Muller promises stability with revised milk contract

Milk processor Muller is introducing a new contract model from April this year, which it says will reduce volatility and is expected to deliver a higher farmgate milk price than its current terms would offer.

Little detail is available on the new contract, which the processor said resulted from having longer term agreements with fewer and larger customers.  

“This means much stronger partnerships with customers and better visibility,” said a spokesperson.

Pricing would still be decided monthly on a discretionary basis, and announced with a month’s notice, but because of the strength of those partnerships, would move away from the volatility of global milk markets.

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The processor said that the revised contract reflected the value in fresh milk and dairy products for its retail customers and that this would form the bedrock of the milk price its offered, applicable to up to 94% of its milk supply.

The aim, said Muller, is to provide stability, competitiveness and transparency for farmers.

“We also know issues such as sustainability and herd welfare are of utmost importance to our customers and consumers, and the high standards we expect from our supplying farmers will be maintained as part of this new revised contract,” it said.

The price for the remaining estimated 6% of supply, destined for the ingredients market, will be based on an independent forecasting model giving a UK futures milk futures equivalent, which will be published.

This forecast will be produced by founder Steven Bradley.

Muller is supplied by 1,300 dairy farmers, 650 of whom are known as Direct suppliers, with the remainder on aligned contracts.   

Those on aligned contracts supply the majority of their milk under the aligned terms, often based on a cost of production model, and the remainder on Muller Direct terms.

“All aligned farmers will have the majority of their milk receiving their aligned contract terms and a much smaller element of their supply receiving the Muller Direct price. The latter will be subject to the revised contract,” said the spokesman.

Farmer meetings 

Muller will be holding regional farmer meetings about the revised contract terms at the end of January and in February.

The announcement has been welcomed as step in the right direction by commentators, as it offers the potential for price stability, although there has been concern at the lack of detail.

Market analysts suggested that security of supply was a driver for the new contract, as well as the larger and longer term contracts and relationships with Muller’s customers.

The NFU continues to lobby for mandatory minimum contract terms for farmgate milk supply and pricing, which would exclude discretionary pricing.

Such terms were promised by the government in February 2021, when Defra said it expected to introduce a statutory code of conduct later that year, with a lead-in time of about two years to allow industry time to adapt to any new requirements.