12 April 2002

Producers will have to swallow reduced prices

By Robert Harris

DAIRY farmers face a bleak few months as ex-farm prices tumble, and those supplying farmer-controlled supply businesses will be hardest hit.

Although processors have cut their prices this spring, the majors seem likely to maintain or increase their 1-2p/litre plus advantage over the large broker co-ops, some of whom will be paying less than they did during the spring 2000 trough.

United Milk set a marker this week, cutting its farm-gate milk price by 4.6p/litre for April milk collection.

The company blames high production (see article left), collapsing dairy markets and its own weak selling position.

The 350 farmers supplying United Milk will receive just 13.4p for a farmers weekly standard litre during the month, and are unlikely to see much improvement for the first quarter of the new milk year.

"National milk supply has been running ahead of demand for some months. There is insufficient capacity to process surplus milk into intervention products like butter and skim milk powder," said chief executive Don Morris. "Effectively, our farmers are disenfranchised from EU support."

United Milks selling position has also been weakened. It is due to commission its butter/powder factory in May, and will achieve 60% of volume throughput in July. This means it has had to offer its milk on short-term contracts, which coincide with the spring flush.

"All things being equal, we should be able to pay somewhere near the intervention price (about 16.4p/litre) when our factory is running. Unfortunately, this three-month period is going to hit members hard," said Mr Morris.

First Milk has indicated a reduction of 1.4-1.7p/litre. That suggests an April price of around 16p/standard litre for daily collection, though seasonality deductions could pull that down to 15.2p in April, 13p/litre in May and 13.5p/litre in June. These deductions will be added back in the following few months.

Milk Link is likely to announce a similar reduction soon, and Zenith and the Milk Group are also expected to cut prices hard. Some analysts expect these co-ops to reduce seasonality deductions to help their members out.

Express is the latest buyer to announce its ex-farm price for April, reducing it by 1.85p/litre, similar to cuts made by other major liquid milk processors.

This means the 1200 members belonging to the Express Milk Partnership will receive 18.15p for our farmers weekly standard litre, though seasonality deductions of 1.3p, 2p and 1.3p/litre will operate during April, May and June respectively.

A £5/day transport charge has also been introduced for members supplying less than 1000 litres/day averaged over a month.

"Everyone is disappointed, but this is what the market dictates," said EMP chairman Jonathan Ovens. &#42