A new pricing mechanism has the potential to fundamentally improve the UK milk market, believe farm leaders.
Milk producers are being urged to support the pricing proposal, which was unveiled by NFU Scotland at a milk summit on Wednesday (20 April).
Some 50 dairy farmers and industry representatives attended the NFU-hosted event, held at Kenilworth, Warwickshire.
The mechanism is based on a market-related pricing formula. Farm leaders believe it could be incorporated as a baseline into producer contracts across the UK.
Adopting the formula would break the cycle of market failure in the dairy supply chain, said NFU Scotland chief executive James Withers.
In doing so, it would deliver greater certainty for farmers, benefiting everyone in the supply chain, including processors, retailers and ultimately consumers.
If it was introduced now, the mechanism would see UK producers paid 31-32p per litre for milk – similar to the price paid to European farmers, said Mr Withers.
“The principle behind this new formula, and new initiative, is to move the whole milk debate beyond the same rhetoric and action that has dominated dairy politics for more than a decade.
“We want to drive forward a constructive solution, which could move the whole industry on from analysing the problem, to focussing on trying to fix it.”
Controversially, perhaps, the mechanism is based on market value rather than cost of production.
It is based on the market indicators of Actual Milk Price Equivalent (AMPE) and Milk for Cheese Value Equivalent (MCVE) in a 20% to 80% split.
The split was decided following an in-depth DairyCo analysis of market statistics, so the farm gate price would reflect the true value of milk, said Mr Withers.
This platform would still move up and down, he said. But it would be driven by market fundamentals, rather than the whim of buyers.
“We believe we are at a crossroads moment for the GB dairy sector,” said Mr Withers.
“There is an overwhelming appetite for change and we believe this should galvanise every single dairy farmer who is tired of the status quo.”
Kenny Campbell, a dairy producer from Dumfriesshire, was among a group of 24 farmers who helped to develop the proposal.
The formula would not mean a guaranteed smooth ride, he conceded. But it would ensure that producers received a fairer farm gate price.
“It will not protect anyone from market realities,” said Mr Campbell.
“Some months will be better than others. However, the critical element to this initiative is that the price produced by the formula will represent the true value of the product.”
The mechanism will be explained to dairy farmers at series of meetings to be held across Scotland during the next fortnight.
Similar meetings are expected to take place in England and Wales.
Mr Withers said buy-in was now needed from all farmers – as well as an open-mind and constructive mindset from the supply chain – to turn the mechanism into reality.