Marks & Spencer has made its milk contract even more transparent by incorporating energy and fertiliser costs into the “Milk Pledge” formula it uses for setting prices.

When the pledge was launched in 2004 it used three indices to calculate farm-gate prices – the intervention milk price equivalent (IMPE), the compound feed index and the consumer price index.

However, farmers highlighted that rising fuel and fertiliser costs were not necessarily being reflected, said M&S’ agricultural specialist Rob Cumine. “That’s why we decided to add figures from the energy and lubricants and nitrogen fertiliser indices as well.”

At the same time, following farmer concerns, M&S has also dumped IMPE from the pricing equation and replaced it with the more market-related Actual Milk Price Equivalent (AMPE).

Prices for the retailer’s 61 farmers, who supply their milk via Dairy Crest, are reviewed on a six-monthly basis.

Mark Robins, chairman of the English M&S producer group, said: “The process of developing the original contract and holding farmer consultations took over 12 months. The improved Milk Pledge was agreed in a few hours.”

NFU dairy board chief Gwyn Jones said the new formula, which was announced at this week’s Dairy Event, was good news.
“It has always been a good contract but we questioned the use of IMPE in setting prices in our Vision document. This is a fantastic move forward and something other companies should copy.”

Arthur Reeves, Dairy Crest’s milk purchasing director, said the formula would also work well on larger milk pools, but needed to a willing buyer to implement it. “I would love to do something similar with our other customers.”

Peter Walker, head of milk buying at Arla Foods, was non-committal. He said it was difficult to set up contracts based on costs of production because these varied so much from farmer to farmer.