Milk processor Dairy Crest has announced changes to its milk contracts to offer producers more flexibility and encourage them to expand production.

From April 1, the dairy will remove the most negative payment profile adjustment band of 0.8p/litre to reduce the impact of poor profiles.

Dairy Crest said it would also add two further collection volume payment bands which will raise the capped volume, while suppliers will be offered a "seasonality only" option to opt out of the dairy's profile payment structure entirely.

Seasonal milk production will be addressed through monthly seasonality adjustments, with the level of the monthly adjustments reflecting the actual cost of delivering a level milk profile.

Improvements

Arthur Reeves, Dairy Crest milk purchasing director, said the contract changes followed consultations with Dairy Crest producers about how the supply contract could be improved.

"What these changes recognise is the need for more flexibility and a choice for our farmers," he said.

"Most importantly we want farmers to be able to produce more milk when we need it without being constrained by our contract."

Each Dairy Crest supplier will be invited to choose the best options for them under the new contract, including an immediate implementation date or waiting for the required contractual notice periods, Mr Reeves added.

Choices

David Herdman, Dairy Crest Direct Board chairman, welcomed the new contract choices for direct suppliers.

"This is a good package for DCD members."

The announcement came after the dairy said it had met expectations for the year ending 31 March.

In a trading update released ahead of Dairy Crest's preliminary results, the firm said it had performed well, despite volatility in the industry.

On-farm costs

Dairy Crest said it would continue to support suppliers, who face of higher on-farm costs, and would increase product prices "as necessary".

Brands such as Cathedral City, Utterly Butterly and Country Life had shown "good growth", the statement added.

The dairy's preliminary results for the year ending 31 March 2008 will be announced on 20 May 2008.