Arla Foods is to increase the price it pays its co-operative members in the UK for milk in a move, it said, would "build confidence" in the UK dairy industry.
The Cravendale milk owner said it will now pay 29.5ppl for milk supplied by members of its dedicated supply group Arla Foods Milk Partnership (AFMP), from 1 October.
The move, announced today (3 September), comes as AFMP launches a milk sourcing model, which it says will allow a more transparency in milk pricing.
Key elements of the model include: anticipated improved returns from its customers and markets. It also said it would give its "full support" of the new voluntary code of practice drawn up by UK dairy processors and farmers, announced today.
Arla said it would also offer "a range of contracts to suit the needs of dairy farmers".
The milk sourcing model will allow Arla to share with members the benefits of retailer-aligned contracts by pooling retailer premiums, it said. Arla argued AFMP members which receive a price not set through a formulaic model - which covers around 75% of partnership - would see better returns.
"We have worked tirelessly for a number of months to develop this model," said AFMP chairman Jonathan Ovens. "We were fully aware when we announced a reduction in the milk price that it was not sustainable for our membership.
"The increase in cost of production is very real for members but we don't believe that a cost of production model is the long-term answer because it would lead to a UK dairy market that is uncompetitive and at risk post 2015. The milk sourcing model has allowed us to improve returns to members, addresses their concerns and gives choice and confidence in their processing partner."
Show the press release
Arla Foods with AFMP launches its milk sourcing model and raises milk price from 1 October
In a move to build confidence in the British dairy industry and with the support of Arla's strategic customers, AFMP is taking a major step towards adopting a more transparent milk pricing and sourcing strategy with the launch of its milk sourcing model.
The key elements include:
Confirmation of the recent communication to its members of a significant increase in Arla's standard litre price to 29.5ppl from 1 October, which will be delivered through:
o Anticipated improved returns from its customers and markets
o Support from its strategic customers to share all liquid milk premiums for the benefit of all AFMP members not on a formulaic model
o Asda DairyLink, Tesco seasonal, Cravendale and the non-aligned premiums will be incorporated into the Arla standard litre price
Full support of the Voluntary Code of Practice
Recognition of the recent achievements of dairy farmers and a commitment to engage with the coalition to find common ground on the 10-point plan
A transparent and sustainable pricing model to be delivered in 2013:
o A range of contracts to suit the needs of dairy farmers
o Adoption of Arla Foods amba's practice of monthly price announcements to smooth the transition of milk price
o Continued support and commitment to retailer aligned pools
o Launch of the most comprehensive study into the costs of production drivers in order to develop plans for Arla's supplying farmers to be able to reduce them and improve profitability
Beginning the process in the Autumn of 2012 of defining and agreeing the criteria and roadmap for AFMP/MPL to achieve full membership of Arla Foods amba at some point in the future
October price increase
The milk sourcing model will allow Arla to share with members the benefits of retailer aligned contracts by pooling the retailer premiums which, in turn, will give better returns to all AFMP members whose price is not set through a formulaic model. This covers approximately 75 per cent of the AFMP milk pool.
It is confirmed that with effect from 1 October, Arla's standard litre price will be 29.5 pence for AFMP members in the non-aligned, Asda and Tesco seasonal milk pools. The TSDG and SDDG milk prices will continue to be formulated in accordance with the existing pricing models.
Speaking about the announcement, Ash Amirahmadi, Arla's head of milk procurement, commented: "The coalition has been successful in raising public awareness of the plight of farmers in a way that we couldn't. We believe it is our duty to take over the baton and deliver a price and a sustainable sourcing strategy that step changes the returns for our members, restores confidence and takes a major step in moving AFMP towards the cooperative model of Arla Foods amba, where all farmers benefit equally from the returns from our customers.
"We thank our strategic customers for their significant support and trust in helping us make this happen. We could not have achieved this without their help," Ash added.
AFMP roadmap to deliver cooperative status
The board of MPL will begin the process, in Autumn 2012, of defining and agreeing the criteria for AFMP to achieve full membership of Arla Foods amba, the result of which will give much needed clarity to AFMP members on the approximate timescales and level of investment required, but also of the benefits. Members will then have a choice to continue on the road to amba membership, in a way that is acceptable to members and Arla Foods amba, or take a direct supply contract with Arla in place of their existing contract.
Commenting on the launch of the milk sourcing model, Jonathan Ovens, AFMP chairman, said: "We have worked tirelessly for a number of months to develop this model. We were fully aware when we announced a reduction in the milk price that it was not sustainable for our membership. The increase in cost of production is very real for members but we don't believe that a cost of production model is the long-term answer because it would lead to a UK dairy market that is uncompetitive and at risk post 2015. The milk sourcing model has allowed us to improve returns to members, addresses their concerns and gives choice and confidence in their processing partner."
Speaking about Arla's and AFMP's launch of the milk pricing model, Peter Kendall, President of the NFU said: "On behalf of the dairy coalition, we laid down the important challenge to milk buyers to reverse the milk price cuts and find a better way of doing business with farmers. Arla has responded to this challenge in a transparent and meaningful way.
"On the same lines as the coalition and SOS dairy, Arla's plans are about putting dairy farmers in the driving seat which is why I welcome and support these proposals. However, what is important to dairy farmers is that price increases are lasting and industry wide."
Mansel Raymond, NFU dairy board chairman, added: "I am pleased to see Arla make the commitments they have today to non-aligned and aligned supplier farmers, as well as to Arla Foods Milk Partnership about the road that lies ahead towards cooperative membership. What dairy farmers need, going forward, is the commitment and recognition of the whole supply chain, so they can have confidence in the future."
David Handley, leader of Farmers for Action, said: "I'd like to congratulate AFMP for all their hard work and thank Arla for demonstrating leadership in the industry in these tough times."
