Dairy crest yesterday announced its profits for the first half of 2011 were set to be "slightly ahead" of the same period last year. The group announced that its 1,330 dairy farmer suppliers will receive a price rise of 1.85p per litre from next month. Dairy Crest's Tesco fresh milk contract is currently top of the producer-payments national league table at 29.72p per litre, while the UK is making slow progress up the European Milk Price League Table. Of the EU 27, the UK was fourth from bottom in June this year. image expired

While Dairy Crest saw a drop in residential milk sales, it said sales to supermarkets, from its doorstep delivery service and five top brands, including Frijj milkshake and Cathedral City cheese, were up. Dairy Crest supplies Tesco, Sainsbury's, Waitrose and Marks & Spencer; it is in negotiations with supermarkets to determine the extent of price rises, which are expected as a result of the increase in suppliers' pay.

Chief Executive Mark Allen said, "We are pleased that we continue to perform as expected in this tough environment.

"In the first half our broad base, high quality brands and ongoing cost saving measures have allowed us to balance the conflicting demands of increased input costs and subdued consumer spending. Overall we remain confident of delivering full year profits in line with our expectations."

NFU welcomes farm-gate price rises

The NFU applauded the news of an increase for suppliers, which comes after dairy giant Robert Wiseman Dairies announced a similar increase. Robert Newbery, the union’s chief dairy adviser, said the rise is "extremely welcome" in the light of rising costs of production, which he described as "increasing exponentially over the past few years.”

Mr Newbery said, "It's up to the retailers to decide what kind of margin they want but whether or not they decide to absorb that in their profits, I don't see why it should be passed on to the customers."

Cheese producers awaiting news

Whilst the news of a farm-gate price rise is good for fresh milk producers, South-West dairy farmers are still awaiting news on whether they too will receive an increase in payments. Suppliers to Dairy Crest’s giant Davistow dairy currently receive 27.98 pence per litre on their milk-for-cheese contracts.

NFU statistics show that, for the period ending in April 2011 the cost of milk production in the UK was 29.1ppl; thus, although the latest rise will provide some respite for Dairy Crest’s producers, in the face of increasing raw materials costs, which have seen the price of production rise further since the spring, margins will still be extremely tight throughout the industry.