Arla moves to split-price system

Members of Arla Foods Milk Partnership could receive fairer prices for their milk following further changes to Arla’s pricing arrangements.

From this month, payments to the group’s 1600 members will be split into two parts.

They will receive a core milk price of about 18.2p/l, fixed until March 2007 and reviewed every six months, and a variable amount related to the commodity cream market, which takes half of Arla’s cream production.

The changes are part of Arla’s plans to make their payment scheme more transparent.

According to the processor, creating a market-related element will ensure market reality is reflected in farm-gate milk prices quickly and accurately.

Peter Walker, Arla’s director of milk buying, said the new payment method would give members more certainty over their milk prices.

“Isolating the commodity element and giving members a guaranteed core milk price for six months gives them some certainty and stability, which is important,” he said.

The variable element of the payment will reflect year-on-year changes in the commodity cream market and could be moved up or down each month.

Despite the strengthening of the commodity market in recent months, Arla predicted that a small price reduction would be “likely over the next few months,” possibly to cover back-dated losses of £600,000.

Mr Walker said once commodity markets did strengthen, producers would see price benefits more rapidly.

While the move by Arla appeared to address some of the suggestions in the NFU’s Vision for the Dairy Industry document, Tom Hind, the NFU’s chief dairy advisor, remained cautious.

“There are still lots of questions to be answered,” he said. “Until I see the full details I remain to be convinced.”
 
Milk quota broker Ian Potter said he welcomed new ideas which let farmers know what was happening within the industry, but questioned whether the new system would add to farmer’s confusion over payments.

“If dairy companies genuinely want to bring farmers to the market place, they need to be upfront and transparent,” he said.