Arla cuts milk price paid to farmers

Arla Foods has announced a cut of 1.67ppl for its milk price paid to UK farmers.

In addition, the next quarter’s currency exchange rate takes effect and this will result in a 0.03ppl reduction in the UK price. When both factors are applied to the pricing mechanism, this equates to an overall 1.67 pence reduction in Arla’s UK on-account price.

Chairman of Farmers for Action David Handley said: "I fully understand Arla farmers’ concerns, many of whom are members of FFA and have all been loyal supporters, but last year we did warn of the volatility of signing a contract.

"I am deeply concerned about what Arla is doing to the UK milk market and if Arla farmers in the UK again, whose milk

goes through Arla processing of which 80% of it finishes up on UK retail shelves, wish to join in the fight to stop further price cuts, we welcome you and I am sure as always you will continue to support FFA.

"As Chairman of FFA, I cannot see how any other body can say we have to put up with this situation. With more meetings scheduled and in the pipeline, we may get close to 1/3 of milk representation in the UK. Despite all our efforts so far, without protest, I fear today or tomorrow could be gloomy on the price front as we think Arla are going to announce a further milk price cut.

"On a slightly positive note in reality it should only impact on 3,000 dairy producers as the other 7,000 are not on a global price contract. "

The forecasted 2014 13th payment has reduced to 0.65ppl, as a result of it being rebased in line with the company’s quarterly reforecast. This incorporates a fall in turnover, which results in a lower net profit and an increase in milk volumes. The fall in turnover is largely as a result of reduced commodity selling prices. Changes to the forecasted 13th payment do not impact on the monthly milk cheque.

The 13th payment will continue to be reforecast with the actual 2014 figure being confirmed typically in February 2015.

As a result of the downward movement in the milk price, the slight change to the currency smoothing exchange rate and the reduction in the 13th payment, the UK standard litre, with effect from 29 September is 28.55 pence.

Commenting on the reduction, Ash Amirahmadi, Arla UK’s head of milk and member services said: “Globally, milk production has increased by circa four to five per cent, which is out of sync with a lower increase in global demand of circa one to two per cent. This imbalance is resulting in large stocks and, as a consequence, markets have dropped sharply.

“Furthermore, Chinese demand continues to be sluggish and the Russian import ban is continuing to have an impact on European industry prices. This negative pressure is having a significant effect on Arla’s milk price.”

Tesco Sustainable Dairy Group (TSDG) also announced a cut. Members will be paid 32.01ppl for their milk.

"The new price follows four consecutive increases since 2012, takes into consideration a reduction in the cost of feed, and is agreed in collaboration with farmers on our TSDG committee," the company said.

"Customers can be assured that every pint of own-brand milk they buy from Tesco is helping to deliver a sustainable future for the British dairy industry, and that the price we pay our farmers is completely independent of the retail price for milk."

James Stephen, Aberdeenshire TSDG dairy farmer and Committee Chairman said: “In these times of volatile milk prices the relative stability of the cost tracker model is of huge benefit to TSDG farmers in budgeting and giving confidence for the future.”

Recent price cuts by milk buyers have caused a lack of trust which must be addressed if the UK is to be competitive in the growing global dairy market, according to the National Farmers' Union.

NFU Scotland’s Dairy Policy Manager George Jamieson commented: “If milk buyers are genuinely paying as much as they can, which is the case with co-ops, then the performance of the business must be challenged. Are private buyers genuinely sharing risk and reward, or setting prices based on competitor’s prices?

“This should not be the case anymore. Arla for example base its price on an objective mechanism based on performance of the business, which is now global, and only indirectly influenced by the UK market, therefore it should not be green light for UK processors to drop prices per say.

“Over 2013, commodity values were historically high. UK farm gate prices rose too slowly and not to as high as should have. Last summer when market indicators very clearly and consistently rising up to 39ppl indicating that 37 ppl should have been achievable by at least some buyers, but we did not get close, with 34ppl the best.

“So when farmers are told that 30ppl is in line with the ‘market’ then why should this not be the case when wholesale prices are at their peak?

“The argument that these levels of prices are not achievable should look at the prices received by our European competitors, who did reach higher prices and at faster rate.

“Farmers should judge their milk buyer based on performance over the longer term. Dairy companies, whether a co-operative or PLC, must be judged on their performance, not on their competitor’s performance.

“We are now in a global market, but the UK farm gate price still largely remains below European, even New Zealand prices.

“In an increasingly competitive dairy world, UK dairy farmers, who are genuinely competitive, must ask their processors if they are.

“Elected farmer representatives, whether co-op or private must ask their milk buyers exactly why prices have dropped. Individual milk processors who value their supplying farmers must explain exactly why they are dropping prices, and farmer reps must be professional and able enough to challenge this.

“Tit for tat prices moves are not acceptable as this is pricing based on competitor’s performance and not on their, which is clearly an issue farmer reps should address.”

First Milk chairman Sir Jim Paice MP said: “Although there are signs that the dramatic falls in price for most commodities are behind us that does not mean that the consequences are not still being felt. These prices fell by almost 30% which is considerably more than the milk price has fallen. In addition the extra supply during the flush, which was paid for at the higher price, has to be sold after prices have fallen. All this has resulted in the actual milk prices that ourselves and some other players have now announced.

“While we cannot control global and European market prices, the Board of First Milk is working hard to improve the situation and has reduced overheads considerably and will continue to do so. We are also constantly analysing prices from various dairy markets to ensure we move milk around where possible to maximize returns. We are as anxious as all members to see the end of price cuts.”