Farm-gate milk price fillip
Farm-gate milk price fillip
By Robert Harris
MILK prices at the farm-gate showed a marked rise in the first month of the new milk year, with a clutch of companies once again paying more than 20p/litre for supplies.
According to our milk price table and ignoring seasonality deductions, the simple average for the month was 19.89p/litre for a standard litre, a rise of about 1.6p/litre on March values.
It was sorely needed because those March prices tend to flatter what was an appalling year for milk returns. The overall rolling average for the 2000/01 milk year slumped to 17.4p/litre, despite a 2p/litre rise in the milk price last October. That average was more than 1p/litre below the previous milk year and rounds off a 30% fall in values since 1995/96, the first full year of market deregulation.
All companies that can be compared directly paid less in 2000/01 compared with the year before, though there were big variations. The biggest fall (11.6%) was seen at Southern Co-op, which topped the table in 1999/2000 with a rolling average of 19.84p/litre but ended up half way down the order in the milk year just finished on 17.53p/litre. The Dairy Crest (Unigate Business Deal) price crashed almost 9% to 17.22p/litre, while Express and Wiseman suffered falls of 6-7%.
Scottish Milk (-3.57%), the Milk Group (-3.1%) and South Caernarvon (-2.6%) were the only companies to see falls of less than 4%.
Although not strictly comparing like with like, the Milk Marque "triplets" fared better. In 1999/2000, its final year, Milk Marque achieved a rolling average of 16.03p/litre for a standard litre. All three companies spawned from the break-up raised prices last year – Axis (now First Milk Southern) by 0.13p/litre, Zenith by 0.19p/litre and Milk Link by 0.44p/litre.
Given the general downward drift last year, this helped to narrow the gap between prices paid by direct suppliers and co-ops. Indeed, the price spread in the table has closed significantly. In the 1999/2000 milk year, the difference between the top and bottom company was 3.8p/litre. Last year it was just under 2p/litre.
After Aprils price increases, the spread has widened slightly, to just over 2p/litre, but it is unlikely to grow further, given the competition in the market place and the harder bargaining position taken by co-ops in the last price round.
Although the 9% rise in milk prices seen at the start of this new milk year is very welcome, it must be put into context. According to several recent studies, most dairy farmers need at least 21-22p/litre to run a sustainable business.
The main hope is that tight milk supplies, which hit a seven-year low for April due to three loss-making years and foot-and-mouth culls and are set to undershoot again in May, will meet strong demand from processors keen to take advantage of climbing commodity prices. And some supermarkets have not ruled out further price increases for liquid milk.
When, and by how much, this feeds through to the farm-gate remains to be seen.
Wiseman and Nestlé achieved some of the highest price increases in April, around 2p/litre. But Zenith came out top, at 2.12p/litre, largely due to a 3.3p/litre monthly premium bonus (up from 1.4p/litre in March) on top of its baseline price increase.
United Milk features for the first time. The group now has more than 150m litres contracted to it, and this is expected to climb sharply over the coming year. It is paying a relatively straightforward price of 10p/litre flat rate plus 2.318p/ a % butterfat, returning a reasonable standard litre value of 19.5p/litre in our table.
However, seasonal adjustments paid by several competitors do have a marked impact on the months rankings.
Also new to the table is First Milk, formed from the old Scottish Milk (First Milk Northern) and Axis (First Milk Southern) businesses. Two prices are being paid, achieved by calculating each milk pool individually, according to the company. However, the price gap is expected to narrow. *