Plummeting demand relating to the coronavirus outbreak has forced dairy processor Freshways to cut its milk price by 2p/litre and delay payments.
The cut will leave the company’s suppliers receiving just 24p for a standard litre.
In a letter seen by Farmers Weekly, managing director Bali Nijjar said that all supplies would now be paid for in a monthly period 45 days from month end, leaving farmers waiting until 15 May for milk produced in March.
Mr Nijjar wrote: “We are facing many operational challenges to minimise possible contamination to our operating sites, but as the days go by, the biggest challenge is milk sales.”
“Our business is more than 40% food service/hospitality [coffee shops/restaurants/hotels etc] and sales for that have fallen in excess of 60%.
“With the country entering into further lockdown, my concern is that this will go to zero sales potentially.”
Reverting to spot market
He said the firm was incurring losses of having to sell milk on to the spot market, with today’s prices at 24-25p/litre.
Freshways had previously been paying 26p/litre for milk after increasing its standard litre price by 1p on 23 February.
The trouble being experienced by Freshways is in contrast to processors who have liquid supermarket supply contracts, which have seen surging demand as consumers stockpile goods in response to the coronavirus outbreak.
Mr Nijjar said the firm would be working round the clock to investigate the support they can get from customers and government departments, including the measures outlined by chancellor Rishi Sunak on Tuesday.
If support was available, he said he would reverse the price decrease element, and also urged farm businesses to investigate what support they are entitled to.
NFU dairy board chairman Michael Oakes said the entire milk supply chain was going to have to come together like it had never done in the past to tackle the impact of the virus, and that Freshways is not the only processor to be finding the situation a challenge.
“This will make no-deal Brexit potentially look like a walk in the park,” he said.
“We will come out of this the other side and we still want this processing capacity to be there,” he said.
He said the NFU was in constant contact with Defra and is pressing for:
- Employees throughout the dairy supply chain to be on the protected employment list
- Easing of competition rules to allow processors to co-operate more closely with each other during the outbreak
- All businesses in the dairy supply chain, including farms, to have sufficient access to funds to survive a sudden coronavirus-related fall in revenue.