The elected representative Board of Müller’s farmers has issued a stark warning to the company and the wider industry regarding the financial viability of Müller Direct suppliers.
Müller’s requirement for a further 1.25p per litre (ppl) cut from Müller Milk Group (MMG) Members supplying Müller Direct’s standard (not aligned to a retailer) liquid contracts from March 2019, delivers a milk price of only 26.25ppl. This will result in a milk price loss of 4.76ppl on every litre supplied when compared to 31.01ppl which is the average of the two main retailer cost trackers milk price models for February 2019.
This loss across our average Müller Direct farmer, who supplies 1.5m litres per year on a standard contract, provides an annualised deficit of £71,400 per farm. This multiplied by the 650 farmers supplying via this contract will result in a combined Müller Direct farmer ‘Profit warning’ loss of £46.4m.
Müller’s Organic suppliers also receive a cut of 1.25ppl which will deliver a reduced milk price of 39.75ppl for March 2019. Costs for organic feed have increased and whilst the organic milk price has remained stable for many months, this reduction will emphasise the organic milk price disparity in the market.
MMG Chairman, David Herdman stated: ‘this latest 1.25ppl milk price reduction, in addition to the 2.0ppl combined cut over December and January for conventional milk, will deliver an increasingly unsustainable milk price to our members. The past few months have seen unprecedented increases in unavoidable farm costs for all MMG suppliers. The rise in costs, coupled with Müller’s decision to drop the farmgate price to 26.25ppl, has left many Müller Direct farmers in a dire financial position. Unless some economic realities can return margins in the liquid market place, then the prospects for future milk production from farms exposed to this sector must be called into significant doubt’.
The cost trackers milk price models used highlight the impact of escalating milk production costs. In addition to this, the harsh winter of 2017 and hot dry summer of 2018 have negatively impacted costs and availability of feed and forage.
Whilst current UK milk production has strengthened, MMG has repeatedly stressed to Müller the possible negative impact on future milk supply, which is also being affected by a reduction in cow numbers and extraordinarily high levels of farmers deciding to leave the industry.
MMG recognise that the markets have come down from their peaks and that some farms will have mitigated this position by engaging in the fixed price and futures offerings which have been made available.
David Herdman added. ‘It was impossible for the MMG Board to support March’s Müller Direct reduction in milk price. It is clearly unacceptable to expect our Müller Direct members on standard contracts to sell milk at a 4.76ppl loss to the average of the two main retailer cost trackers milk price models. The MMG Board has had no alternative but to issue this ‘profits warning’ on our members’ behalf to reinforce the seriousness of the situation on farm.’
The MMG Board understands that Müller alone cannot correct the current absence of sustainability in our supply chain, but warns that unless the sustainability issues are addressed across the liquid sector, then the future supply of UK milk cannot be secure as UK dairy farmers will no longer sustain the lack of profitability.
MMG will continue to work alongside Müller, who are the UK’s number 1 diary brand and the UK’s number 7 grocery brand (Kantar Worldpanel), to develop new initiatives and strategies to support milk prices and our members and increase transparency in the industry. But, unless the present price situation is reversed with some immediacy, this work will be meaningless for an increasing number of our members who will be faced with no alternative but to exit milk production.
It is time for all in the milk supply chain to come to their senses and rebuild UK dairying into the thriving and innovative industry that it should and can be.