29 June 2012

3 minute read

Europe

East Kilbride-based Wisemans, taken over by European dairy giant Mueller in January of this year, cut the price paid to its farmers by 2p per litre in June and is following that up by a further 1.7p cut for August. For an average Wiseman supplier, producing around 1.4 million litres of milk a year, these two cuts equate to a potential reduction in annual income from milk sales of more than £50,000.

The decision follows a collapse in the value of the cream in each litre of farm-gate milk over the last 12 months. From its peak, the commodity fell in value by the milk price equivalent of more than 5ppl.

Wiseman had hoped that the need for further adjustment to its milk price following a 2ppl reduction which took effect in June could be negated by a sustained and significant rally of commodity market values.

But whilst markets have improved from the lows of recent weeks, they remain at levels not seen since early 2010, when the average DEFRA milk price in the UK was 24.19ppl. Wiseman’s standard litre price from August will be 24.73ppl.

Pete Nicholson, Milk Procurement Director at Robert Wiseman Dairies said: “We know that this news will come as a major disappointment to Wiseman Milk Group members.

“We have done everything we can to minimise the reduction in our farm gate milk price but we must now reflect the substantially lower returns from the markets which we serve.”

The disappointment that Mueller/Wisemans has imposed further cut prices at this time is deepened by the fact that dairy commodity prices for cream, butter and milk powders, which dipped at the start of the year, have rallied in both May and June.

Chairman of NFU Scotland's Milk Committee Gary Mitchell said: "The seriousness of this price move should not be under estimated by any in the dairy supply chain or our politicians. A cut of this scale has sent shock waves through the whole dairy sector.

"Prior to being taken over by Mueller, Robert Wiseman Dairies had a proud record in delivering league topping prices but for it to lead the way in slashing returns to its producers is in stark contrast to the company's normal approach to pricing. In a few short months, Mueller/Wisemans has cut its farmer supplier prices by almost 15 per cent.

"The Mueller/Wisemans cut simply underlines the fundamental flaws in the current dairy supply chain. Dairy farmers did not receive their fair share of returns when markets were flying last year and, as a result, have little reserves in the bank to cope with the current volatility.

"It is also clear that a liquid milk contract is no longer a guarantee of a premium price. Those who are supplying supermarkets with their fresh milk are likely to continue to receive a price at or near the cost of production. Today’s announcement from Sainsbury’s that those providing its own label milk requirements will see their price go up to 30.56p per litre proves that point. However, those that are on a non-aligned Mueller/Wiseman liquid milk contract are now 4p to 5p adrift of dedicated supermarket suppliers, and that is creating significant animosity.

"Those affected by this cut will take stock of what this price drop means to them, and consider their options. Speaking to members who supply Mueller/Wisemans, there is a level of suspicion that the timing of the cuts is pre-planned and strategic as, due to the peculiarities of the Wiseman contract, the earliest an affected producer can resign is December.

It highlights that, along with NFUS, all Scottish dairy farmers need to keep tackling their milk buyers about their long-term ambitions. The Scottish and UK dairy sector will grow and prosper when we have milk processors with the will and ambition to add value and look to new markets. Farmers will benefit from working with those processors who are willing to pay what they can and not what they can get away with."

TheCattleSite News Desk