Milk buyers must pass fair share of returns back to producers
NFU Scotland is calling on all milk purchasers to immediately pass a fair share of higher market returns back to producers.
Market indicators show that, after two years of decline, prices for milk and dairy commodities are finally starting to turn upwards from some of the lowest prices in a generation.
That has seen some milk buyers, including farmer-owned business First Milk, lift prices in the past week. For Scottish suppliers to Arla, prices are based on its monthly formula and the Union is confident that the next announcement should be positive. Grahams The Family Dairy is understood to be writing to its suppliers shortly regarding prices. Muller, in compliance with its 30-day notice period, has opted to hold its milk price but Scottish suppliers will expect the positive market developments to be factored in to future announcements. The Union has still to hear about any milk price changes for those farmers supplying Lactalis.
But with the vast majority of Scottish dairy farmers still some considerable distance from receiving a profitable milk price, the Union is calling on all milk buyers to respond immediately to the price trends. According to analysis by NFUS and others:
· Production for June was down 2,600,000 litres per day compared to June 2015 and daily production is now below the 3-year average.
· In the past month, the average price for cream increased by £240 per tonne to £1,100; skimmed milk powder prices are up £50 per tonne to £1,300; butter is up £325 per tonne to £2,350 and cheese has risen £250 per tonne to £2000.
· Milk price indices Actual Milk Price Equivalent (AMPE) and Milk for Cheese Equivalent (MCVE) have both increased to 18.9p per litre and spot markets for milk have achieved 25p per litre.
· Since the EU vote, sterling has fallen eight percent against the Euro and is currently at its lowest level sinceMarch 14. As a result, UK dairy products are more competitively priced on export markets. It has been estimated that the currency impact puts EU prices 2.0p per litre higher when viewed in Sterling terms.
· UK Milk Futures Equivalent for July shows a lift of 3p per litre to 21.73p from June and more encouragingly forecast 26p per litre for July 2017.
· The majority of Scottish farmers are still receiving below 19p per litre for their milk with some still as low as 15p.
NFU Scotland’s Milk Committee Chairman, Graeme Kilpatrick, who farms at Craigie, near Kilmarnock, said: “Scottish dairy farmers have been under severe price pressure for two years, as the dairy sector goes through the worst down turn in living memory.
“Although there is long way to go, the market is clearly turning. That means all milk buyers and processors will not only be ‘judged’ by how they have treated their suppliers throughout this crisis, but also how quickly they react now.
“Dairy farmers have undoubtedly borne the brunt of the weak markets, but all the indicators are now pointing to a recovery. This is beginning, the signs are positive, but there is a long, long way to go if prices are to approach the 28p per litre that several industry experts estimate as being the true cost of producing milk.
“However, to start the process of rebuilding confidence, farm gate milk prices must rise as quickly as the market delivers and in some cases before. All processors have a responsibility to convince farmers that they are valued and that, as milk buyers, they are truly aware of the crisis facing their suppliers.
“We know milk price barometers AMPE and MCVE are at 18.9p per litre and spot markets are as high as 25p per litre, so producers should be challenging their milk buyer if milk price increases are not being passed on.
“Currency changes alone are worth 1.3p per litre today and the way the market is moving means that every farmer should be getting 19p per litre or at least the AMPE price by August.
“Given what dairy farmers have endured in the past two years, it would be a slap in the face for them if any milk buyer used rising markets at this time as an opportunity to grow their own margin when almost all producers are still operating at a loss.
“It is unfortunate that some milk processors, over the last two years of turmoil, have opportunistically introduced more discretionary contracts and prices, abusing their dominant position in the market. Those who introduced A and B pricing to help supply management, cannot pull back from such arrangements simply because of the speed with which ‘B’ prices are now rising.
“When there are glimmers of recovery, producers need to be aware of good and bad practice by processors and work with each other and NFUS to improve contracts and increase the fairness and efficiency of supply chain relationships.”
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