dairy cows

Retailers could soon face higher prices for dairy, with tightening supplies of milk prompting processors to finally increase farmgate prices.

Meadow Foods this week said it was increasing its ‘A price’ - which makes up 80% of the milk price paid to its 550 farmer suppliers - by 2ppl over the next two months to 19ppl.

With monthly milk production down 3.4% in April [AHDB Dairy] due to poor grazing and farmers reducing production in the face of low milk prices, the processor said commodity markets had started to show “green shoots” of recovery.

“Although there is still some way to go before the pressure is lifted from producers, we feel the slowdown in EU milk production over the flush period and a general tightening of supply are offering a better market outlook,” said Meadow Foods executive chairman Simon Chantler.

The processor’s ‘B price’ - based on global dairy commodity prices - was also due to climb in the coming weeks, putting the sector in its most positive position “for a number of months” and allowing Meadow Foods to adopt a more optimistic position on the recovery of the milk market, he added.

His comments were echoed by Arla Foods, which this week announced its July price would be held to reflect a “more stable market situation”.

Other big processors are likely to follow Meadow Foods’ lead with their own price increases over the coming weeks, said John Allen of Kite Consulting.

“We could even see milk flow shortages by the start of next year,” he warned.

While this would bring welcome relief to beleaguered dairy farmers, it would also push up dairy commodity prices, and this could potentially add extra cost into the supply chain for retailers without long-term supply ­contracts, he added.