First Milk has announced that pre-tax profits increased significantly in the last financial year, to £3.5m.

The £5.5m increase represented a massive turnaround from the £2.01m loss in 2006/07, when the company bought Dairy Crest‘s cheese and ingredients business.

“The strong results are a reflection of the improved commodity market prices and the focus of the team over the past year in moving from being predominantly a milk brokerage to a demand-led, consumer-facing business,” chief executive Peter Humphreys told Farmers Weekly.

The company had also streamlined its milk haulage and had developed its regional cheese brands, he added. “This allowed us to increase our milk price from 17p/litre to 25p/litre and pay a processors interest payment some 18 months ahead of schedule.”

But while he acknowledged the co-op was still at the bottom of the current (July) DairyCo Datum milk price league table, he said it had been one of the first to increase its August price by 1p/litre. “We will see the difference in the next (August) league table.”

Looking ahead, Mr Humphreys said 2008/09 could be a lot tougher for the industry as a whole. “Commodity markets look a lot tougher, the general economic situation in the UK has changed considerably and the milk supply and demand situation has also changed. This will put a lot of pressure on the dairy sector in the next 6-12 months.”

Retailer competition was likely to remain a key factor driving retail milk prices, but whatever happened, farmgate prices had to reflect the increased costs of production and the need to encourage reinvestment, he said.

“Pushing cost increases through the chain can be very difficult, but adding the supply and demand situation we have currently, brings another lever into play. I do see prices increasing further towards the end of the year.

“If we’re not competitive, there will be a shortage of milk by the end of the year.”

First Milk results:
• Group turnover up 24% to £602m (2007: £484m)
• Operating profit up to £9.66m (2007: £0.52m)
• Profit before tax up by £5.5m to £3.5m (2007: £2.01m loss)
• Processing interest payment of £1.85m made to members

Co-op 2007/08 profit comparison

 £m First Milk Milk Link DFoB
Turnover 602 523 562
Operating Profit (Loss) 9.7 16* 0
Profit (Loss) before tax 3.5 3.9* -7.5
Profit (Loss) after tax 3.2 2.4* -3.5
* After adjusting for member retention for consistency with others
Source: First Milk