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Discretionary pricing leads to 'unsustainable' dairy market in the UK

Discretionary pricing was leaving farmers paying the price for the liquid market operating in an ‘unsustainable’ way after Freshways announced a dramatic price drop for September.

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The company has dropped its standard litre price by 2.1ppl to 25ppl, which is well behind many of its competitors.

 

Last month Freshways dropped its basket pricing mechanism, which farmers say would have kept the price higher, with the company lagging behind Arla which announced a seventh consecutive price hold this month, keeping its standard litre price at 30.22ppl.

 

It also puts Freshways beneath Muller which has held its price for September at 26.75ppl.

 

NFU dairy board chairman, Michael Oakes, said the fundamental issue was too much competition in the liquid milk sector for customers leading to an unsustainable price, with global markets talking about ‘stability’.

 

He highlighted businesses were paying low prices for milk in the food service sector, which would then be passed back to the farmer.

 

Jewel

 

“The liquid market seems to be divorced from the commodity market. Years ago it was the jewel in the crown,” he said.

 

Mr Oakes said without the basket mechanism and with discretionary prices, Freshways was able to give a price without a mechanism to see if it was a genuine market price.


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Freshways supplier and farmer representative Alan Smith said: “There is no money to be made at 28ppl, never mind 25ppl. Nobody else has announced price cuts.

 

“It just feels like one thing after another. We did not want the basket mechanism to be taken away. At least we would have had the Arla price in there.

 

Mr Oakes said it took farmers to a situation where they could not invest or move forward, particularly with input costs continuing to rise.

 

“It does put farmers under a lot of pressure. For some it will be the last straw,” he said.

 

“You cannot really change dairy, there is nowhere to go.”

 

Freshways managing director Bali Nijjar said the main reason behind the decrease was a drop in cream prices to a three-year low and an oversupply of milk.

 

“Today, cream is at below £1,300/tonne,” he said, highlighting the last time cream prices had been this low – in July 2016 – milk prices were below 20ppl.

 

“In addition, any opportunity to recover prices from retailers or wholesalers was dashed due to Bestway Wholesale slashing the price of milk by 5p per litre to 79p for two litres.”

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