UK dairy processor Muller has revealed the details behind the fixed-price element of its milk contract as a result of its supply deal with Lidl.
The contract will allow Muller’s 650 non-aligned producers to fix up to 50% of milk at a price of 28p/litre for three years, as exclusively revealed by Farmers Weekly last month.
Muller producers can apply to fix lots of 10,000-litres into the new “Muller Direct Fixed Price Contract” from Wednesday (18 April).
Compared with the Muller standard litre milk price over the past three years, Muller producers would have made an average of 1.4p/litre extra had they been able to fix milk at the proposed rate.
Lidl has a strong track record of supporting British dairy farmers, paying up to 3p/litre in a retailer premium when milk prices were low as part of its retailer supplement in 2015 and 2016.
“There’s no doubt that the highs and lows of market volatility are challenging to deal with, creating uncertainty and inability to plan ahead,” said Muller milk supply director, Rob Hutchison.
“This new approach gives dairy farmers security and confidence for the future and is a very good example of innovation which benefits the whole supply chain.”
Fixed-price milk contracts have been mooted by many analysts as the future of volatility management and are already widely used by many Irish processors, including a five-year fixed price deal offered by co-op Glanbia.
Commending both Lidl and Muller, NFU dairy board chairman Michael Oakes said the new contract appeared to be a real positive for dairy farmers.
“It’s great to see a retailer looking to tackle volatility and help producers,” said Mr Oakes.
“Producers need to work out what their cost of production and margin would be on 28p/litre and, if it appears a decent option, they should give it serious consideration.”
Mr Oakes was upbeat about the new mechanism and said the winds were changing on unfair dairy contracts.
He was optimistic that the recent Defra command paper – which proposed the compulsory implementation of either a fixed or formulaic element to all milk contracts – would help to move terms away from buyer’s discretion to deliver more transparent pricing structures.