Dairy Crest has announced plans to cut the price paid to its farmer suppliers by 2 pence per litre from next month. The Dairy Giant said the decision was made to secure the future of its dairies business.

The news comes just days after Dairy Crest revealed it has begun consultation on closing two of its plants in Merseyside and Cambridgeshire, which will result in the loss of 500 jobs.

The Dairy Crest Board announced in a statement that the measures are part of a “long term plan to reduce costs and sustain profitability in an extremely challenging market environment for its liquid milk business.” The company said the measures are unrelated to its loss of a contract to supply fresh milk to Tesco, which accounted for three per cent of its liquid milk sales last year.

The move will affect 575 of Dairy Crest’s 1,300 suppliers, those supplying its retailer pools or Davidstow contract. The cuts come at a time when UK producers are receiving prices below the European average for their milk whilst concern over growing input costs, including for feed and fuel, have caused alarm in Europe, leading to a European Parliament investigation into the effect this is having on farmers and possible means to resist these shocks.   

Dairy Crest today defended its decisions by stating the company had “no alternative” and the measures were taken in response to “downward pressure on its selling prices in a tough consumer, environment and an extremely competitive middle-ground, the whole dairy sector is also suffering from steeply falling commodity markets.”

Mike Sheldon, Group Milk Procurement Director for Dairy Crest commented, “After such a strong year for milk prices in 2011, we are very disappointed to have to reduce the price we pay our farmers and we have delayed this decision for as long as we could. We know that milk production costs remain high and that this will be a blow to those of our farmers who are affected. However, the market pressures on our Dairies business mean that we have no alternative.

“We certainly haven’t taken this decision lightly and have looked at all other options. We have undertaken a thorough review of our selling prices and our customer base and we have also cut our own costs. The tough decision to consult on closing two of our dairies and reductions in depot and head office jobs demonstrate this.”

However, the NFU reacted strongly to the company’s announcement; the union’s Dairy Board Chair Mansell Raymond condemned the decision as “outrageous” given that farmers affected by the cuts received only four days’ notice.

He said, “How can any farmer run a business faced with cuts of this degree and immediacy? It is clear from its recent trading statement that Dairy Crest finds itself in a challenging position in the market place, a position where it seems unable to get a fair market value for fresh milk from its customers. But this is no excuse for paying a farm gate milk price which is 3-4ppl below the costs of production.

“This only reinforces the need for balanced and fair milk contracts. Farmers supplying Dairy Crest liquid contracts are now forced to accept a price cut they have not agreed to, for at least the 12-month notice on their contract. This is sheer exploitation and the clearest demonstration yet that those dairy contracts, where buyers have the discretion to change price without mutual consent, must have break clauses which allow farmers to leave earlier.”

Farmers and policy makers in Europe have made moves towards consolidating their position when EU milk quotas end to ensure producers are not exploited by retailers and processors. Agriculturalists have recommended forming cooperatives to enable farmers to stand together and exert greater influence and European farming union Copa-Cogeca has named 2012 ‘year of the cooperative.”

Meanwhile, the NFU has pledged to call on the UK government to put a stop to exploitation in the food supply chain, through introducing more equitable contracts and instating a supermarket adjudicator to police relationships in the supply chain.

A Defra spokesperson suggested that the NFU will find a sympathetic ear at Defra, saying, “This is very disappointing news and proves why there needs to be real change within the British dairy industry so it can get back on its feet and thrive again. Farmers need better bargaining power to generate a bigger share of revenue.”

However, the spokesperson stopped short of offering concrete support for affected farmers, stating that Defra remains “fully behind the industry’s work to produce a voluntary code of practice on contracts that will even out the balance of power.”  

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