Hopes are growing that farmgate milk prices could start to rise quickly, following moves by two milk buyers.
Milk Link has announced it is to increase members’ manufacturing prices by 1p/litre, and liquid values by 0.78p/litre, to 26p/litre each, which puts the co-op ahead of all other processors’ non-aligned prices. Some industry commentators believe this could be the catalyst for a string of other price increases.
Tesco is also to increase the price it pays its direct suppliers.
With manufacturing markets now generally ahead of liquid values, processors would have to start increasing liquid payments to ensure security of supply, said Hayley Campbell-Gibbons, chief dairy advisor at the NFU. “There are logical market reasons why prices should now start to increase quickly, and I would expect to see a succession of increases. Farmers have not been getting the prices they should have been getting for the past 12 months, and I see this as breaking the stalemate. I would like to think that buyers are going to behave much more responsibly and remunerate their farmers fairly from now on.”
However, one industry analyst claimed major processors would continue to seek to undercut each other to secure volume contracts at any price. But such behaviour was already undermining profits, and was simply unsustainable, he said.
In the year to April, Robert Wiseman Dairies profits fell by 16%, and would be substantially lower next year, said communications director Graeme Jack. “Each part of the supply chain needs to be able to make a return on their investment. We recognise the increased input costs being borne by producers and are doing our utmost to address concerns in an extremely tough market.”
Other leading processors were unavailable for comment.
Milk quota broker Ian Potter said some processors had gambled on falling dairy commodity markets to cover their aggressive pricing – and lost. “They cannot continue to do deals in pursuit of volume and expect them to be funded by farmers. Milk Link’s price increase is one of the most pivotal this industry has seen for many years. I believe there should be no more talk of milk price decreases to plug a profit gap. It won’t be long before farmers look at moving to a co-op.”
Another co-op, First Milk, recently announced a 3% return on investment payment to active and retired members, following improved pre-tax profits, to more than £12m in the first half of 2010.