Freshways has agreed to remove controversial underproduction penalties and consider changes in the way it calculates its milk price, in order to remove some of the volatility facing its farmers.
There has been growing anger among the company’s 180 farmer suppliers at crippling penalties being applied if they fail to produce their agreed A-litres.
Farmers have been forced to pay the difference between the Freshways A-price and the spot price for milk on any shortfall, leading to bills running into thousands of pounds.
See also: Dairy farmer frustration over low prices
One farmer who posted on the Farming Forum claimed that by the time the penalties had been applied, his payment for September milk equated to just 1.48p/litre.
A number of producers are understood to have given notice to terminate their contracts as a direct result of the policy.
But Matt Weaver, a dairy farmer from Staffordshire and a farmer representative, said there had been a “very constructive meeting” with Freshways managing director Bali Nijjar on Thursday (27 October), during which he had agreed to a number of important concessions.
It has been agreed that, with effect from 1 October, all underproduction penalties will be removed – a significant move, given more than 70% of suppliers had been affected by them, Mr Weaver said.
“This has been causing extreme hardship to many farmers and has caused a lot of resentment,” he added. “It was having a crippling effect.”
During the meeting, Mr Nijjar also confirmed a 2p/litre increase for October and guaranteed a November increase of at least 1.6p/litre.
Mr Weaver said the farm group also put forward a proposal for a change in the way the milk price is calculated, suggesting that 50% of the price should be based on elements of the cost of production and 50% based on returns from the market.
“He [Mr Nijjar] committed to giving this some serious consideration, carrying out due diligence and speaking to his customers about the impact.”
The meeting looked to signal the start of “a new chapter”, said Mr Weaver, who said he wanted to give Mr Nijjar recognition for engaging with farmers and taking steps to put things right.
“This was a critical moment. If an agreement hadn’t been reached, there would have been further resignations or retirements.”
Suppliers he had spoken to on his journey home from the meeting had responded very positively, he said.
Mr Weaver, who milks 280 cows, added he had previously given notice to terminate his own contract, but following the meeting he had rescinded this.
Mr Nijjar told Farmers Weekly he would be writing to all suppliers to update them on the outcome of the meeting.
“The events of this year have been unprecedented and therefore were a challenge we had not faced before. Positive lessons have been learned,” he said.
Sian Davies, NFU chief dairy adviser, said the undersupply penalties at Freshways had been a major concern for farmers as they struggled to achieve their A-litre allocations on extremely low A-prices.
“It’s good to see that this issue, alongside a number of others relating to the Freshways contract, has been raised with management by the Freshways farmer representative group, and that an agreement has been reached that will benefit the supply base.
“This highlights the importance of having a strong producer group in place.”