Milk Link CEO Neil Kennedy says market conditions for the next year will likely remain challenging with dairy commodity returns ‘sharply down’ in comparison with historical prices in the short term.
Speaking in a business update for the farmer-owned UK firm for the year ending March 31, he added that the consumer products market would continue to experience considerable pressures in an “extremely difficult” trading environment.
Kennedy said the firm was forced to cut its member milk price by 1.5 pence per litre (ppl) from June 1 due to “significantly weaker” returns from dairy ingredients and fresh liquid milk markets where Milk Link supplies around half of its total volumes.
“Although our price cut was less than other major milk buyers we recognise that the resulting drop in farm income has increased further the financial pressure on our Members’ dairy enterprises,” Kennedy added.
“As such, we are totally focused on identifying opportunities to generate greater returns from the market and further reduce costs within our business and on passing the benefits of this back to our Members as soon as possible."
'Record rate of return'
Over the year Milk Link’s turnover rose 7.1% to ₤628m, with earnings before interest, tax, depreciation and amortisation (EBITDA) up 15.4% to ₤33.7m.
Milk Link Chairman, Ronnie Bell, said that the company had rewarded the hard work of its dairy farmer members by increasing the prices paid for milk and “by delivering a record rate of return on their investment in the business”.
“In doing so, we not only made a positive impact on the livelihoods of our Members but also, I believe, we started to demonstrate the important role progressive, forward-looking, farmer-owned co-operatives such as Milk Link can play in building a growing and vibrant British dairy industry.”
During the financial year, Milk Link increased the member milk price by 2.5ppl bringing its standard price to 28.5ppl.
But Kennedy said: “Nevertheless, at the end of the year our actual 12 month rolling average paid to members was still below the rolling DEFRA [Department for Environment, Food and Rural Affairs] UK farm gate average.
“We remain absolutely committed to delivering a member milk price at least in line with the DEFRA farm gate average and have put in place further business development plans to achieve this.”
'Great regret' at milk price cut
Milk Link will lower its member milk prices by another 1.5ppl from June, a decision that Bell said the board took with “great regret” given its understanding of the financial burden on farmers and rising farm input costs.
“As such, the Board and senior executive team are committed to identifying further ways of maximising returns for our Members,” Bell added.
Discussing 2011 performance, Kennedy said that the co-operative benefited from strong commodity prices for skimmed milk powder, cream, curd and whey products; from an increase in milk production from farmer members and cost-saving measures.
Despite highly challenging conditions, UK retail and foodservice sales held up well, Kennedy added: “Indeed sales both in terms of value and volume increased year-on-year in relation to our core Cheddar business, speciality cheese and flavoured milks.”