Arla’s price for conventional milk will reduce by 2.16 pence for the manufacturing litre, taking it to 27.11 pence from 1 March 2018.

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Commenting on the decision to reduce the price, Arla Foods amba board director, Johnnie Russell, said: “While this will be unwelcome news for our farmer owners, the challenge that we face is that our price, in common with those or our competitors, has been impacted by the recent dramatic falls in the commodity markets from the highs of last autumn.“

While last year’s increases were driven by fat, the long-term decline in the value of protein since the start of 2017 has had a significant impact. Protein prices are now at a historical low with little prospect of recovery, due to the large stocks held by the EU.

Cheese prices have begun to recover but are still below the levels of a year ago.Butter has also begun to increase but is still only slightly ahead of last year’s prices.Market recovery is from a low level and the overall price of fat and protein combined is still lower than this time last year.

Also announcing a reduction today is First Milk. It's milk price for March will be reducing by 1.25 pence per litre.

Commenting on the announcement, Jim Baird, Vice Chairman and Farmer Director, said:
“As we’ve said in recent months, the weaker dairy market has impacted our revenue and we can only pay a milk price that relates to our returns. We know that this further milk price drop will be disappointing to our members and continue to do all we can to mitigate the market conditions.”

NFU Scotland Vice President Gary Mitchell, a dairy farmer from Stranraer who currently supplies Arla said: “Arla’s price cut of 2.5 euro cents per litre takes its milk price down to a very uncompetitive UK price of just over 26p per litre.  That is very disappointing for Arla suppliers who are also owner members of the co-op.   As a company that rightly prides itself on its global exposure, added value brands and innovative initiatives, this price does not reflect the ambitions or expectations of its farmer owners, nor the wider dairy community.

“As a co-op which judges itself on its ability to generate returns to its farmers, then there must be a case for Arla elected farmer leaders to hold the management to account over this unacceptable price.  Given the additional retail contracts that Arla have recently secured in the UK, members are right to question whether these deals have been won at a cost to producers".

NFUS Policy Manager George Jamieson added: “ We had hoped that improving market signals in recent weeks would stall unreasonable price cuts.

“The sad and unacceptable fact remains that milk pricing is at the discretion of the processor, who has the power to effectively set a price to manage their margins and manage their risk. That is neither fair nor efficient and the long term competitiveness of the UK dairy supply chain will suffer.

“ Over the last year, according to AHDB, the average EU price has been 2.8 to 2.95p per litre ahead of the UK.  Achieving the EU average price would mean an extra £40,000 to the average dairy farmer in Scotland.

“That brings fresh focus to the very welcome comments recently from the Grocery Code Adjudicator on milk contracts. NFUS, with our UK Union partners, have long advocated contracts which addressed agreed pricing, volume, risk and transparency rather than imposed these.  NFUS provided evidence on unfair contracts, unfair trading practices and the lack of transparency and trust in the dairy sector in our submission and continues to be committed to developing fit for purpose contracts with minimum common standards, which are agreed through professional, objective discussion and underpinned by legislation".

Newly appointed Milk Committee Chairman, John Smith, a First Milk supplier who farms in Kintyre, said: “We need Scotland and the UK to be a good place for dairying with all involved in the chain getting a fair return for their commitment, effort and investment.

“Today’s price news is disappointing given the strengthening seen in commodity markets of late.  I am in regular dialogue with First Milk, have already spoken to Arla representatives since my appointment as committee chair earlier this month and I am meeting with Arla in Lockerbie at the beginning of March.

“These price falls must not spark a repetition of previous downward spirals where producers are left to carry all the burden.  Production costs have soared with the very wet summer and autumn of 2017.  Silage stocks are tight and the price of straw for bedding is more than £100 per tonne up on last year. 

“The Grocery Code Adjudicator is in discussion with the industry.  Post-Brexit, we need contractual arrangements that promote fairness across the whole dairy supply chain and protect it from bully boy tactics.

“In the meantime, if a little restraint is shown by producers to ease to volumes, particularly in the next couple of months, then supply and demand will turn the price back in producers’ favour.”