14 June 2002

Raw milk giant cuts direct supply prices

By Robert Harris

DIRECT supply milk prices are likely to fall this summer after a decision by Dairy Crest – the UKs biggest raw milk buyer – to reduce farmgate prices.

The cut will take place from July 1 for three months and other liquid milk processors are likely to follow, reducing the 2p/litre plus advantage over big co-ops that processors achieved after April price revisions.

Farmers providing milk for Dairy Crests liquid market and those sending milk to the companys Davidstow Creamery in Cornwall will receive 1.25p/litre less for supplies.

This takes the price for a farmers weekly standard litre (4.1% butterfat, 3.3% protein, top hygiene bands, 1501 litres a day) to about 16.6p-17p/litre net of seasonality for liquid supply, slightly more for Davidstow producers.

The milk price for direct supplies to the companys Aspatria Creamery in Cumbria will fall by 1.5p/litre to 17p/litre. Milk going for cheese production at Haverfordwest, Pembrokeshire, will fetch the same price, a 2p cut.

David Lattimore, Dairy Crests managing director of milk supplies, said the company had held prices for the whole of the last milk year, despite "dramatically weakening" commodity markets.

The company then cut prices by 1.95p/litre in April. "But Aprils price reduction was less than warranted by the commodity markets and lagged competitor price reductions," said Mr Lattimore.

"We now find ourselves unable to resist the twin pressures, especially when combined with the current high levels of milk production."

Final results

The news comes just two days before the company announces its final results for the year to the end of March 2002. These are expected to show a £15m rise in pre-tax profits on the year to £72m.

Dairy Crest will review prices again in September. "There are certainly signs that the markets are bottoming out," said Mr Lattimore. "It could be that the next milk price move is upwards."

The fear is that other liquid milk processors will follow Dairy Crests lead. But Neil Davidson, chief executive at Express Dairies, the UKs largest supplier of liquid milk, said he saw no reasons for a price rise. "We had no plans to talk to our farmers. There has been no change to market fundamentals since the last round of cuts."

But, he added, the company would have no choice but to remain competitive. "I genuinely feel for farmers. We will only reduce prices if we are forced to by our competitors activities."

Big co-ops contacted by farmers weekly said they had no immediate plans to alter prices. "We always knew when the prices went out in April that the price differential between direct suppliers and co-ops could not continue," said a Zenith spokesman.

One analyst said co-op prices were unlikely to fall much more. Most milk sales were on contract, and the distressed milk sales that had put pressure on prices were now working through the system.

But prices were unlikely to increase suddenly, either. Although the £ has weakened against the k recently, and milk output is falling back into line, product prices have yet to respond, he said. &#42