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Saputo opposes raw milk price increase after ‘negatively impacted’ FY 2012 results

By Mark Astley , 06-Jun-2012

Dairy giant Saputo has called on authorities in California not to increase the price paid by processor for raw milk in the state, after posting results “negatively impacted” by a previous price hike.

The Canada-based dairy processor has voiced its opposition to a petition lodged by a coalition of California dairy producers that, if approved, will see the price paid for raw milk increase to incorporate a greater value share of the whey protein market.

The petitioned increase follows a raw milk price increase made in September 2011.

According to Saputo, a decision by the California Department of Food and Agriculture (CDFA) to increase raw milk costs during the fourth quarter of 2011 “negatively” impacted its overall US results for the fiscal year (FY) ending 31 March 2012.

The firm’s US dairy products sector recorded EBITDA (earnings before interest, taxes, depreciation and amortisation) of CAD$74.3m ($71.9m, €57.5m)  for Q4 FY 2012 – a decrease on the CAD$81.4m ($78.8m, €63m) recorded in the same period FY 2011.

Strongly opposing petition

“In March 2012, the California Consolidation Stabilisation and Marketing Committee received petitions to consider amendments to the milk pricing formula. The amendments would increase the whey factor used in calculating the cost of milk,” said the firm’s FY 2013 outlook statement

“The USDA Dairy Products Sector, along with other cheese manufacturers, is strongly opposing the petition. The Sector will continue to monitor dairy markets and take appropriate decisions to mitigate the impact on its operations.”

The CDFA hearing took place 31 May, 2012 and June 1, 2012, with a decision due within 52 days of the hearing.

Saputo recorded a global revenue increase of 15.5% to CAD$6.93bn ($6.7bn, €5.36bn) for FY 2012, with adjusted net earnings hitting CAD$505.8m ($489.6m, €391.8m) for the period – an increase of 9.6%.

However, net earnings suffered a drop of 15.4% to CAD$380.8m ($368.6, €294.9) compared to the previous period.

Following the net earnings drop, the firm fully anticipate the “competitive dairy market of recent years to continue to be challenging.”

Net earnings drop

The firm’s Canadian dairy products division has pinpointed volume growth in cheese and dairy ingredient categories as its prime focus for FY 2013, in an effort to recuperate volumes lost in its fluid milk category.

“We are well positioned to capitalise in fiscal 2013 on opportunities presented in the value-added milk category, which offers expected growth. We will pursue investments in product categories which offer good potential, such as specialty cheeses, for which the intention is to maximise exposure across Canada, with coast-to-coast distribution capabilities.”

Elsewhere, the firm’s Europe-based dairy products division looks set to focus on increasing sales volume, while the firm’s Argentina-based dairy products division will continue to seek volume growth in both the domestic and export markets.

“The Division continues to face challenges trying to mitigate the increasing cost of milk as raw material, while remaining competitive with the selling price in the export market. The Division will also continue to focus on improving operation efficiencies,” the firm added.

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