Dairy Crest have released the company’s end of year financial results, which show that profit before tax has fallen by nearly 60%.
Despite a £10.8m increase in profit for its Cheese & Spreads division, profit from the Dairies division fell 90% to £1.8m.
The sharp decline in profitability of the Dairies division is mostly due to costs linked to the proposed sale of the division and for rationalising sites, totalling £16.1m. If these costs are excluded, operating profits for the dairy division fell by 5%.
Meanwhile, last week saw the first UK Dairy Producer Organisation (DPO) launched in London by Dairy Crest Direct. Becoming an official DPO gives its representatives the legal authority to negotiate contract terms and milk prices on behalf of its farmer members, strengthening its bargaining position from 1 July. It also means that all changes to milk prices and contracts will be agreed through negotiation rather than at the discretion of the buyer.
For those who choose to remain outside of the DPO, milk prices will continue to be set on a discretionary basis. However, there is no guarantee that the price will be the same as the DPO negotiated price. Any new contract offers to supply DC will be available only through the DPO.
All of this activity was set against the backdrop of the 2.2% fall in prices at the latest Global Dairy Trade (GDT) auction. While the rate of price decline continues to fall, analysts see this as an indication that prices are near the bottom of the market.
DairyCo points out that price stabilisation is often the first sign of price recovery, although the process will take time. This means the next couple of auctions could be crucial in providing an indication of whether we have actually reached the bottom of the market as well as potential future movements of wholesale prices. Wholesale prices are currently expected to be driven by supply and, with New Zealand nearly at the country’s trough period, production during the EU’s spring flush could be important in determining where we go from here.
For its part, Müller Wiseman Dairies (MWD) has launched a new packet butter for the UK retail and food-service sectors. The 250g packs of 100% British butter will be produced MWD’s Market Drayton plant, which has been making block butter for use in ingredients and manufacturing since 2013. This should give MWD more flexibility in dealing with the 90 million litres of excess cream it generates each year.