Dairy company Arla Foods UK Plc has told the financial markets that higher oil and utility prices are hitting its margins.

“Market recovery of cost increases, particularly in the middle ground, has been difficult in the short term,” it said in a trading statement..

However, the effect so far of the second phase of reform of the Common Agricultural Policy, implemented on 1 July 2005 and expected to impact on farmgate support prices by between 5% and 7% had been negligible, Arla said.

“Whilst none of these factors on its own would have a significant impact, the combined effect is such that the board anticipates that profits for the current year will now be below its expectations,” the company said. “Although these cost pressures are expected to continue some way into the next financial year, management is putting in place plans to mitigate them.”