Two-tier system key to stability

MILK BUYERS should offer a two-tier contract to encourage farmers to produce to a contracted volume rather than trying to fill quota, according to one industry expert.

John Allen of Kite Consulting claims that offering an A and B type system would bring more stability to the milk market, by persuading farmers to produce only what processors could sell at premium prices.

Anything produced over that would be sold at world commodity levels, he said.

“We can see big benefits for all players in the milk supply chain by creating more stability and market focus,” he said.

Although the UK is currently running 178m litres behind last year to the end of June, Mr Allen reckoned farmers would try and boost milk production later in the season in order to fill quota.

Provisional Rural Payments Agency figures put June milk production at 1.2bn litres – 41m litres below the Charles Holt / Farmers Weekly profile.

Butterfat is slightly above last year‘s low levels, at 3.80% for the month and 3.87% cumulatively.

Charles Holt of the Farm Consultancy Group said that a split contract would only give buyers an excuse to pay “lousy” prices for B milk.

The seasonality bonuses and deductions would do much the same job without posing such a threat, he added.

Mr Holt said quota prices had remained stable over the past two weeks. “It‘s very quiet.” Leasing of 4% butterfat was at 7.5p/litre, with sales at 13.3p/litre, he added.