After Dairy Crest announced this morning that it would be cutting prices by 1.65 pence per litre for suppliers signed up to its standard liquid agreement, Arla has announced it will cut prices for non-aligned suppliers by 2ppl.

All cuts will take effect from 1st August, from which point Arla’s non-aligned suppliers will receive just 25ppl for their milk, estimated to be more than 5 pence below the cost of production.

The Danish food group’s other suppliers are on contracts which factor price of production into the price paid or else pay out the standard price plus a premium. Arla has recently arranged mergers with cooperatives in the UK and Germany which will see it becoming massively more influential in both regions, the Danish cooperative said at the time that it hoped to occupy a position from which it could ensure a sustainable base price for farmers in the UK.  

Following Dairy Crest’s announcements, made this morning, NFU dairy board chair Mansel Raymond said, “This price slash comes at the expense of the average dairy farmer who is now making a significant loss for every litre they produce. I echo the call made by one major producer group, Dairy Crest Direct, that this now amounts to a combined profit warning for the overwhelming majority of dairy farmers in this country. All producer representatives must now stand together and fight to restore profitability.”

Dairy Crest Direct chair David Herdman said earlier today, “This latest 1.65ppl cut to our members, which comes on top of a 2.0ppl cut in May, will deliver a completely unsustainable milk price. In fact we estimate the deficit between milk price and production cost to be £53,000 a year for our liquid suppliers. It is for this reason that we are issuing a profit warning loss of £35million, for non-aligned DCD producers.”

Mr Raymond continued, “Three processors will all cut their milk price on August 1; they all blame deterioration in commodity markets and cream prices - but none of them is taking responsibility for this dire situation. It is the aggressive and deflationary nature of price negotiations between retailers and processors that is really hurting.

“Some farmers receive a cost of production linked to their milk price but for those who aren’t sheltered by such deals the pressure on price is once again unbearable. Until all retailers and processors commit to a fair and transparent supply chain, one that ensures a fair return for farmers, we will never break free from this vicious cycle of crisis after crisis in the dairy sector.”

The union leader called on processors to accept responsibility and “Own up to the fact that they have been selling milk so cheaply in the first place and become too reliant on the price of secondary products for income,” instead of blaming the series of cuts on “tough market conditions.”

He also echoed calls made by Welsh unions earlier in the week for government intervention to end exploitation in the supply chain. Mr Raymond said, “Government needs to sort out the mess that is dairy contracts. This has been promised; now is the time for delivery. For my part, I am calling for urgent meetings with all retailers and major food companies that buy liquid milk.”

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