Supermarkets to pay more for liquid milk

By Robert Harris

SUPERMARKETS are set to pay 2ppl more to processors for liquid milk supplies, provided the increase is passed back to farmers.

Asda and Safeway confirmed they would pay the extra. Safeways Kevin Hawkins said all major retailers are likely to follow, backdating payments to the start of April.

“This will take the average farm price to over 20ppl. There is still a small shortfall between that and the cost of production, so we are probably going to have to see some further improvement,” he said.

Robert Wiseman Dairies, a main supplier to Asda and Safeway, has been lobbying hard for better prices, and has pledged to pass on the increase to direct suppliers and co-ops supplying the balance of its milk.

It will now pay 20.75p/standard litre.

But chairman Alan Wiseman said the decision had not been easy, and warned other processors must follow for the increase to stick.

“Seasonal reductions in commodity prices and recent weakness of the Euro have not helped.

“We cannot operate from an uncompetitive base and it is important that our competitors do not see the increase agreed by the major retailers as an opportunity to drive higher levels of profitability.”

Express is expected to announce a similar increase soon and Dairy Crest may have to improve its recent 1.5ppl rise for liquid milk.

Arla, which also supplies Asda, has said it will pay 1.75ppl more.

“Talks with retail customers have been productive,” said Arlas commercial director Philip Wilkinson.

“Weve responded positively to help return dairy farmers to profitability. We have taken the price rise and amortised it across manufacturing.

“We didnt want two camps in our producer base – that would not be fair. I think weve done better by our producers than the marketplace justifies.”

Other processors are more exposed to weaker commodity markets.

Only half the UKs raw milk goes to the liquid milk market and processors point out that cheese prices have stabilised. And butter and skimmed milk powder are well off last years highs.

On the other hand, a continuing milk shortage could encourage some processors to pay more.

One outcome could be that regional price differences – an anathema among many processors until now – could figure more this spring, said John Duncan, chairman of First Milk.

Dairy Crest has already caused controversy among direct suppliers by paying more for liquid milk only, and other processors could follow.

Mr Duncan said all farmers desperately need 2p more to return farm-gate prices to 20ppl, to gain time for further negotiations.

April prices should have been agreed some time ago, but co-ops are having a hard time persuading some processors to pay more.

“Unfortunately, price negotiations have become almost confrontational,” said Mr Duncan.