FARMGATE MILK prices are to rise despite a warning from Robert Wiseman Dairies of increased cost pressures on the supply chain, writes Ewan Pate, the farming editor.

Wiseman’s announced yesterday that there would be a 0.5p per litre increase backdated to May 1.

This will bring the farmgate price to 26.2ppl, which the company herald as a 40% increase in price paid to its farmer members since February 2007.

Later in the day Bridge of Allan-based Graham’s Dairy announced an increase of 0.8ppl to be paid to its 50 dedicated milk producers.

This brings the price to 26.4ppl before volume bonuses, representing a 7.4ppl increase over 12 months.

The flurry of activity on milk prices coincides with the release yesterday of annual financial results from Robert Wiseman Dairies which confirm a position of rising operating costs and tightening supplies of raw milk.

The company said yesterday that rising costs and delays in implementing price hikes will result in a major hit to profits this year.

With the Glasgow-based group also impacted by the falling value of bulk cream on commodity markets, Wiseman said it expected operating profits in the current financial year to be impacted by up to £8.5 million.

The warning from chairman Alan Wiseman came as the company announced operating profits of £38.4 million in the year to March 31, an increase of 10.1% on a year earlier.

Wiseman, which supplies Tesco and Sainsbury’s, said in March it had started to implement higher prices in order to cover “unprecedented” pressure from rising materials, diesel, wage and utility costs.

However, it warned yesterday that the process had taken longer to conclude than envisaged and that the delay will have a £3 million impact on profits in the first quarter of this financial year.

Costs have continued to rise since negotiations with customers began, resulting in the further impact on operating profits of up to £2 million.

The remainder of the profits impact will come from bulk cream sales, where there has been a “dramatic fall” in returns since late 2007.

Pete Nicholson, Wiseman’s milk procurement director, said, “In normal circumstances, this would be addressed through a downward milk price adjustment, just as higher cream prices meant higher milk prices. However, given current concerns over supply, this has not been possible.”

Despite the short-term margin pressures, Wiseman said it remained confident the business was in good shape.

It pointed to the company’s new South West dairy at Bridgewater, Somerset, which is now fully operational.

Mr Wiseman said, “We strongly believe this will provide us with the platform to continue our successful growth in the period ahead.

“We are very pleased with the fantastic facility at Bridgewater, which we believe to be the most modern, efficient and environmentally-advanced fresh liquid dairy in the world.”

The annual report showed a profit margin of 2.53ppl compared to 2.38ppl in the previous financial year.

NFU Scotland described this margin as “reasonable and significantly lower than the margins being made by retailers on milk and dairy products.”

Willie Lamont, NFUS milk committee chairman, said, “A small number of companies, Wiseman included, have been working hard with their customers to highlight the impact that rising costs are having on their business and the businesses of those who supply them with milk.

“Others now need to step up to the plate. It is recognised that an upward move in the prices paid to its dairy farmers is required to instil confidence

“Against a background of increasing global and home consumption of milk and dairy products, the outlook is bright for the dairy sector.

“However, there are massive short-term cost pressures for farmers, who are facing rocketing fuel, feed and fertiliser costs and extremely high prices for replacement cows.

“These costs need to be recognised now and the move by these processors today is a small step in that direction.”

Wiseman shares closed 44.75p lower yesterday at 452.25p.