WISEMAN CHAIRMAN BIDS TO JUSTIFY MOVE TO CUT DECEMBER PAYMENTSBy Andrew Shirley and Sam Fortescue
ROBERT WISEMAN Dairies is likely to cut its December milk price, despite announcing another rise in profits and securing over 100m litres of new business.
Pre-tax profit for the six months ending Oct 2 rose 12% to £15.3m on the back of higher sales volumes, which rose 7.4% to 607m litres. The dividend was boosted by 10% to 2.2p a share. But a slight fall in margin from 2.56p/litre to 2.47p/litre was blamed on higher fuel and packaging costs.
Chairman Alan Wiseman said new contracts were won in the last six months with Somerfield, Netto and the Big Food Group and substantial deals with Tesco and Sainsbury”s would kick in by April 2005.
But he added: “We need to be competitive in all aspects of our business, including the price we pay for our raw milk.”
Mr Wiseman said a gap of almost 0.6p/litre had opened up between Wiseman and its competitors. “On 1bn litres, 0.6p is £6m and that is a big issue to a company our size.”
And in a letter sent to suppliers last week, the Glasgow-based company warned: “The milk price gap that has developed between our competitors and us is no longer sustainable in such a competitive market-place, and needs to be addressed. We need to reserve our position in respect of milk prices from Dec 1.”
The move follows a 0.4p/litre reduction by Arla Foods in September and a 0.25p/litre drop by Dairy Crest for November milk. Co-op Milk Link also announced a controversial 0.5p/litre cut in October. Arla Foods has since announced it will be holding its prices until at least January.
A spokesman for Wiseman, which tops the milk price league (see p19), said the company would feel less pressure to cut its prices if Arla back-tracked, but Jonathan Ovens at the Arla Foods Milk Partnership said Wiseman must have promised to shave milk prices to win its new contracts with Sainsbury”s and Tesco.
“It is not market driven. There is no fundamental out there you can hang your hat on,” he said. “We will obviously have to be aware of what the others are doing, but there is no wish on the part of Arla Foods or the Arla Foods Milk Partnership to cut prices.”
A spokesman for NFU Scotland did not want to single out Wiseman for criticism, but said cutting prices while announcing increased profits was symptomatic of a system that was totally failing dairy farmers.
“The short-termism that is rife in the milk sector has allowed retailers to increase their margins and processors to keep making profits while farmers have to pay the price.”
Gwyn Jones, NFU dairy board chairman, said: “Forget the profits and look at the market, this is totally unacceptable. The only justifiable reason for a price cut is if they have sold milk too cheaply.”
Co-op First Milk, which supplies about 40% of Wiseman”s milk, said it would not comment until a price cut was confirmed and would be holding its November price and was hopeful of maintaining its position for the rest of the year.