Arla Foods has shocked the dairy industry by slashing the price it pays for milk this month by 0.9p/litre, despite announcing that it had received more money from retailers only last week.

At the same time, arch competitor Robert Wiseman Dairies said it would be maintaining its current price until the end of February.

Dairy Crest has already committed to holding its payments until the end of March.

Peter Walker, Arla’s director of milk buying, said:

“Recent improvements in returns from our customers mean that oil and utility inflation is now dealt with for Arla Foods – our customers have responded positively to a coherent and sustainable argument for a processor increase.

The impact of reducing commodity prices, addressed in this agreed package, is an entirely separate issue.”

Cream and butter values have been falling and Arla’s suppliers, most of whom belong to direct supply group Arla Foods Milk Partnership, the board of which agreed to the cuts, will now receive 0.3p/litre less for their milk, said Mr Walker.

However, fat values had already started to slide last October and producers would see a further 0.6p/litre docked from their milk cheques in February and March to cover this, he added.

It is this retrospective move that has angered farmers the most.

NFU dairy board chairman Gwyn Jones said:

“The whole thing stinks. All credit to Wiseman, but Arla has once again shown it is happy to lead the way with indiscriminate price cuts to farmers.

We will be talking to their retail customers.”

Chris Brown, agricultural manager at retailer Asda, which buys all of its milk from Arla, said:

“I don’t think it builds confidence for the dairy market.

But the stark reality is that it is an agreement between Arla and AFMP.”

Asda’s customers, however, could be targeted by Farmers For Action, said its leader David Handley.

Mr Handley said he wouldn’t be abandoning the pressure group’s traditional tactics of blockading distribution centres and depots, but he also wanted to increase the focus on consumers to inform them of the situation.

He had already held talks with the Women’s Institute, which has 210,000 members.

andrew.shirley@rbi.co.uk