More than 1.5 million homes face further increases in the price of milk after Dairy Crest said it was struggling to withstand unprecedented cost pressures.

Customers of the UK’s biggest dairy group, which include Buckingham Palace, the Starbucks coffee chain and the Ministry of Defence, have already suffered an increase of more than 4p in the past two months.

Mark Allen, Dairy Crest’s chief executive, said yesterday that it was impossible to rule out further price rises given the effects of poor milk production globally and a sharp increase in demand for dairy products from China. The cost of whey and skimmed milk powder has soared in the past year. Dairy Crest agreed to pay farmers 35 per cent more for liquid milk this summer.

Chinese demand for milk has increased dramatically after Wen Jiabao, China’s Prime Minister, last year declared that “his dream” was to provide Chinese children with half a litre of milk a day. A third of milk produced worldwide now goes to China, much of it from the European Union.

Mr Allen said: “Costs have been a significant challenge for us. Whether prices go up again depends on the weather. The better the weather the more grass we get, the more cows will eat and milk production will improve.

“Fortunately, customers across the piece have been very supportive of the situation. They recognise the pressures that farmers are facing and that is a sea change from where we were three or four years ago.”

Dairy Crest’s success in passing on higher costs helped pretax profits for the half-year to September 30 to rise 21 per cent to £37.1 million.

Total revenues rose 29 per cent to £761.4 million despite a plunge in sales of Clover after the recall of two million tubs in May when Dairy Crest found the spread had been contaminated by mould.

The group has benefited from strong increases in sales of other cheese and spreads such as Cathedral City, Utterly Butterly and Country Life. Sales of Catherdral City leapt 23 per cent in value in the six-month period and the brand is now worth £148 million a year, making it bigger than Mars Bars or Kellogg’s Corn Flakes.

Dairy Crest has also gained from its acquisitions of the St Hubert spreads brand in France and the Express Dairies milk doorstep delivery business last y e a r . Mr Allen said that Dairy Crest had stemmed the year-on-year decline in the number of customers signing up for doorstep deliveries to 7 per cent from 11 per cent four years ago.

Its milkmen deliver to 1.6 million homes and the group is considering the rollout of its milk&more internet service. It allows customers to order milk and up to 300 other products online the night before a morning delivery.

Mr Allen said: “We think we have had a really good first half.”

Shares in the group, which have fallen by nearly 20 per cent since the end of September, rose 27½p to 590½p.

Jeff Stent, analyst at Citigroup, said: “Given the half-year figures beat consensus expectations by 5 per cent, we would not be surprised if numbers for full-year moved modestly up.”

Mr Allen refused to comment on the OFT’s investigation into the milk market. Dairy Crest was named in September as as part of alleged cartel that fixed prices in 2002 and 2003.

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