Farmers supplying milk to Dairy Crest (DC) via Dairy Crest Direct (DCD) face a 0.8p/litre price drop if they do not sign up to a new contract announced on Friday (26 February).
The new Davidstow Balancing contract will mean producers get paid a lower price for milk they produce above the core volumes needed by the processor.
Producers who choose to move to the new contract will be paid 22.72p/litre for “core” milk until 31 May, after which the price will be reviewed monthly.
DC/DCD said excess or “reserve” litres would be priced using a “market-related indicator”.
Producers who do not want to move to the new contract will face a 0.8p/litre price cut on 1 April, taking their standard litre milk price to 21.92p/litre.
DC/DCD said the price reduction reflected ongoing deflationary market conditions and the cost of balancing excess milk and that the new contract was designed to better meet supply requirements of its creamery.
Ruth Askew, head of procurement at DC, said the current milk supply model was not sustainable.
Stephen Bone, chairman of DCD, added: “Our aim has been to reduce the exposure of our members’ core litres, whilst providing a transparent mechanism to value the reserve litres above factory demand.
“We believe this contract is an innovative approach to managing supply.”
Farmers can sign up to the new contract in March. The processor works with about 400 farmers in the South West.