By Philip Clarke

PRESSURE is mounting on dairy companies to pay at least 2ppl more for next months milk supplies, or risk severe shortages in the months ahead.

The demand is made in a new report from the NFU – British milk, what price? – setting out the arguments for better returns.

World skimmed-milk powder values have doubled in the past year, with EU prices up 20% in three months, it says.

Whole milk powder has gained 10% in Europe since March, while butter and cheese are also firming.

Sterling has weakened since May, taking the Intervention Milk Price Equivalent from 15.41ppl to 16.66ppl, while milk shortages have pushed spot prices to about 24ppl, says NFU milk assistant Tom Hind.

But the NFUs main argument is that the IMPE is no longer a relevant indicator of milk value in ongoing price negotiations.

Actual market values for butter and SMP have broken all links with intervention.

Using the same factors used to derive IMPE, current EU prices for SMP and butter indicate that the UK could realise as much as 20.6ppl on the back of the surge in commodities, says the report, which has been sent to all milk groups and milk buyers.

As such, the NFU is demanding an immediate 2ppl rise to bring returns more in line with the estimated 20-22ppl cost of production, with further increases by the end of the year.

Anything less will lead to an exodus from the industry this winter, warns deputy president Tim Bennett.

Ive had many farmers phone me saying their banks will not maintain their overdrafts beyond November. They are fed up with milking cows 14 times a week for no money.

“If they dont see a significant increase from the current negotiations, they will walk.

Evidence that this sort of increase is achievable came at the start of the week when Asda agreed to pay its suppliers, Arla Foods and Robert Wiseman Dairies, an extra 2ppl for fresh milk.

This was on condition that they pass it on in full to dairy farmers.

Although fresh milk makes up only a proportion of these companies product ranges, Wiseman was quick to confirm that its producers would benefit to the same extent.

An increase of 2ppl for producers can be justified given the current market conditions, says managing director Robert Wiseman.

We hope that others in the industry will have the confidence to follow.

That remains to be seen. Unigate, Axis, Zenith and Milk Link are waiting a further week before announcing October milk prices.

Nestlé was the only other major buyer to make a move this week, with a 1ppl rise taking its standard litre to 18.2p.

That mirrored the 1ppl rise from Express earlier this month, a move described by the NFU as outdated and unsustainable.