Dutch dairy company Friesland Foods said today (14 August) that net profit for the first half of the year dropped by 63% due to the rising cost of raw materials and falling dairy prices.

Net profit dropped to EUR29m (US$43m), down from EUR79m posted for the first half of last year. 

The company said that its margins were put under pressure due to the "extreme" increase in the cost of raw materials. While dairy sale prices are falling, raw material costs have increased, Friesland added.

The dairy group said that it is raising prices in stages to offset increased costs. Friesland anticipates margin improvements in the second half of the year, particularly in Asia, Africa and Europe.

Friesland refrained from providing full year guidance due to market volatility.

In April, Friesland reached a merger agreement with Campina which would see the creation of one of the world's largest dairy groups with combined sales of EUR9.1bn.

However, doubt was cast over the deal in July when the European Commission opened an inquiry into the merger, stating that the proposal could result in increased prices of dairy and cheese products.