November 16, 2007

 

Glanbia may force another milk price rise

 

 

Ireland's food conglomerate Glanbia warns of further milk price hikes as they can no longer shoulder raw material costs. 

 

Dairy prices have doubled this year due to some 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.

 

Glanbia chief Colin 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."

 

The company is said to have absorbed the increase in raw material costs for the rest of the year but the situation has become unsustainable.

 

The situation would also pull up prices of dairy products like milk and cheese.

 

The anticipated increase was said to be an attempt to "rebalance what otherwise will remain an unsustainable cost structure".

 

In fact, Glanbia is reported to have implemented price increases in October but the company did not confirm this.

 

Despite this, the company is said to be still playing catch-up after a prolonged period of high production costs.

 

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.

 

Dairy Crest, 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 percent decline in revenue to 249 million euros (US$364.4 million), compared to the previous year.

 

Operating profit was down 1.6 percent to 8.3 million euros, and the operating margin dropped from 3.4 percent to 2.3 percent.

 

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."