Dairy Crest will lose a third of its Morrisons supply contract to rival Arla from March this year, following a competitive tendering process which also saw Morrisons agree for Scotland-based Graham’s the Family Dairy supply its stores north of the border with milk and butter.
A statement by Dairy Crest to the London Stock Exchange confirmed it had retained its fresh milk supply contract - albeit on a reduced basis - and would continue to supply Morrisons with cheese, flavoured milk, butter and spreads. The processor added that it did not expect the new contractual arrangement with Morrisons to “materially affect” its upcoming financial results for the year ending 31 March 2015.
The new contract arrangements were not expected to have a “material impact” on the commercial terms of the proposed sale of Dairy Crest’s dairies business to Müller UK & Ireland Group, said Shore Capital analyst Clive Black, who added that Dairy Crest’s loss of volume “underscored the potent competitive environment” present in the dairy industry.
“We have chosen to continue the relationships with our existing dairy companies,” said Morrisons group trading director, Casper Meijer. The new contracts would ensure “no further volatility is brought to the dairy industry”, he added, while stressing the importance of assuring “customers of a long term supply of liquid milk”, claimed Meijer, while a statement by Morrisons said the agreements would also help it introduce a scheme that will help farmers manage the volatility of their milk price. This would involve working with a group of farmers to help them hedge prices.
Arla Foods farmer board director Johnnie Russell, said the announcement underlined “Morrisons’ support for Arla’s farmer owners, including the 3,000 British ones, during what continues to be a very difficult period for us”.