Embattled dairy processor Murray Goulburn says operations at its Koroit factory will not be affected despite it losing a $108 million contract.
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Woolworths announced it would not renew a $108 million contract for Murray Goulburn to supply its private label cheese, UHT milk, adult milk powder and cheese.
The current contract is due to end in January next year.
The contract has been awarded to Murray Goulburn competitor Bega Cheese.
A spokesperson for Murray Goulburn said the loss of the contract will have no impact on Koroit.
“The Woolworths’ contract was serviced by our plant in Cobram,” the spokesperson said.
In March this year, Murray Goulburn announced plans to build a $260 million infant formula and nutritional powder production plant at Koroit.
The spokesperson said that expansion would proceed and Murray Goulburn would fill the void with the beginning of a $130 million deal to produce cheese for Coles from February 2017.
Murray Goulburn was formally notified on Thursday night of Woolworths’ decision, after it was outbid in a competitive tender.
Murray Goulburn shocked the sector in April when it downgraded its forecast 2015-16 profit to between $39 and $42 million, down from its February guidance of $63 million, itself revised from its prospectus the previous July of $89 million.
Chief executive Gary Helou resigned on the same day and the company implemented a savage and retrospective cut to the farmgate price it pays its farmer-members, including clawback provisions for milk already paid for.
Helou had aggressively scaled up the co-operative's production capacity, building debt-funded plants and signing a 10-year deal to supply Coles' private label milk, in the lead up to a partial float last year. This strategy coincided perfectly with a crash in the global price of milk powder.
Murray Goulburn will continue to produce Woolworths' private label butter and its mozzarella - a vastly smaller cheese category than cheddar.
It's understood the supermarket giant was determined to keep the contract with an Australian-owned processor, leaving third player Canada's Saputo, owner of Warrnambool Cheese and Butter, an unlikely tender winner.
