Arla promises new contracts in milk sourcing model

Milk processor Arla is promising new contracts to suit dairy farmers’ needs in its review of milk sourcing.

Alongside the announcement earlier this week of a 2.5p/litre price increase – taking Arla’s standard litre to 29.5p/litre from 1 October – Arla said that next year it would offer direct supply contracts which would not require farmer suppliers to invest in the company.

Currently all farmers supplying milk to Arla Foods UK have to be members of AFMP, a direct supply group whose members have so far invested £15m through a 0.5p/litre levy.

This is collected through Milk Partnership Limited and will eventually allow UK producers to become full members of the Arla Foods amba, the co-operative currently owned by Danish, Swedish and German dairy farmers. Regulatory approval of the merger is expected this autumn and would make Arla the UK’s largest milk processor.

Members of AFMP would be able to choose whether to continue on the road to Arla Foods amba membership or take a direct supply contract with Arla in place of their existing contract, said the company.

Arla is looking for an extra 500m litres of UK raw milk supply by 2015, mainly for its new dairy near Aylesbury, Buckinghamshire. It has signed up an additional 70m litres since announcing a recruitment drive in February.

Farmer representatives including the NFU and RADBF have welcomed the Arla announcements. “This is more like the behaviour of a farmer-controlled business with farmers’ interests at heart rather than a plc-style business purely looking to export profit and revenue,” said NFU chief dairy adviser Rob Newbery.

Arla milk price and sourcing policy

• Increase in standard litre price to 29.5p/litre from 1 October for AFMP members in non-aligned, Asda, Cravendale and Tesco seasonal milk pools – achieved by sharing liquid milk premiums among AFMP members not on cost of production-related contracts

• Price increase achieved through anticipating improved returns

• Full support for Voluntary Code of Practice

• Transparent and sustainable pricing model in 2013

• Monthly farmgate milk price announcements

• Continued support and commitment to retailer-aligned pools

• Study of costs of production drivers to help Arla’s supplying farmers to reduce these and improve profitability

• Autumn 2012 – begin process of defining and agreeing criteria and roadmap for AFMP/MPL to achieve full membership of Arla Foods amba

For more on this topic

See our milk price cuts crisis page