5 April 2002

Sizeable milk price cuts inevitable, warn buyers

By Robert Harris

MILK cheques are set to shrink for April deliveries and beyond as the spring flush kicks in and markets remain under pressure.

Co-ops were concluding talks with buyers this week, but all said sizeable ex-farm price cuts were inevitable. They have already reduced levels by 1-2p/litre since January and further cuts of 1.5-2p/litre are likely.

Few processors have showed their hand, either. But Robert Wiseman Dairies will lop 1.67p off a standard litre from Apr 1.

The move, announced just before the Easter break, follows the firms 0.6p/litre price cut last month. It takes the farmers weekly standard litre price (4.1% butterfat, 3.3% protein, top hygiene bands, 1101 litres/day) to 18-18.1p/ standard litre, depending on area.

The company had told suppliers it would announce prices next week, leading to speculation that it had wrapped up deals to supply supermarkets with cheaper milk. The company denied this, saying they had finished discussions with direct suppliers and saw no reason to delay.

Pete Nicholson, director of procurement, said: "We deeply regret this price cut, but we cannot ignore market conditions. The slump in the commodity market started in the middle of 2001 and is being perpetuated by increased milk production and the strength of sterling against the k, which is making milk from the UK uncompetitive."

Farmer-owned First Milk wrote to its members today (Friday) and is understood to be cutting prices by 1.4-1.7p/litre, a near repeat of its January reductions.

The company has been operating a two-tier pricing structure since it was formed from the merger of Axis and Scottish Milk, but will operate a single price across its supply base from this month. This will take the overall average payment down to about 16.2p/litre.

Milk Link is expected to announce a similar cut, blaming poor markets and a big spring surplus.

Neil MacFarlane, operations director, said: "Every litre of processing capacity in the country will be used to the full. But we are seeing very poor commodity prices – butter/powder values are rock bottom and mild cheese is abysmal.

"April, May and June will undoubtedly be a drag on our milk price."

Zenith, United Milk and the Milk Group are also due to announce lower milk prices.

West Country cheese maker Wyke Farms has cut its April price by 0.7p/litre and will pay 17.59p/standard litre for daily collection and 17.96p for every-other-day collection.

In a letter to suppliers, David Young, direct supply manager, wrote: "Despite falling market prices, cheese manufacture increased by 15% in January as manufacturers chose to reduce milk powder and butter production because of very low prices." Unfavourable currency rates also encouraged low priced imports.

Express is likely to confirm its new price this week, but was unable to do so before FW went to press.

Jonathan Ovens, chairman of direct supply group Express Milk Partnership, said: "We are looking at a minimum decrease of 1p/litre." &#42

Extra 50m litres for Express Partnership

Express Milk Partnership claims to have picked up an extra 50m litres of milk from Apr 1, some from members of the Milk Group who resigned last autumn following a series of price cuts, but most from Amelca, the new farmer-owned processing business in Derbyshire.

Amelca has been unable to offer suppliers a firm milk price, having to sell on the spot market until it starts processing its milk. Amelca managing director Len Jackson said: "We are commissioning the plant at the moment. We expect to be processing liquid milk in late April, then Cheddar, hopefully mature, from July onwards.

"Although we have lost some producers, most have been supportive. We expect later in the year to be able to offer our intended contract – local processors price plus a penny – to suppliers."

The plant, which will mainly supply local middle-ground retailers, will also make cream and whey. It should use 150-170m litres of milk in the 12 months from August, and will build to its 300m litre capacity by 2006. DEFRA secretary, Margaret Beckett, will open the factory on May 20.