Arla Foods launches new direct supply contract

Arla Foods has launched a new direct milk supply contract as part of a recruitment drive to secure an additional 500m litres of milk a year from UK farmers.

The company claims the new Arla Direct contract, which offers a standard litre price of 30.02p/litre, is the first in the industry to comply with all the contractual relationship requirements, as outlined in the voluntary dairy code of practice.

The contract includes liquid and compositional variations, a volume bonus for larger producers, seasonality options and a 12-month notice period with the three-month trigger (notice to quite the contract should the price drop) as specified in the code.

The standard litre price requires 4% butterfat, 3.3% protein, one million litres, top bands of hygiene, and includes transport charges.

The concept of the contract was first announced in September last year as part of the dairy co-op’s milk sourcing model.

As a result, new suppliers to the company can choose either the direct contract or the Arla Foods Milk Partnership (AFMP) contract – where farmers have the opportunity to become members of the Arla Foods amba in the future.

“We believe this contract offers dairy farmers in England, Scotland and Wales, who aren’t already supplying Arla, a long-term premium milk price and the security of supplying milk to a farmer-owned co-operative that is investing in the future of the industry,” said Arla’s head of milk and member services Ash Amirahmadi.

NFU dairy board chairman Mansel Raymond welcomed the announcement and urged all other milk buyers to review their milk supply contract to ensure full compliance with the code.

“The NFU firmly believe that producers should be offered the freedom of choice between the commitment and longer-term benefits of being a co-operative member or a direct supply relationship, as defined by this important new contract,” said Mr Raymond.

NFU Scotland dairy board chairman Gary Mitchell said the new contract was good news as it offered farmers more choice.

“I have always been crying out for the farmer to get more options, because there are lots of people on the wrong contract to suit their business. We have had a lot of reassurance from Arla that farmer communication over the next 12 months will improve. Farmer communication is critical to help farmers make the decision on the contract that suits their business,” he said.

Commenting on the new contract, in his latest market report, dairy industry commentator Ian Potter said: “On paper it appears this new direct contract ticks a lot of boxes and gives producers choice.

“Whilst Arla are clearly wanting to demonstrate their commitment to behave better and restore faith in any doubters, other milk purchasers will be keen to study the detail, and if all that glisters is gold, some will have to react quickly or suffer the consequences.”

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