Februrary Dairy Update

Arla Contracts

Arla Foods has launched a new milk supply contract which is believed to be the first fully compliant with the Voluntary Code of Practice (VCP).  The new ‘Arla Direct’ contract is available with immediate effect and is being offered at 30.02ppl for a standard litre.  The contract has liquid and compositional variations, seasonal options, volume bonuses a twelve month notice period and the 3 month trigger notice as in the terms of the VCP which allows producers to quit on three months’ notice if there is a change in milk price. 

Those wishing to supply Arla now have two choices, either the new Arla direct contract or the Arla Food Milk Partnership (AFMP) contract.  Those who wish to become members of Arla Foods Amba (Co-op membership) in the long term should choose the AFMP’s ‘shared ownership model’.  However, those suppliers signing up to the co-op membership will not be covered by certain aspects of the code as it contains specific exemptions for co-op members.  This includes not having the right to terminate a contract on three months’ notice following a price change.  

Arla Foods has said it will be looking at all of its contracts to ensure they are compliant with the VCP.  It will also be discussing with representatives of Arla Milk Link and Arla Foods Milk Partnership in the spring the terms by which existing suppliers can transfer to the new contract.

Milk Prices

According to the latest DEFRA statistics the average UK milk price for both November and December exceeded 30ppl.  At 30.04ppl and 30.08ppl for November and December respectively this is the first time the average price has topped 30ppl.  In November the Northern Ireland (NI) price helped take the UK price over 30ppl as it rose from 28.56ppl in October to 31.02ppl in November.  In December it fell to average 29.76ppl.  In NI the price tends to follow the rise and falls of the commodity market more than GB because a larger proportion of the milk is used by this sector.   GB prices have been steadily climbing since August, reaching an average of 30.13ppl in December.

Marks and Spencer has announced the price it pays to its pool of dedicated suppliers will increased by 1.322ppl with effect from 1^st February.  M & S’s pricing schedule is based on the retail price of milk and key costs of production including feed, fertiliser and fuel.  The latest increase reflects the significant increase in feed prices seen over the last six months.

First Milk has announced price rises as from 1^st April, of 0.5ppl for its liquid contract suppliers and 0.4ppl for its chees and balancing contracted suppliers.

UDF and GDT Auction

United Dairy Farmers in Northern Ireland are having discussions with their main buyers over whether to stop their monthly auctions.  According to their CEO, David Dobbin, prices at the auctions have been very volatile over the last few months and they need to find a system that is more stable.

Meanwhile at the latest Global Dairy Trade auction, the average price index rose by 2.4% to $3,598, the fourth rise in succession.  It is now 6.8% higher than at the beginning of December.  Looking ahead Fonterra has said it expects about 3% less volume of its major products being put up for auction via GDT over the next 12 months.  GDT will be used for about 35% of the total Fonterra NZ and Australian production.

Super-levy when quota system is abolished?

In a surprise move MEPs have backed an amendment to introduce a milk supply management tool after the quota regime is abolished in 2015.  The amendment was part of the debate on the Single Common Market Organisation (CMO) Regulation.  As expected there was no majority vote among MEPs in favour of extending the current quota regime past the 2015 end date, but MEPs did vote in favour of introducing a ‘tool’ which would help manage supply in the event of an imbalance.  Whether such supply management will actually be enacted depends on the progress of CAP reform negotiations over the next few months.