Arla warned on milk price

FARMERS’ ORGANISATIONS have warned Arla Foods it must not cut milk prices after issuing a profits warning to the City last week.

A statement from the milk processor blamed higher fuel and packaging costs and the negligible effects of July’s round of intervention cuts on milk prices.

“The combined effect is such that the board anticipates that profits for the year will now be below expectations,” it said.

 Analysts forecast a drop of up to 10% to £45m for 2005. Shares in the company dipped by almost 10% on the news.

NFU Scotland president John Kinnaird said: “Arla will receive little sympathy from the farming fraternity.

“Every milk producer in the country is in a position to issue a profits warning as a result of increased costs.”

One analyst, who did not want to be named, said Arla had undercut Dairy Crest and Robert Wiseman Dairies to win new business with retailers in the mistaken belief that falling farmgate prices would make up the difference.

Arla chief executive Tim Smith said that was “wrong”, adding that the firm’s comments about CAP reform had merely been an observation that prices were expected to fall at some time.

Mr Smith said the company was not planning to cut milk prices and would be looking to reduce costs internally.