Milk contract changes anger farmer suppliers

Milk buyers Meadow Foods and Fayrefield Liquids have drawn farmer anger for changes to supply terms.

Meadow Food has told suppliers that, among other changes, from 1 April it will reduce by 20% the volume of milk paid for at its “A” price.

Meadow Foods announced the move in a letter sent to the 550-plus farmers supplying its three processing sites in Cheshire, Yorkshire and Peterborough.

See also: More articles on milk prices

The company introduced its A and B milk pricing system in April last year and said that it would keep the move to 80% under review until March 2016.

“It can only be revised up, not down,” said the company’s milk procurement director Jim Bebb.

“The 80% might be 90%.”

Farmers were very concerned about the changes, said Siân Davies, NFU chief dairy adviser.

“This should have been made in discussion and consultation with producers not just to arrive in a letter on New Year’s Eve.”

With milk in oversupply, producers were wary of challenging milk buyers on changes to terms, she said.

“This should have been made in discussion and consultation with producers not just to arrive in a letter on New Year’s Eve”
Siân Davies, NFU

A producer group was needed to negotiate changes and the science behind the Meadow Food changes needed to be explained.

Producers needed to be clear that the 80% figure was linked to milk volume on Meadow Foods’ core long-term contracts, said Ms Davies.

It also needed to be made clear how the “B” volume price would be established.

Producer criticism of the changes includes that they add further uncertainty over price and volumes, making it more difficult to plan production.

Meadow Foods is also removing the tolerance of plus or minus 5% on “A” litre supplies.

“The changes to the balance of A and B litres will make your overall milk price more responsive to market conditions, so as and when the market recovers producers will see the benefits directly,” said the letter.

The company is also increasing the amount it pays to those who accurately forecast their production to within plus or minus 10%, paying them 0.5p/litre for this instead of 0.25p/litre.

However the flat rate they are paid for their milk would reduce accordingly, said the company, which is not signed up to the Dairy Voluntary Code.

‘Mean’ litres

From 1 April Cheshire-based Fayrefield Liquids is to charge milk producers who do not supply their contracted “mean” litres for the cost of any milk it has to buy in from third parties as a result of the farmer’s shortfall in supply.

It explained in a letter to suppliers that this had arisen after farmers asked for their mean litreage to be increased but had then failed to deliver that increase.

“This has been an exceptionally good year for milk production yet a significant number of our farms have failed to achieve their mean,” it told producers in a letter informing them of the changes. 

It promised to take a reasonable view on producers’ circumstances and milk production.

Criticism of the Fayrefield Liquids changes has included the lack of transparency in the pricing of any milk bought in and what farmers might subsequently be charged for it.

The company is sending farmers notification of their target mean volumes next month. Milk producers needed to be clear that the company would take milk from their contracted suppliers to fulfil their core market commitments, said Ms Davies.