EU cutbacks hit Lakeland profits
As a result Lakeland saw its operating profits before interest and exceptional items fall from E2.3m to E1.4m in 2004.
Lakeland chief executive Ed Prendergast condemned the heavy approach from Brussels over the subsidies, which are due to be cut by 55% over four years.
Initial withdrawal of subsidies has been steeper than the sector understood and Mr Prendergast has expressed surprised at the silence of the Irish farm lobby on the issue, he said.
Lakeland farmers have suffered a 3 cent cut in the milk price since the start of this year.
The uncertainty has also set back projects under consideration, such as joint ventures with Connaught Gold in the north-west.
Lakeland has dropped a E10m joint venture on a new casein plant with Connaught Gold, Mr Prendergast said.
An alternative is under review but Mr Prendergast said the current climate was very hostile.
In the context of the dairy sector, top line costs have to be taken out, he said.
Joint ventures look like the best option right now but he would not rule out mergers down the line. Asked if that would be with Connaught Gold, Mr Prendergast said he wold make no further comment.
In the year under review the group increased turnover by 8% to E433m.
Profits were hit by EU commission policy on price supports, forcing the co-op to support milk prices last year in order to keep farm incomes reasonable.
Milk prices continue to be under pressure, but Mr Prendergast said his co-op will hold prices for the rest of the year provided the Irish Dairy Board doesn’t drop its prices in the second half.
Until it becomes clear where the next phase of price supports are headed from July 1, Mr Prendergast said it is difficult to tell what the rest of the year will bring. Last year the price cuts were offset by the sale of one plant within the group for E3.2m.
Currency benefits against sterling also helped, making it cheaper to buy milk in the North.
Costs cannot be cut indefinitely however, and pressures are bearing down on all dairy groups, he said.
As a result of the Fischler Reforms of the Common Agricultural Policy and the drive towards world market prices, the Irish dairy industry continues to experience considerable pressure on margins, he said.
Lakeland will not be forced into the red by this unwarranted pressure, thanks to its strategic moves to ensure viability in the long term, but conditions are extremely difficult, he said.
