It has been promoted by a former Sex Pistol-turned-would be English gentleman, telling the world patriotically that “it’s not about Great Britain, it’s about great butter”, but the maker of Country Life was cursing its rotten luck yesterday.
Dairy Crest said that the soaring cost of butter had prompted it to cut back on promoting Country Life, the brand famously advertised by John Lydon, aka the former Pistol Johnny Rotten. It said that it was willing to take a hit on butter sales after the cost of cream had “increased substantially”.
The company set aside £7.6 million in the year to April to promote or discount its products, down from £13 million the previous year, its annual report showed.
It was not all gloom and doom, however. “Despite the pressure on butter input costs, the strong performance of our cheese business means that our expectations for the year remain unchanged,” Mark Allen, chief executive, said.
Indeed, sales of Dairy Crest’s branded products were 7 per cent higher than last year in the three months to the end of June. Cathedral City cheese enjoyed a 15 per cent jump in sales while Clover spread and Frylight oil also fared well.
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Nicola Mallard, an Investec analyst, said that strong demand for cheese was doubly welcome for Dairy Crest as “selling prices are rising but costs are still benefiting from the low price of cheese milk one year ago”.
The price of dairy products has swung dramatically over the past three years, leaving the supply chain struggling to keep up. The removal of European Union production quotas in 2015 and an increasingly fierce supermarket price war sent prices crashing, prompting protests from farmers about the crippling declines in their income.
This slump has reversed in the past year as supplies started to dry up, coinciding with revived consumer interest in butter over margarine. The weaker pound has also made British exports more attractive, further hitting supplies at home.
The volume of butter sales in the UK fell 3 per cent in the year to the end of May, yet the soaring price meant that revenues rose 1.3 per cent to £1.25 billion, according to Kantar Worldpanel, the market research group.
Industry leaders including Peder Tuborgh, chief executive of Arla, the maker of Anchor butter, have warned that the soaring price could trigger a butter and cream shortage by Christmas. The United Nations said this month that butter prices globally were at all-time highs.
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Dairy Crest slimmed down in response to the price slump, selling its dairies to Müller, a rival, refinancing its debts and expanding into new ingredients used in baby formula and animal feed. It increased the price it paid farms for milk by 38 per cent to 30p per litre between last summer and March.
Shareholders overwhelmingly backed all resolutions at the group’s annual meeting in London yesterday. Dairy Crest shares rose 20p to 577p.