulties.
Changing Consumer Preferences
In recent years, there has been a shift towards plant-based alternatives as consumers become more conscious of their health and environmental impact. The rise in popularity of non-dairy milk substitutes like almond milk, oat milk, and soy milk has created additional challenges for traditional dairy companies, reducing demand for their products. Dairy companies that fail to adapt to these changing preferences risk losing market share and profitability.
Regulatory Pressures
Dairy farms and processors are subject to stringent regulations regarding food safety, environmental sustainability, and animal welfare. While these regulations are necessary, compliance can be costly. Dairy companies that struggle to keep up with regulatory demands may find themselves burdened with additional costs, further straining their financial resources.
A Turning Point for Beston Global Food Co.
With the above issues taken into account, let’s have a look at how they may have affected one of South Australia’s most prominent dairy processors, the Beston Global Food Co.
Beston is well-known in the local dairy circuit for its line of specialty cheeses, butter, and milk, plus the lactoferrin protein used in some dietary supplements. However, it has not been in a strong market position for quite some time, finishing FY23 with a decision to close down the Provincial Food Group (PFG), the Aqua-Essence spring water company in Mount Gambier, and a special tech division. Milne Bay Pty Ltd eventually bought PFG in July 2024 for $4m – the purchase was meant to aid Beston’s increased focus on dairy production.
Beston Global’s woes picked up when it hinted in July 2024 that its cheese business and lactoferrin plant in Jervois, under Beston Pure Dairies, will be put for sale. Japanese company Megmilk Snow Brands made a non-binding offer in September 2024 for those two businesses, but they pulled out of the talks within a week, prompting voluntary administration via KPMG. By this time, Beston shares have been suspended in the ASX for three months.
An estimated 159 people in Beston Global’s Jervois and Murray Bridge sites are affected with the voluntary administration, plus 22 farmers supplying milk to the company. South Australian Dairyfarmers’ Association (SADA) president Rob Brokenshire said the administrators will make every effort to help the farmers sell their dairy stocks and get paid for them in the process. Beston CEO Fabrizio Jorge was saddened at the outcome, as the company was hopeful of Megmilk investing heavily to save the operations.
On 26 November 2024, KPMG sadly announced that Beston will formally shut down on 6 December 2024 and all Beston employees will be made redundant. The administrators said staggering losses for weeks eliminated the possibility of further funding after 30 November. As a result, both Beston facilities in Jervois and Murray Bridge will be sold off. Around 160 million litres of milk stock Beston bought from the farmers for $120m will be put up for sale as well. The plan is to convene a second creditors meeting sometime in Q1 2025 to finalise either liquidation or a DOCA.
Challenges Behind Beston’s Closure
Several factors contributed to Beston’s closure, which mirrors many of the challenges faced by other dairy companies in Australia.
Rising Production Costs
The cost of milk production in Australia has been steadily rising, driven by increasing feed prices, labour shortages, and higher energy costs. For dairy processors like Beston, these rising input costs can squeeze profit margins, making it difficult to sustain operations over the long term. Sources said the sale of PFG was meant to provide breathing room for debt obligations to be pushed back from 31 July to 30 September. SADA also determined that Beston still owed $10m to creditors including 41 farmers – one farmer for instance, said he hasn’t been paid $700k.
Volatility in Milk Prices
Global fluctuations in milk prices have a direct impact on dairy farms and processing companies. Beston, like many others in the industry, was affected by market volatility, where a surplus of milk production or declining international demand can drive prices down. The company struggled to generate sufficient revenue in this challenging market environment, leaving them with significant financial losses.
Market Competition
The Australian dairy industry is highly competitive, with large multinational companies like Megmilk and Fonterra dominating the market. Smaller players like Beston Global Food Co face difficulty in competing with these giants, both in terms of price and distribution capabilities. Beston found it hard to maintain market share in the face of such stiff competition, further exacerbating their financial woes despite logging record sales totalling $170m at EOFY23.
A review of Beston’s latest sales report found that its cheese and whey-powder products suffered heavy losses because of price pressures, eclipsing good earnings for its lactoferrin stocks and a new line of cream cheeses.
International Trade Issues
Beston, like many other Australian dairy companies, relied heavily on international exports, particularly to Asia. However, trade tensions, changing international regulations, and fluctuations in demand all added pressure to the company’s ability to sell its products overseas. The COVID-19 pandemic also disrupted global supply chains, making it harder for Australian dairy companies to maintain consistent export volumes, which hurt their revenue streams.
Beston officials also noted that the regulatory controls in the Australian Dairy Code contributed to the company’s woes.
The Impact of Dairy Company Closures
The closure of a dairy farm company like Beston Global Food Co has far-reaching implications. On a local level, such closures can lead to significant job losses, affecting both farmworkers and those employed in processing facilities. Communities that rely heavily on dairy production can experience economic downturns, as the closure of one farm often creates a ripple effect through the supply chain.
On a national level, the reduction in dairy production impacts Australia’s ability to meet domestic and international demand. A decrease in the number of active dairy farms could lead to higher prices for dairy products, placing additional financial strain on consumers. Furthermore, Australia’s reputation as a reliable exporter of dairy goods could be tarnished if more companies are forced into voluntary administration or closure.
What’s Next for Australia’s Dairy Industry?
The case of Beston Global Food Co highlights the vulnerabilities that exist within Australia’s dairy industry. As competition increases, production costs rise, and environmental challenges continue to mount, the industry faces a period of uncertainty. While voluntary administration offers a glimmer of hope for companies to restructure and recover, not every business will survive the process.
Moving forward, the industry must embrace innovation, sustainability, and adaptability to stay competitive. New technologies in dairy farming, better environmental management, and diversification into alternative markets could provide the lifeline that struggling companies need to remain viable. Moreover, government support in the form of subsidies or grants could help protect the industry from further closures.
Conclusion
Voluntary administration is a tough but often necessary decision for dairy companies like Beston Global Food Co. Rising production costs, market competition, and environmental challenges all play a role in pushing companies to the brink. The closure of dairy farms has significant consequences for the local and national economy, highlighting the need for innovation and adaptability within the industry.
As the dairy sector in Australia navigates these challenges, it is crucial for businesses to stay resilient and forward-thinking to prevent more companies from experiencing the same fate as Beston.
DISCLAIMER: This article is for informational purposes only and does not replace official business advice. The information presented is accurate as of the time of writing. AVANTE PARTNERS is not affiliated with any dairy company or administrator firm mentioned.
