Dairy Crest is raising its farmgate milk price to 29p pence per litre for farmers on a non-aligned liquid milk contract and those on a Davidstow cheese contract. The new price comes into effect on 1 November and will affect about 1,000 farmers.
Those on non-aligned liquid contracts will move to 29ppl in two stages – from the current price of 26.6ppl to 28.25ppl on 1 October, then to 29ppl on 1 November. Those on the Davidstow contract will move straight from their current price of 28.2ppl to 29ppl on 1 November.
Dairy Crest said the increases meant its milk prices would be higher than they were in May, when farmgate prices started to come down, sparking widespread dairy farmer protests. The processor had also previously opted not to go ahead with a planned price cut in August.
Its decision to increase prices would help restore confidence among farmers, Dairy Crest said, adding it would “strive for further milk price increases”.
The move comes after the Müller-Wiseman group announced its non-aligned liquid price would increase to 29ppl from 15 October. Arla’s price will rise to 29.5ppl from 1 October, following the introduction of a new payment model.
Milk procurement director Mike Sheldon said Dairy Crest’s price increase was the latest in a string of initiatives intended to deliver benefits to farmers. “Poor markets and weather have combined over the summer to make it very difficult for our farmers,” he said.
“We have responded by adopting the terms of the voluntary code, working on a formula-based pricing model, setting aside planned price cuts and now we are increasing prices at the first affordable opportunity, as we committed to do.”
Dairy Crest said its farmers also were not subject to hidden charges – such as haulage costs or the cost of milk balancing – and were not subject to capital deductions, “which some milk buyers enforce on their milk suppliers to pay for investment in their processing factories”.
Confident on profits
News of Dairy Crest’s milk price increases comes as the company today gave a trading update for the six months to 30 September. Its profitability during the period took a hit because of its disposal of the St Hubert spreads business over the summer, Dairy Crest said, but its guidance for full-year profits for the 12 months to 31 March 2013 remained the same.
Pointing to strong performances in the past six months for its four key brands – Cathedral City, Country Life, Frijj and Clover – the company said its dairies business still faces challenges but remained “focused on achieving a 3% return on sales in this business in the medium term”.
The proceeds from the St Hubert sale – totalling €430m – had improved the company’s financial position considerably and a review was currently underway to decide what to do with the money in the longer term.
Chief executive Mark Allen said he was pleased with the company’s performance despite significant pressures.
“Although we expect these to continue into the second half, our first-half performance, together with our plans for the second half, means our profit expectations for the full year remain unchanged,” he said.
“At the same time, we have continued to move the business forward and the proceeds from the sale of St Hubert leave us much stronger financially.”
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