Wiseman warning highlights dairy cost pressures

By Chris Mercer

- Last updated on GMT

Related tags: Dairy crest, Milk, Robert wiseman

Soaring input costs threaten to drag down recovering profit margins
for UK dairy firm Robert Wiseman, highlighting ongoing pressure on
sector earnings.

Wiseman said higher prices for plastic resin used in packaging and more energy cost increases during the first half "could potentially erode the recovery in margins we have experienced"​.

The pre-close announcement shows how cost pressures have continued to bite the UK dairy sector this year, hampering its quest to up investment.

Wiseman was the only one of Britain's top three dairy processors, also including Dairy Crest and Arla Foods UK, to increase profits at the last round of results.

The group said it still expected first half results better than market predictions. But, it cut milk prices paid to producers in August to offset lower returns on butterfat and bring itself into line with competitors.

The firm said this, plus higher selling prices, had helped margins to recover.

Milk producers have warned that continuous price cuts have destroyed confidence in the farming community and that almost three farmers per day have left the sector over the last 12 months.

Wiseman has guaranteed current prices until January 2007, and hinted last week that it may increase them slightly from November.

Rising input costs and supermarket price pressure have left little room for manoeuvre on both milk prices and sector investment, however.

Recent months have seen a flurry of wheeling and dealing from milk processors in a bid to free up funds and improve performances. These include Arla's sale of doorstep delivery arm Express Dairies, and Dairy Crest offloading its private label cheese division.

Wiseman, too, has got in on the act. It sold off land at Chester-le-Street for £2m in July, opening up an extra £750,000 for longer term investment. The group recently started work on a new dairy in Bridgewater, in the south west of England.

That dairy is partly intended to improve efficiency in the region, following Wiseman's takeover of Milk Link's liquid milk division there.

Related topics: Manufacturers

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