Today's drop in Robert Wiseman Dairies' price to its milk suppliers has an air of inevitability about it, continuing the trend set by other major buyers in recent weeks and months.
Dairy Farmers of Britain, Arla, First Milk, Dairy Crest, Saputo, Wyke Farms, United Dairy Farmers - the list goes on. That Wiseman has followed suit is hardly a surprise.
What is surprising, however, is the size of the cut. At 2.2p/litre it is the biggest reduction any milk buyer has imposed on its suppliers in recent months.
In its Press Release issued today, Wiseman blames the slump in the price of cream. And to be fair, it was flagging this up as a potential problem back in September, when it published its interim results.
But, for a company that operates purely in the liquid end of the milk business, rather than the commodity end, a cut of this magnitude is still hard to fathom.
Latest figures from DairyCo show that retail prices for liquid milk remain buoyant, with a four pint polybottle averaging 153p. That's equivalent to 8p/litre higher than a year ago. Doorstep prices are also significantly higher at 58p/pint - a rise of 16% on the year.
And according to the TNS Worldpanel, total consumer expenditure in the liquid sector has grown 13% over the past 12 months. Volume purchases are also up.
But, whatever the market data, one thing is for sure - the latest drop in producer prices will encourage more dairy farmers to leave the sector.
Last year another 5% quit in England and Wales, taking the total down to less than 12,000. With huge fertiliser bills to pay, high levels of debt to service and investments in slurry storage to be made, many more will follow suit.
The UK already faces a structural shortage of milk, unable to meet its quota. Our dependence on imports of dairy products, and increasingly of liquid milk, grows almost daily. These latest price cuts can only accelerate that trend. Is that what milk buyers want?
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Hardly surprising is it. Since Tesco effectivly set the top price of milk in the Autumn all the supermarkets have been hankering after a reduction.
They of course manage to maintain their margin that is roughly 3 times the margin any dairy farmer can manage.
With a 12 month contract signed up they can reduce the price with their volume guaranteed for the next year.
The only answer in my opinion is to have 3 month contracts, this would free up farmers to move if unjustifable price drops are made so farmers would simply vote with their feet and the questionable practices would stop.
spare a thought for the Australian dairy farmer milk price was cut by between 35 - 40% from Feb 1st.
i think that milking cows is a waist of time all the hard work that put in to it takes 2 of us 24 seven never leave the farm and then take 16p for your milk. the boys that giving this price for milk isnt 3or4 thousand short in the month
Andy - Yeah, I can see the attraction of three month contracts as a way of giving farmers more clout around the negotiating table.
My view, however, is that farmers and processors need to develop longer term relationships, with increased transparency in pricing arrangements. Six to twelve month contracts would give both sides a bit more stability. But what is crucial is that farmers have the opportunity to negotiate prices within those contracts, and not be reduced to mere price takers for however long the contract runs for.
Philip - A couple of points here. Robert Wiseman Dairies standard contract offers three months notice on the part of the farmer, and two years notice on the part of the company.
So security for the farmer who gets two years from the company, with the option that he/she can resign and leave within 12 weeks if that is his/her preference.
It might be worth analyising other milk buyers contract notice periods at some point to see how this compares?!
The Wiseman cut clearly caught your attention. But you're not comparing like with like when you line it up with cuts made by other buyers.
Why? Because you've chosen to completely ignore the impact of timing, and where this cut leaves the price paid in comparison.
For example, Arla cut on January 5 by 2p. The impact of that extra month is such that had Wiseman matched the Arla cut on February 1, it would have cut by 2.9p!
And after all of this Wiseman's standard price remains ahead of Arla, DC, First Milk, Milk Link and of course DFB.
Thanks for the feedback. The 2.2p/litre Wiseman cut caught my attention, primarily because it was the first price cut to come along since I started this blog just a few days previously! It was not because I was brushing previous cuts under the carpet.
Interesting idea anlysing milk buyers' contracts on the basis of notice periods - but where would you stop? Volume bonuses, hygiene penalties, seasonality premiums, EODC incentives - one could probably do a PhD on it, not just a blog. (And I'm sure Wiseman would do well on all these scores!)
As for the timing issue, I'm not convinced by your argument that I'm "not comparing like with like". When buyers last raised their prices, was Wiseman ahead of the game or behind the game? And when prices go up next time, will Wiseman be the first to move or the last? I've no idea, but I do accept that Wiseman is consitently one of the better payers out there.