Bega's costs are up 10pc and customers will pay 'a large chunk' of it

One of Australia's biggest dairy manufacturers is warning about soaring food inflation, as the war in the Middle East disrupts global supply chains. "If it keeps going, costs will stay elevated," Bega Group chief executive Peter Findlay said. "Companies like ours will probably look to try and claw back more costs than what we potentially have to date because we just won't be able to absorb that." Bega Group's grocery lines include its namesake cheese Bega, Vegemite, yoghurt brand Yoplait, Big M and other dairy products. Speaking to Alan Kohler for That's Business, Mr Findlay said the supply chain shocks associated with war had already added 10 per cent to Bega's costs. This includes higher costs on packaging, as the closure of the Strait of Hormuz pushes up the price of resin, which is used to make plastic. "It's critical for us to be able to get packaging for our goods," Mr Findlay said. Costs for the chemicals needed for Bega's factory cleaning, and even for the rubber it used in machinery and seals, were also rising, Mr Findlay said. Bega Group is also paying farmers more for dairy, as producers battle supply shocks, including soaring diesel and fertiliser prices. "We're trying to fully match that," Mr Findlay said, of the financial support for Bega's dairy farmers. "It's quite difficult. Different farmers in different regions have very different cost structures." Bega Group was passing "a large chunk" of its extra costs onto consumers but was "actually absorbing some of it at this stage". "We'll just have to see how long the crisis goes for," he said. "We're sort of evaluating that every month." Australia's two biggest supermarkets have already increased the price of home-brand milk in response to higher dairy farming and packaging costs. Woolworths chief executive Amanda Bardwell has also warned about price hikes. She noted that fresh produce and dairy were seeing the first round of war-related price spikes instore, with packaged items to come next. "We do expect to see, unfortunately, prices increase in some products over the next three, six and possibly 12 months," she said during a financial update briefing last week. "It's a very volatile period at the moment." Headline inflation accelerated to an annual rate of 4.6 per cent in March, up from 3.7 per cent. Food prices also rose 0.7 per cent in March alone. This week, the Reserve Bank of Australia increased the cash rate to 4.35 per cent to tackle inflation, with the central bank warning about secondary price increases still to come. "Broader pass-through of fuel costs is expected from the June quarter onwards," the RBA's statement on monetary policy for May said. "Firms widely report that they are actively considering what price changes they might make if input cost increases persist or broaden." Bega's Mr Findlay is bracing for additional pressures, with the chief executive expecting workers to push for higher wages to deal with surging inflation. "You'll have to link your wages to increased costs of living," he said. The company has already made about 800 workers redundant in recent years, taking it down to 3,200 employees and reducing the number of its food factories in Australia. Mr Findlay said that closing factories had helped the company grow its productivity. "We've actually grown the business, from a volume perspective, at more than 4 per cent over the last three years," he said. Additionally, he believes Bega is benefiting from a "wellness" trend, with yoghurt and cheese wrapped up in a renewed focus on high-protein diets. "Protein is one of the biggest trends we've seen in the last decade," he said. "Dairy's having a little bit of a renaissance, which we're very pleased about." Bega Group's last financial reports showed revenue up 5 per cent and net profit up 55 per cent to $46 million for the half year to December.