Dairy Crest has confirmed it will hold its November standard liquid price but has announced a 1.5ppl reduction in the price paid to farmers on its Davidstow manufacturing contract.
It has also announced details of a supplementary payment from two of its retail customers, Morrisons and Lidl, to help farmers.
Dairy Crest’s standard Liquid milk price will remain at 21.69ppl through October and November.
On top of that, supplements will be paid thanks to the financial support payment for farmers announced by Morrisons and Lidl in September.
It is anticipated that the first supplement will be paid for milk supplied during October. Based on current forecasts, the first supplement for October is estimated at 0.39 ppl. The November supplement is estimated at 0.65ppl.
This gives an indicative October standard liquid price of 22.07ppl and an indicative November price of 22.34ppl.
The processor said it had committed to its Dairy Crest Direct supply group that it will pass all monies received from Morrisons and Lidl through to farmers.
This will be distributed through a farmer support payment, supplementary to the price paid for raw milk.
The actual supplementary payment will be based on the actual volume of processed milk purchased by Morrisons and Lidl and the actual volume of raw milk purchased by Dairy Crest for the relevant month.
Dairy Crest said the average price paid to its non-aligned Liquid farmers was currently 23.5 ppl. This is a weighted average of its 21.69ppl standard Liquid milk price and its Formula contract, which for October is calculated at 27.27 ppl.
But producers on Dairy Crest’s Davidstow manufacturing contract will see a 1.5ppl reduction, taking price from November 1 to 23.84ppl, according to DCD.
Dairy Crest quoted the November Davidstow milk price at 24.92ppl, which it said would ‘continue to be one of the highest milk prices paid for a manufacturing contract’.
It said the reduction followed eight months of price stability, including an increase in August.
Mike Sheldon, managing director of Dairy Crest’s Dairies business said: “Dairy Crest recognises the challenges facing our farmers and we have worked hard to deliver price stability in what remains an extremely volatile and tough environment for us all in the dairy sector.
He described the retailer support as ‘positive news for farmers who are facing a particularly difficult winter’.
Commenting on the Davidstow price, he said: “The Davidstow farmers are a vital part in this supply chain. Our Davidstow milk contract has consistently delivered a premium to supplying farmers.
“Although I know farmers will be disappointed with this reduction, we remain confident that the contract is extremely competitive and has delivered a prolonged period of stability this year.”
He said the £65 million the processor was investing in the factory to produce infant formula ingredients would ‘bring extra security to these farmers’.
In its newsletter to producers, DCD welcomed the supplementary payments and thanked Lidl and Morrisons for this additional financial support provided.
Explaining the Davidstow cut it said DCD was ‘under no illusion of the difficulties that this reduction will incur on farm’ but said it was necessary to ensure the plant remains competitive.
It said: “Dairy Crest and DCD have had a shared resolve this milk year to defend and support the ex farm price.
“Unfortunately, the opening up of more pronounced price differentials against competitors (of between -2p/-6p/litre) has become impossible to sustain.
“DCD has therefore agreed with Dairy Crest to apply the smallest reduction possible to take effect from November to ensure that Cathedral City/Davidstow can remain competitive to sustain branded sales that our supply chain depends upon.”
It stressed the November price remained competitive on a league table basis.
“But that it now remains well below all recognised cost of production models places the very sustainability of our supply chain in doubt, especially if this level of ‘deficit pricing to costs’ continues for any length of time.”