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High milk prices put squeeze on Dairy Crest

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High milk and vegetable oil prices have prompted Dairy Crest to announce "significant cost savings", including a factory closure, despite the growing popularity of its key brands.

The UK chilled foods group is to make head office cuts, close a Midlands bottling plant and raise the prices of its goods to stave off the impact of higher raw material prices and economic slowdown.

"Our markets have become more difficult, with general economics conditions worsening and upward pressure on input costs," the company said.

While milk prices have been falling elsewhere in Europe, UK prices have been held up by "very tight" production levels. Dairy Crest earlier this month raised the price paid to some milk producers by 1p per litre.

Drop in output

UK milk production fell by 274m litres to 13.6bn litres in the year to March, official figures show, hurt by the impact of last year's poor summer on silage quality and the long-term exodus from the industry.

UK milk farmers have been quitting at the rate of two a day, with the national dairy herd shrinking by 28,000 to 1.9m last year.

Dairy Crest has had mixed results passing on higher milk costs to consumers, with milk volumes falling 10% since a price rise in May.

However, the group's key brands, including Clover, Country Life and Petits Filous, doubled the value of sales in the six months to September 30.

Dairy Crest shares closed down 6.75p at 400p in London.

By Mike Verdin

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