Glanbia predicts another milk price rise

By Jess Halliday

- Last updated on GMT

Related tags Raw material costs Cost Milk

Consumers look likely to bear the brunt of further hikes in milk
prices, as Glanbia consumer foods boss Colin Gordon warns that his
company can carry raw material costs no longer.

Dairy prices have gone through the roof this year, which some forms of milk doubling the price they command. The phenomenon has been attributed to various factors, including greater demand from emerging economies like China, the impact of poor weather in Europe on animal feed, and diversion of feed grains to the biofuels industry. Gordon told delegates at the Costcuttter Retailer Conference in Athlone last weekend that his company has "no choice but to restore appropriate margins in the processing sector,"​ reported the Irish Examiner. The company is understood to have spent most of 2007 absorbing the increasing raw material costs, but the situation has become unsustainable. The increases look set to impact on shoppers' baskets at a retailer level, but they also mean that dairy derivatives like cheese, butter and cream will become more expensive. For the rest of the food sector, dairy ingredients like are likely to become yet more expensive. The anticipated increase was said to be an attempt to "rebalance what otherwise will remain an unsustainable cost structure".​ In fact, Glanbia is understood already increased its prices to in October, but no communication has been made about the level of this and the company did not respond to a request for specifics prior to publication deadline. Despite this, the company is said to be still playing catch-up after a prolonged period of high production costs. Dairy Crest, the UK's biggest dairy group, announced similar measures earlier this month in its interim results statement. Chief executive Mark Allen said: "Whilst market conditions are challenging, we are implementing price increases across most dairy categories to reflect higher raw milk costs." ​ For the first half of 2007 (ended September 30), Glanbia's consumer foods division recorded a 1.3 per cent decline in revenue to €249m, compared to the comparative previous year. Operating profit was down 1.6 per cent to €8.3m, and the operating margin dropped from 3.4 per cent to 2.3 per cent. On its home turf, the company said the division was "expected to deliver a reduced performance on last year; the key issue being the timing of the recovery from the marketplace of higher milk cost."​ In October Glanbia said that it is stepping up production of organic cheeses to offset declining profitability for its conventional products. The decision reflects the increasing pressure on dairy processors to look to new markets and higher value production to offset increasing commodity costs. Group president Jeff Williams told that the company was increasing its focus in organic production after witnessing annual growth of about 20 per cent for such products in the US market alone, especially for milk and yoghurt.

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