The move followed the deal reached by the milk processors trade body, Dairy UK, with the National Farmers Union (NFU) and the National Farmers Union Scotland on a voluntary code of best practice last week (Friday August 31). The agreement covered the contractual relationships between milk buyers and dairy farmers.
The deal was intended to end the conflict between farmers and processors, which had seen farmers blockading depots. The farmers complained recent milk price cuts had taken the price processors were paying for milk below the cost of production.
The Arla initiative is being implemented by Arla Foods Milk Partnership (AFMP), a grouping of the 1,400 farmers who supply milk to Arla. The group has directors from both the farming community and Arla Foods.
One of the first results of the initiative is the increase in the standard price Arla pays for milk to 29.5ppl from October 1. Most of Arla’s suppliers are currently receiving 27.5ppl. The company will also introduce monthly price announcements to smooth the transition of milk prices.
AFMP said it was taking a major step towards adopting a more transparent milk pricing and sourcing strategy.
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 improved returns to members, addressed their concerns and gives choice and confidence in their processing partner, he added.
David Handley, leader of Farmers for Action, said: “I’d like to congratulate AFMP for all its hard work and thank Arla for demonstrating leadership in the industry in these tough times.”
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.
“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.”