Freshways has become the latest UK milk processor to ditch its basket mechanism pricing formula and has stirred up some controversy in the process.
According to independent dairy analyst Ian Potter Associates’ news bulletin, Freshways is citing the inclusion of Arla’s current 29.06ppl standard litre price in its basket of five, as the reason it has become necessary to make the contract change in order to remain competitive. The other four were averaging 26.6ppl.
The firm, owned by the Nijjar family, which says it is the UK’s largest independent processing dairy, has given producers five weeks’ notice of what will be a significant price drop when it reverts to a schedule price.
Mr Potter said it was a long time since so many farmers had vented their anger with some claiming their farmer representatives had not been consulted on the move and that the change had simply been imposed.
NFU dairy board chairman Michael Oakes said he too believed the change was being steamrollered through and that the lack of consultation and explanation, other than the letter, was what was particularly galling many producers.
He said his impression, having spent time recently with European and global commodity traders, was that most markets looked relatively stable going forward, but reiterated the weak position of the UK liquid market.
Mr Oakes said he believed Freshways had some 180 suppliers, but was not convinced that all were on the same contract. He acknowledged no-one really knew the financial position of the company.
Dairy market commentator Chris Walkland referred to Medina Dairy’s decision to drop its basket pricing formula earlier this year, and posed the question as to what the consequences could have been had it not done so.
Mr Walkland said: “The liquid market alone is not delivering a price anywhere near the current Arla price, which is linked to the European market, and it is not long ago that the Arla co-operative price was at 29ppl when the spot market was barely, if at all, in double figures.
“I would suggest any UK-based liquid processor operating a basket mechanism and including the Arla price, could be at serious risk of going bust, leaving producers without a buyer.
“What we must remember, it is not the basket price issue alone, but it is that, twinned with low returns from the UK liquid market and current high volumes of production.”
Farmers Guardian approached Freshways for comment.