Dairy Crest is reducing its contract notice period to three months, giving its farmers a quicker way to leave the company in the event of another farmgate price cut.
The shorter notice period will apply to any milk price reductions on Dairy Crest’s standard liquid or manufacturing contracts announced after 1 August.
At present, farmers at Dairy Crest and other processors typically have to give 12 months’ notice on contracts – giving farmers currently too little room for manoeuvre, unions argue, when processors cut their prices.
Dairy Crest said the new contract periods were part of a number of initiatives it had worked on with its Dairy Crest Direct farmers in order to help those struggling as a result of recent farmgate price cuts.
The company has already introduced longer notice periods on price changes, has appointed an independent consultant to review the mechanism behind its milk pricing process and announced a price floor for its standard liquid milk contracts.
“We fully understand the difficulties our farmers face and we have been working with their representatives at DCD to explore what we can do to further improve our milk contracts,” said Dairy Crest group milk procurement director Mike Sheldon.
“We know cream prices have increased this pressure, so we have stepped up our efforts to provide support and are pleased to be able to announce what we believe is a significant step forward at this stage.”
NFU chief dairy adviser Rob Newbery said the contract notice change had yet to be assessed in detail but was a step in the right direction.
“What farmers are looking for first and foremost is a reversal in price cuts, but this – together with the move to a four-week notice period on future price cuts – certainly shows Dairy Crest are keen to engage on the voluntary code of practice,” he said.
Dairy Crest’s new contract notice period comes as the company issued an interim management statement on its performance today. Trading in the first quarter of 2012 had been challenging but in line with expectations, it said, with expectations for the full year unchanged.
The company’s dairies business continued to struggle. But Dairy Crest said it had taken steps to return it to a satisfactory level of profitability, with a medium-term target of a 3% return on sales. However, its key brands – Cathedral City, Country Life, Clover and Frijj – had performed strongly, with sales up 15% year-on-year.
Dairy Crest also reiterated it was about to sell its St Hubert French spreads business for £344m and would consider “a range of options taking into account the interests of all stakeholders” following the sale.
“Our focus at the start of the year has been on doing the right things to restore our dairies business to a satisfactory level of profitability as well as to continue to grow our brands, and we are pleased with the progress we are making,” said chief executive Mark Allen.
“At the same time, we are taking another significant step in the evolution of Dairy Crest by following through our decision to dispose of St Hubert and refocus on the UK.”
Dairy Crest is holding its AGM in London today. It will issue a half-yearly trading update on 24 September.