Glanbia warning over dairy markets

FOOD GROUP Glanbia has warned of a deterioration in global dairy markets since the start of the year and said it would concentrate on consolidation and debt reduction in 2009.

Managing director John Moloney said in the company’s annual report that dairy markets were expected to remain “weak and somewhat volatile” but should bottom out as supply contracts, leading to “some price recovery”.

Weak dairy markets pose the greatest challenge for its Irish food ingredients division, he said, adding this unit alone had suffered a decline in profits and margins in 2008. Last year this unit processed 1.4 billion litres of milk into butter, cheese, milk proteins and whey derivatives. Glanbia is forecasting this unit will break even in 2009. As the bulk of this product was exported, “the price we pay for milk to farmer suppliers lags the price for dairy products on world markets”, Mr Moloney said.

Glanbia recently cut the monthly price per litre paid to milk producers to 20 cent, a reduction of 3.7 cent, to a level the company accepts is below the cost of production. It justified the move by saying the level of volatility dairy market volatility over recent months was untenable for suppliers and processors alike.

The Irish Farmers’ Association said yesterday Glanbia’s corporate shareholders should forgo projected profits for this year to allow it reverse the March price cut.

Revenues in the group’s Irish consumer division declined 7.5 per cent to €743 million last year following the exit of the group from the pigmeat business, which resulted in a revenue fall of €160 million. Glanbia said the outlook for this division was satisfactory. Glanbia’s Irish operations provided 29 per cent of group revenue and 35 per cent of operating profit. It is subject to a €11 million cost-cutting programme to improve competitiveness with the group seeking 226 redundancies.

Glanbia is the largest producer of cheddar cheese in the US with a 20 per cent share of the market and a resilient performance is expected from this unit in 2009, although lower than 2008.