Having watched its share price decline by a whopping 94% in the last decade, directors of Beston Global Food Company (formerly ASX: BFC), have finally put shareholders out of their misery by placing the company into liquidation.
Despite being the seventh largest dairy company in Australia and the largest in South Australia alone, employing over 160 staff, the Labor government is not doing what it did for Rex Airlines (ASX: REX) or Whyalla Steel and offering this cheese, milk and butter producer a lifeline.
While the debt-riddled company – best known for brands like Edwards Crossing Cheese Company and Mables - has been stumbling towards administrators since last October, directors wanted to secure funding via the National Reconstruction Fund (NFR).
However, directors have since been advised by the company’s administrators (KPMG) and the liquidator that an NRF application would be unsuccessful.
Beston is following in the footsteps of high-end retailer, The Essential Ingredient, which was wound up in September last year, citing failure to recover from a difficult trading period during the pandemic.
Then there’s fellow South Australian company and gourmet food producer, Maggie Beer Holdings (ASX: MBN), which last August appointed advisors to sell its dairy business after a challenging year that saw losses of more than $28 million.
Not unlike Beston, Maggie Beer Holdings shares have lost around 90% of their value in the past three years.
Have protectionist policies backfired?
Interestingly, all three companies - Beston, The Essential Ingredient and Maggie Beer Holdings - appear to be casualties of a protectionist policy that’s backfired.
For example, protections implemented four years ago to help dairy farmers have put Australian food processors at a major disadvantage.
The bottom line is they’re now paying significantly higher prices than their overseas rivals, who can compete with cheaper products at the checkout.
The starkest contrast is the widening gap between Australian and Kiwi farmers' pay.
Unsurprisingly, imports of Kiwi butter and cheese have been on a tear for some time.
Lower milk prices and open access, noted Michael Harvey, senior analyst at Rabobank, have made it easier for Kiwi manufacturers to compete in Australia.
While Beston's CEO Fabrizio Jorge recently admitted to never witnessing such a large price disconnect between the two countries, the company refrained from sourcing milk from dairy farmers in NZ.
Questionable director-related transactions
Meanwhile, Beston’s administrator, KPMG was recently forced to close the operation after attempts to sell the business as an ongoing concern failed to attract any binding offers.
It remains unclear how much of the $72.1 million owed to creditors – including $52 million to National Australia Bank (ASX: NAB) and $11.6 million to dairy farmers – will be recovered.
The disconnect in Australian farmgate milk prices aside, recent credit reports suggest “exceptionally high” operating costs in areas like energy and transport contributed to Beston’s failure.
Added to the failure, the report notes, was poor operational performance by the main cheese and whey powder business.
The report also notes a failed attempt to reach an agreed price for a proposed asset sale involving Murray Bridge and Jervois production facilities, with Japanese company, Megmilk.
Finally, the report suggests potential claims including insolvent trading and unreasonable director-related transactions may require further investigation.
