Dairy Crest, the UK dairy processor based in the southeast of England, has said the soaring price of cream used to make its Country Life butter brand has negatively impacted profit margins for the first half of the year. Cream procured from processed milk is the primary input for butter production and has seen sharp price rises in recent months.

In January, the European spot price for cream was trading about €4,500/t as the market prepared for the seasonal lift in European milk production. However, spring milk production on the continent was adversely impacted by weather and cream available for butter production is much tighter than anticipated. As such, the spot price of cream has increased close to €7,000/t over recent months.

This sharp increase in input costs to produce butter has negatively impacted Dairy Crest’s operating profit margin in the first half of the year. In a bid to mitigate this margin pressure, the company has reduced its promotional activity for its butter range, which has in turn reduced sales volumes.

Aside from butter, Dairy Crest reported a 7% increase in sales volumes of its four key dairy brands. Its cheddar brand Cathedral City, which is the highest-selling cheese brand in the UK, saw a 15% increase in sales volumes for the first half of 2017.

Overall, Dairy Crest has maintained its profit outlook for the year, despite the inflation in input costs.