DAIRY FARMERS and Marks and Spencer have agreed a new milk contract that will set prices at six-monthly intervals rather than the current four weeks.

The aim is to smooth price fluctuations to help producers plan their businesses with more certainty.

The scheme, launched at the Royal Show on Sunday (Jul 4), will begin in October for M&S‘s 55 English farmers which supply drinking milk via processor Dairy Crest.

It is expected to spread to other areas early in 2005.

Once the model has been thoroughly tested, it is hoped to move to yearly prices.

The base price will be set using a feed index, the intervention milk price equivalent and the retail price index.

Quality and volume bonuses will remain unchanged, as will the M&S premium.

Farmers would receive an estimated 21.7p/litre for their milk were the scheme running today, said Dairy Crest‘s Mark Taylor.

The scheme was the result of 18 months of collaboration between farmer, processor and retailer, said Paul Willgoss, M&S‘s head of agriculture.

“We looked at a number of different options, but farmers told us that long-term price stability was of overwhelming importance.”

Other M&S suppliers could also benefit – Mr Willgoss added that the scheme represented a template for all livestock sectors.

Milk supplier Robert Wytchard who farms near Reading said price stability was an important driver for dairy farmers.

“It has been extremely positive to work on this project in partnership with Dairy Crest and Marks and Spencer, and I believe each party has benefited form the experience.”

Whether dairy farmers supplying other supermarkets will benefit remains to be seen.

Mr Taylor said the size of the producer group and the fact they were producing a premium product for a discerning customer had helped.

But he did not rule out similar schemes with other retailers which account for a much larger share of the market.

“We are in continual dialogue with our customers. It is fair to say that this scheme provides a pointer,” he added.