Dairy Crest has reported higher profits despite a rise in milk costs, according to its annual report.
The company said the last year had seen a "turning point in dairy prices", which had hit the approximately 500m litres of milk it buys each year.
"During the course of the year we have increased the price we pay farmers for milk by 38% to 30p per litre," said the report.
Dairy Crest has since cut the price by 1p on two occasions but said: "We pay our farmers a fair, competitive price for their milk and our price remains one of the highest in the country."
The company said milk and butter price rises had affected margins and "managing volatility is a challenge for both us and food retailers".
Despite the cost increases the firm's profits before tax increased 5% to £60.6m, up on £57.7m in 2016. Revenues in 2017 were £416.6m, down on £422.3m in 2016.
The Clover, Country Life and Frylight owners, supplied to by 360 British farms, said that higher cream prices forced it to reduce promotions on butter, which affected sales but mitigated the rising costs of production.
Consumers continue to buy its Cathedral City brand, despite higher costs, with volume growth expected to hit a record double figures.
Dairy Crest said it had cut corporate costs and procurement savings were "ahead of budget". "Overall there was a reduction in group administrative expenses of £5.4m," said the report.
Mark Allen, chief executive said: “Cathedral City had a strong first half of the year, delivering good volume and value growth and strengthening its position as the nation’s favourite cheese. This performance has more than offset the impact of further input cost inflation in the butter business.
“Overall, first half profits are expected to be ahead of last year. Our profit expectations for the full year are unchanged despite input costs remaining high. The strength of our brands and focus on quality, innovation and efficiencies mean that we remain well positioned to deal with market conditions.”
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