Murray Goulburn is tanking after losing a $100 million Woolworths contract

Photo: Philippe Huguen/AFP/Getty Images

The damage to Murray Goulburn, the largest dairy processor in Australia, after losing a contract to supply Woolworths is about $108 million.

A short time ago, its ASX-traded units had dropped 6.4% to $1.17, down more than a half from the year high of $2.95.

Woolworths selected new suppliers to manufacture a range of private label products including cheese, UHT, adult milk powder and cream.

Bega Cheese says it has the deal to supply of a significant component of Woolworths’ own label cheese range from January 2017. Bega shares are up 7% to $6.23.

Fonterra, the world’s biggest dairy exporter, will supply adult milk power. Pactum, a long life milk specialist, will be supplying UHT milk in all states except Western Australia where local maker Harvey Fresh is the supplier.

Murray Goulburn, which is forecasting flat revenue this financial year because of a global dairy glut, still has the contract to supply private label mozzarella shred cheese as well as private label butter.

The cooperative says the revenue loss will be about $108 million. The financial impact in the 2017 financial year will be limited given timing of existing contracts completing.

“MG continues to enjoy a strong ongoing relationship with Woolworths and they remain a valued partner for our co-operative,” says interim CEO David Mallinson.

“We believe our tender to retain this business was competitive, whilst balancing acceptable returns for our products given the current environment for our farmer/suppliers and investors.”

Murray Goulburn says it expects a flat 2017 net profit of $42 million, around the upper limit of the 2016 range which had been brought down from initial expectations of $89 million.

The forecast is based on the assumption that commodity prices will continue to trade at current levels for the rest of the 2016 calendar year with only a modest recovery in price of around 6% the second half of the 2017 financial year.

The cooperative is due to announce its full year results on August 24.

The global downturn in dairy prices has hurting Australian farmers. Murray Goulburn expects to pay farmers $4.80 a kilogram this year, at the lower end of the $4.75 to $5.00 range set in April.

Law firm Slater and Gordon is investigating a potential class action against Murray Goulburn on behalf of aggrieved unitholders.

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