New proposals for milk contracts

Dairy processors Arla Foods and Dairy Crest are introducing new payment schemes in a bid to flatten out costly milk-supply profiles.

Arla’s chief executive Tim Smith told this week’s Royal Association of British Dairy Farmers annual conference that the cost of selling excess fresh milk on the spot market was costing the business dear.

“For example, last weekend we bought 15% more milk than was needed.”

But from 1 April, new contract terms will ask members of the Arla Foods Milk Partnership, which supplies about 80% of Arla’s milk, to share responsibility for the cost of balancing supplies, he said.

AFMP chairman Jonathan Ovens said members would be able to choose from two schemes.

The default one would apply penalties or bonuses based on how far a producer strayed from their average daily production during the 2005/06 milk year.

In the peak-supply months of April, May and June any milk over 110% of the target volume would receive only 60% of the standard price.

But in October and November, when supplies were shorter, any milk over 100% of the target would receive 130% of the price, said Mr Ovens.

However, producers who were confident of maintaining a flat profile within plus or minus 10% of the target could choose to receive a 0.2p/litre bonus that would be paid monthly, he added.

Arthur Reeves, director of milk purchasing at Dairy Crest, said producers who could supply within similar limits would be able to opt out of the company’s seasonality scheme from 1 April.

“This will help their cash flow throughout the year.”

Those on a level profile already receive a 0.8p/litre bonus.

Although Dairy Crest had the ability to self-balance supply with its own milk-drying facilities, the difference between liquid and skim or butter powder was worth 2.5p/litre, said Mr Reeves.

Producers who supplied the firm with a forecast of how much milk they would produce over the next 15 months would also receive a 0.2p/litre bonus, he added.

And those who came within plus or minus 15% of their forecasts would get an extra 0.1p/litre.

In return however, maximum hygiene payments would be reduced from 0.7p/litre to 0.3p/litre.