foodprices:fyi

Font Size: Decrease Increase Print Page: Print Geoffrey Newman | February 27, 2008
FOOD giant Goodman Fielder says there will be no relief this year from the rising cost of staple foods such as bread and margarine as it strives to protect its margins in the face of "unprecedented" inflation in wheat prices and other commodities.

Australia's largest baker is predicting it will pay $210 million more for its raw materials this financial year, $140 million of that in the half-year to June.

The figure is higher than the $180 million annual number it forecast in November.

Goodman yesterday posted a 26 per cent fall in profit for the 6 months to December, to $94.6 million.

But the fall was due to the one-off cost of closing two manufacturing plants, part of a cost-reduction strategy that has helped the company maintain its profit margins.

Without the one-off costs, the company's normalised net profit was $108.7 million, up 7.2 per cent.

Total revenue rose 8.3 per cent in the half-year to $1.32 billion, underpinned by strong revenue growth of 15.5 per cent in its dairy business in New Zealand. Chief executive Peter Margin said he saw no immediate let up in the "unprecedented" commodity price inflation, which was being driven by higher demand, particularly from Asia and the biofuels industry, and restricted supply due to drought.

"The most difficult thing in the last 12 months, and more so in the oils area, has been the rate of the increases," Mr Margin said. "We are talking about levels that have never been seen before."

The growth of biofuels demand, in particular, had been the biggest contributor to inflation in the last 12 months, as it affected the world supply of grain.

Goodman Fielder's Commercial unit suffered a 12 per cent fall in earnings for the half to $35.5 million.

Mr Margin said while he saw the potential for wheat prices, which surged again yesterday, to pull back somewhat as US farmers planted more, oil prices would remain high.

Goodman Fielder has been able to push through retail price increases because of its dominant market position in many products and focus on premium brands where demand is less sensitive to price and margins are higher.

Body: One investment bank analyst praised the company's performance but warned further retail price increases might see consumers shift to cheaper house-brand alternatives where margins were thinner, threatening the company's strategy. "It's a tough company operating in a tough business," she said.

Goodman is a major supplier of house brand bread and other foods to Woolworths, Coles and Aldi.

Mr Margin said yesterday Goodman Fielder was considering bidding for Dairy Farmers, Australia's third-largest milk producer and the maker of Coon Cheese. Dairy Farmers is reviewing its options for a trade sale, merger or stock market listing after reporting strong interest from potential buyers.

Goodman is predicting annual profit of $222.1 million, around the same as last year. It declared an interim dividend of 6c a share.