Tough trading times for dairy companies

17 November 2000

Tough trading times for dairy companies

By Robert Harris

RECENT raw milk price increases and continuing surplus capacity in the processing sector mean dairy companies face difficult trading conditions for some time to come, according to Express Dairies chairman Christopher Haskins.

However, in the six months to Sept 30 – when farm-gate milk prices dropped to historic lows – Express increased underlying pre-tax profit by 3.9% to £24.1m, compared with the same period last year.

This was largely due to extra contribution from Glanbia UKs liquid milk operations, acquired in June 1999. Sales rose only marginally to £450m, due to the declining doorstep market and the passing on of lower raw milk prices in other markets to compete.

It could be hard to claw that money back, it seems. Express believed a raw milk price increase of 1-1.5p/litre this autumn was justifiable. "In common with other processors, we subsequently agreed to 2p/litre which could be difficult to recover in a number of markets," said Lord Haskins. Even a recent doorstep price increase of 1p/pint would not compensate fully.

Farmers supplying liquid milk or butter/powder processors may find it tough to get better raw milk prices in the spring, even though the recent 2p/litre price rise "seems a bit thin", says independent consultant Michael Bessey.

Cheese, however, is a brighter prospect. Manufacturing levels have dropped sharply since the spring due to tight milk supplies and high spot prices rising to 27p/litre.

Some major makers are pushing for a £100-£150/t rise this month, and more in the New Year, says Mr Bessey. Mild cheddar could be worth £2300-£2400/t, about 20% more than in August.

Even after this autumns rise of 2p/litre on direct milk supplies, that still leaves at least 1-2p that could be paid to farmers without hurting margins. &#42

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