dairy cow

A continuing improvement in the global dairy market due to tightening supplies has fuelled another wave of price increases by major UK processors.

First Milk and Arla were the latest to respond to the recovery in the market today (23 September), with the two dairy co-ops making significant increases to their October farmgate prices. First Milk said it was making its largest monthly price increase since 2007 with a 2ppl hike and the promise of further increases over the coming months.

The price rise, made up of 1ppl from First Milk’s market-tracking mechanism and a further 1ppl from a planned 2ppl business performance supplement, meant all First Milk farmer members were now being paid just under or just above 20ppl.

First Milk chairman Clive Sharpe said the price increase reflected improved market returns and accelerating improvements within the once-struggling dairy co-op.

“Due to the changes made over the last 18 months we are now able to pass market moves directly onto members,” he added, with First Milk’s “improved internal business efficiency” allowing it to accelerate the payment of its business supplement - meant to be paid over 12 months - over a quarter of that time.

“Our view of the market outlook is positive as we see prices moving towards 25ppl in coming months,” Sharpe said. “First Milk is well positioned to deliver these improvements directly to our members who can now plan their businesses accordingly.”

The announcement followed a pledge by fellow co-op Arla this morning to increase its price for October with a two eurocents per kg increase. This translated to a 1.6ppl increase for Arla’s UK farmers to 26.65ppl.

“While the price is still not adequate, the one pence increase in September, coupled with the 1.6 pence increase in October, is good news for our farmer owners and demonstrates the strength of our business model, which allows us to increase the returns to our farmer owners in line with our formulaic pricing mechanism,” said Arla Foods amba board director Johnnie Russell.

“Commodity markets, as well as yellow cheese markets in Europe, are continuing to strengthen, and prices across European retail markets also continue to firm. Milk production in the EU continues to slow down, and we expect this trend to carry on over the coming months.”

It follows similar moves by processors including Paynes Dairies, Wyke Farms, Meadow Foods, Müller, Dairy Crest and South Caernarfon Creameries in recent weeks, while the price of milk on the spot market was due to soar as high as 40ppl by the end of the month, according to industry analyst Ian Potter, who suggested last week that some processors were looking to pick up as much supply as possible to ward off supply shortages.

The price increases were a “move in the right direction”, said NFU chief dairy adviser Siân Davies, but she warned prices “are still nowhere near sustainable and have a long way to go to compensate for the tough two years farmers have endured”.