Liquid prices unchanged as DC cuts cheese contracts

Farmers supplying Dairy Crest received mixed news today (24 March) after the company announced its April liquid milk price would remain unchanged, but those on the Davidstow cheese contract would see a 1.25p/litre cut.

The price reduction, which comes into force from 1 April, affects around a quarter of Dairy Crest’s 1500 suppliers, supplying around 400m litres of milk. The move follows “substantial reductions” in returns from the cheese market, where commodity cheese prices have fallen £300-500/t since last summer, equivalent to 3-5p/litre.

Dairy Crest’s new milk procurement director Mark Taylor said the company had honoured its commitment made in February to maintain liquid prices through to 31 March, but the scale of the downturn in cheese markets had forced it to take action.

“We are fully aware of the pressures farmers are facing, which have been highlighted through our negotiations with Dairy Crest Direct [which represents its farmer suppliers]. However, we have to react to market movements of this level and duration.”

He said the company was working with DCD to improve efficiency and find new ways of extracting more value from the supply chain.

DCD chairman David Herdman welcomed the move to maintain liquid prices for a further month, but was concerned about the impact of the price cut on members who supply the cheese contract. “DCD is committed to working together to explore all opportunities where there is the potential to generate additional benefits or reduce cost,” he said.

In an attempt to reassure farmers, Dairy Crest’s Arthur Reeves said that while economic conditions were tough, the company had a strong brand for its cheese through Cathedral City – the retail value of which was up about 20% year-on-year to just over £190m.

“It’s got good branding, but we are having to promote it more,” he said. “Longer-term, it is a growing brand.”

Mr Reeves said Dairy Crest would issue a trading update this Friday (27 March).