As Muller announces details of its revised contracts, Alex Black spoke exclusively with Rob Hutchison and Andrew McInnes on the UK business’s plans for the future
Muller has placed the emphasis on improving farmer relationships as it looks to secure its milk supply base for the future.
The dairy processor has revealed new contracts for its suppliers after a consultation following the integration of Muller and Dairy Crest contracts.
Speaking at Muller’s Telford site, Rob Hutchison, agricultural director, said it had tried to take the ‘best of both’ in a single contract.
Accurate forecasting and higher butterfat content will be prioritised by the contract with bonuses for butterfat above 4 per cent and penalties for those below.
Mr Hutchison said: “It shows the value of creams to our business.”
While the processor has relaxed its penalties on forecast accuracy, Mr Hutchison highlighted its importance as it prevents the company being exposed to the commodity markets when it has less or more milk than expected.
“Farmers were telling us they were too much,” he said.
He said he hoped in two years farmers’ forecasts would be so accurate there would be no penalties applied.
The new contract gives producers a three-month notice period following a price change and a 12-month notice period from Muller.
The firm’s bosses said this showed ‘confidence in their offer’, adding they believed farmers would want to work with them.
Muller has also restructured its farmer board following criticism there was ’no voice’ for non-aligned farmers.
The MMG Farmer Forum will consist of a maximum of 21 elected farmers. As about 40 per cent of Muller’s 1,900 producers are non-aligned, there will be nine non-aligned farmers in the forum.
The farmer board will be elected by the forum on rotation, meaning the whole board is not up for election in the same year.
The processor has also stated it will work with a dairy producer organisation (DPO) despite ‘assumptions’ being made that it would not be willing.
Mr Hutchison said: “If the farmer board feels a DPO is the right choice going forward we are comfortable working with whatever structure.”
Non-aligned farmers will be offered the opportunity to reduce volatility by ‘locking in’ up to 25 per cent of their milk price for 12 months.
The move follows demand from both ends of the supply chain to reduce volatility.
The scheme will be launched in March with farmers starting to allocate milk from July 1. It will be initially limited to 100m litres while the processor ‘tests the waters’.
Replacing imports on the domestic market has been targeted as a key area of growth by Muller following investment in its UK business.
Muller has committed £100 million in UK investments and said it believed this could result in sales growth of £700m by 2020.
During 2015, the UK imported £2.5bn worth of dairy produce from the EU and the UK has the second largest net dairy deficit in the world behind China. But Muller said these added value products could be made with British milk instead.
As most products imported are from Europe, Brexit could provide further opportunities in the domestic market and the investment was a ‘huge vote of confidence in the UK by a pan-European company’.
Andrew McInnes, managing director of Muller Milk and Ingredients, said: “Brexit has changed absolutely nothing.”
He said the challenge was uncertainty but it was an ‘absolute certainty’ farm support will be ‘much more challenged’.
“We have got to see it as an opportunity, not a threat. It needs farmers to play their part as well,” he said.
He also identified growth in categories including flavoured milk and added value cream within the UK as well as opening up new export markets.