Bega Cheese has told investors it will take a financial hit on its infant formula joint venture with Blackmores.
The dairy company said it will write-off around $5-7 million on inventory in its share on the partnership.
In October last year the two companies announced their intention to establish a 50-50 joint venture to develop and manufacture a range of nutritional foods, including high quality infant formula, through Bega’s subsidiary Tatura.
At the company's AGM this week, however, Bega Cheese executive chairman Barry Irvin said: “We have great confidence in the value of the combination of the skills and capacities of both companies, however there is no doubt that we have seen significant change in the nutritionals market since the partnership launched its first products in January.
“While this time last year supermarket shelves were empty and customers in Australia and internationally were providing ever increasing orders, the combination of a regulation change in China, a supply response to the demand signals, and the evolution of supply channels to market, now sees significant discounting in the market place and signs of short term oversupply.
“This change in market circumstances has seen our expected sales not materialise at levels that were initially forecast and some strong head winds for the partnership particularly in the Australian market,” Irvin said.
“The partnership is keeping the business under constant review and will continue to monitor the performance with our partner Blackmores as market evolution and circumstances becomes clearer.”
