Recent Milk Price Increases Welcomed But More Work Needed, Says NFUS

NFU Scotland has welcomed recent price moves by some milk processors, stating that it is a strong inference that milk prices are moving forward.

This week First Milk and Muller announced increases to their milk prices, following earlier moves by Arla and Grahams The Family Dairy and indeed the 12-month minimum price commitment by Lactalis.

The Union believes that as commodity prices remain strong, further moves like these are essential particularly the dramatic price levels for butter and cream, but also a strong cheese market.

The objective market indicators, AMPE and MCVE, which track dairy commodity values have continued to rise, now approaching the heady heights of 2013. Both indicators have now risen to 36/37 ppl approaching 60 per cent on the year, whilst milk prices have risen to around 27ppl rising by around 30 per cent.

George Jamieson, NFU Scotland Milk Policy Manager, commented: “AHDB’s future milk price equivalent based on futures indicators suggests a strong market going forward into the winter months, and we strongly encourage milk buyers to acknowledge the market and the needs of their supplying farmer ‘partners’. Processors should pay as much as they can, rather than as much as they can get away with if they are to inspire loyalty.

“It cannot be stressed enough that the recent severe, extended period of very low prices has left serious and long-lasting damage to dairy farmers’ balance sheets and confidence, which has, and will impact on future investment on farm, with long-term consequences on the competitiveness of the Scottish dairy sector.

“NFU Scotland has long promoted the undeniable case for more collaboration between farmers and the supply chain, more effective milk contracts, pricing models, volume management and risk mitigation for the benefit of all players in the supply chain. These fundamentals, more than ever before are essential.

“The inclination when price changes are announced is to compare milk buyers’ price moves, but more important is not merely the current price, but how it was set, how it compares over the year or several years to consider just how well the milk buyer values his supplying farmers and just how effective the processor is in adding value and managing milk supply. It is too easy for an inefficient processor to pass on the consequences of poor management to farmers.

“The Union continues to work with processors to promote our views and we believe current contracts for the most part are not fit for purpose, with pricing and volume management having significant room for improvements. We need to develop more sophisticated risk management tools and we have more to do to develop effective collaboration. However, we do see progress.

“There is good work going on by some processors and this must be commended – Yew Tree’s contract with its farmers is very transparent and the initiative offering fixed term pricing is excellent; Muller is working to improve the position of its non-retail aligned farmers, who will also be offered the option of fixing a proportion of their milk based on futures markets; Muller has also committed to make progress on effective producer representation.

“Lactalis has made innovative progress in accepting producer collaboration and independent representation helping to deliver a welcome annual minimum price agreement. There are indications that First Milk’s new governance is willing to embrace all members’ interests more effectively. Arla has a well-established democratic process, and an objective pricing model.

“These are all plus points, but there is an urgent need to build on these initiatives, as they are not in themselves enough to truly build trust that is essential for all in the supply chain, but particularly in the primary sector.

“Scotland lost another 33 dairy farms according to the recent SDCA report, with more losses likely. Scotland is an ideal place for dairy, we have efficient and committed dairy producers who need a similar commitment from all stakeholders.”