Rising plastic costs hit Wiseman profits

By Chris Mercer

- Last updated on GMT

Related tags Wiseman Milk Value added

Dairy processor Robert Wiseman warned farmgate milk prices would
have to fall after profits tumbled 22 per cent in the first half
due to rising oil and energy costs.

Wiseman's profits fell £3m to £12.1m as operating costs spiralled out of control in its first half.

The British dairy group said prices for HDPE resin, which it uses to make its milk containers, rose more than £200 per tonne last month to £860 per tonne.

If this price remains the same for the second half of the year, Wiseman said it would have to pay £2.2m in extra costs.

Energy prices are also creating problems and the processor said these would rise 50 per cent in the second half as a result of new contract arrangements, leading to another £1m in additional costs.

Wiseman had already warned it expected a £0.5m drop in pre-tax profits for the year and that costs would be difficult to recover. Its half-year statement adds further uncertainty to the UK dairy industry after rivals Arla and Dairy Crest also warned profits would take a hit this year.

Wiseman said its results were still in-line with expectations but warned that market competition and cost pressures meant that its higher farmgate milk prices "cannot be maintained and we will be seeking to narrow the gap in early 2006"​.

The group has guaranteed current prices to producers until January, saying they are above those paid by its major competitors.

The move may incite more anger among milk producers who are already paid the lowest prices for their milk out of the pre-enlargement EU 15 countries.

Some producers took part in a three-day strike organised by Farmers For Action last week, refusing to send milk to dairies in protest at low farmgate prices. More strikes are being planned.

And the National Farmers' Union, while refusing to support last week's strike, vehemently criticised a series of farmgate price cuts earlier this year, calling them unjustified and unnecessary.

Wiseman can at least take solace from the fact that sales rose 14.7 per cent to £281.3m on the back of record volumes, driven by new supply deals with Tesco and Sainsbury's.

The group is also doing well from new products geared towards added value. Its extended shelf-life milk brand, Pure, has risen steadily since its launch in June in Tesco stores. A private label version is set be launched for other retailers next spring.

Wiseman said its one per cent fat milk brand, the One, had also continued to rise well, although the group is still behind Arla and Dairy Crest in added value product development.

Wiseman chairman, Alan Wiseman, said full-year results would depend on oil, energy and plastic costs.

The group expects to increase efficiency with the imminent opening of its new Northampton supply depot. It will also begin work on a new dairy in Taunton, southwest England, early next year.

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