Reduction to business market related adjustment
As announced to members, the Milk Link Governing Board has reduced the Business Market Related Adjustment element of the milk price by 0.4ppl effective from 1 April 2006 (excluding Organic milk). At the same time, it has confirmed that the 0.12ppl per month reduction instigated from March 2005 has now ended, so the net effect of the reduction on members will be 0.28ppl.
The reduction reflects the cumulative impact of lower than forecast member milk volumes; a reduction in long life milk sales (due in part to the loss of contracts to European imports); and a significant rise in the business' energy costs relating to processing and distribution.
A further factor has been the lessening returns from the market for butterfat and to address this, the Board has also announced changes to butterfat payments on ordinary milk (excluding Channel Island and Organic) effective from 1 April. Milk Link will continue to pay 1.5ppl per 1% on butterfat up to 4.0% (the UK average level for butterfat) but above this 4% level payments will be reduced to 0.75ppl per additional 1% butterfat.
Commenting on the announcement the Board stated, "The requirement to alter the milk price is very regrettable but necessary given the lessening returns from the market and increase in costs we are experiencing. We have strived to minimise the impact of these market factors through achieving significant cost reductions within the business, in particular in the area of haulage and labour efficiency; and by securing higher selling prices for our products in some sectors.
"Milk Link is committed to pursuing its strategy of investing in processing and believes this is the only way of securing higher returns for members in the medium term. Although we are making good progress in implementing the strategy it does not, of course, totally insulate us from market forces and the factors mentioned above cannot be fully absorbed going forward. Nevertheless, members will see a tangible cashflow benefit from the refinancing of the business from this month with a 0.5ppl reduction in their Member Capital Account levy and through our commitment to pay back their Capital Proceed Loan Notes in full later in the year."
