Arla dairy truck© Tim Scrivener

The UK’s largest dairy processor, Arla, has increased its standard non-aligned milk price by 2 eurocents/kg or 1.65p/litre from next month.

However, due to deductions from currency and cashflow adjustments, the return to producers will be 1.44p/litre, taking the manufacturing standard litre (4.2% butterfat, 3.4% protein) to 29.17p/litre.

Arla has also increased its standard liquid price by 1.38p/litre, to 28.03p/litre.

See also: World milk prices up 63% on lows of May 2016

The 0.21p/litre reduction is a result of a rebalancing of UK Arla Farmers Cooperative’s (UKAF) cashflow, following its decision to prop up the Arla UK milk price in May and June.

This expenditure by UKAF nullifies the effect of a new quarter’s average exchange rate for April to June, which comes into effect this month.

Reflecting current market 

“This will be welcome news for our owners that we are reflecting current market returns from rising fat prices in our July milk price,” said Arla Foods amba board director, Jonathan Ovens.

“The current market situation is characterised by strong demand and low stocks of fat, which is driving up prices for butter, cheese and other products containing fat. The market for protein is also firming, however at a low level.”

The processor’s move to increase prices follows two previous months that saw a price hold and a 0.4p/litre drop in May and June, respectively.

Arla is the industry leader in dictating milk price changes, so pressure will now be on other processors to follow Arla’s lead and raise their farmgate prices following months of buoyant wholesale dairy markets.

More increases inevitable

But farmgate prices should be rising anyway because that’s where the market is going, said NFU dairy board chair, Michael Oakes.

“The NFU has been saying for the past six weeks that there are a lot of positive signs in the market and with commodity prices.

“There was no dip in wholesale prices that everyone expected back in the spring and there was no spring flush.”

Mr Oakes added: “I would now expect other processors to increase their price because that’s where the market is anyway – not just because Arla has gone up.

“There is no real reason for anybody not to raise prices now.”