Cork-based Dairygold saw turnover rise to a record €1.17 billion last year on the back of strong dairy prices internationally. However, the co-op warned that rising input costs, particularly energy, would hit profitability in the coming months.
Inflation added €20 million to the group’s cost base last year and it expects to pay an additional €50 million to cover the cost of rising input prices this year.
"The ongoing war in Ukraine and the resulting disruption, including to supply chains, will significantly affect both the availability and cost of a large range of inputs including fertiliser, energy, packaging and raw materials," chief executive Conor Galvin said.
“The resulting inflation, which is already being felt at farm and factory level, will create challenges for profitability in the entire value chain,” he said.
He was speaking as Dairygold, the State’s third largest milk processor, published full-year results for 2021 showing revenue rose by 15 per cent to €1.17 billion while operating profit increased by €4.4 million to €30.4 million.
The improvement was driven by increased butter and milk prices connected to a shortage of supply globally and continued strong demand for dairy in Asia and other markets.
The group, which exports 90 per cent of its produce, said it expected dairy market returns to remain solid for the coming year.
Higher food prices
However, it warned that increased costs driven by input price inflation would result in higher food prices.
“The cost of production, the cost of inputs has spiked.There’s no doubt what we’re encountering as primary food producers will be encountered further up the supply chain as the months go on,” Mr Galvin said.
“Certainly I would expect, by the end of this quarter, to see the increased costs feeding through onto shelf prices for consumers,” he said, noting Dairygold was paying five to six times more for the natural gas used by its milk drying plants.
He was speaking as a Teagasc report warned that higher costs on back of rising fuel, feed and fertiliser prices could add eight cent to wholesale prices for milk, equivalent to a 22 per cent increase.
The co-op is, however, confident that increased prices internationally for dairy will offset the increased production costs and that earnings will remain strong in 2022.
Mr Galvin said he did not expect the State’s climate objectives to result in the reintroduction of quotas for sector, which has been on a stellar expansion path since the lifting of EU milk quotas in 2015.
“The Dairygold business is in a good financial and operational position,” Mr Galvin said.
Dairygold reduced its bank debt by €11 million to €108.2 million in 2021 while the net asset value of the group stood at €422 million, an increase of €34.5 million on 2020.
The group is conducting a business-wide strategy review to outline a roadmap for the next five to 10 years.