First Milk introduces new milk pricing mechanisms

First Milk has announced changes to its milk pricing mechanisms in order to better align market signals and milk production. These changes include the introduction of A&B pricing and closer alignment of milk constituent payments with the core markets for its milk.

One of the company’s core objectives is to have clear pricing mechanisms which allow its members to be rewarded for producing the volume, quality and profile required for the co-op’s processing sites and main markets.

Chairman Sir Jim Paice MP commented:

“During 2014 we experienced unprecedented volatility in commodity markets and a surge in milk production which not only drove milk prices down but also seriously challenged the mechanisms we used to set the price of milk.

“These challenges included: the time lag between making a milk price announcement and it coming into effect when markets are moving so rapidly; and the need to send timely signals of the value of milk which is additional to core market demand

“In October 2014 we set up working groups to review our current payment schedules and draw up proposals on changes required to make our pricing mechanisms more appropriate to deal with increased levels of volatility. The working groups’ proposals have now been discussed and agreed by the Board and our farmer representatives.”

3 main changes from 1 April 2015:

· The introduction of A&B pricing

· Closer alignment of butterfat, protein & hygiene payments according to the end use of the milk

· Clarification on our two main milk pools – manufacturing and balancing

The First Milk Board firmly believes that implementing these changes will benefit members by quickly and clearly reflecting market returns. This will enable members to make more informed production decisions, to take advantage of market upturns, or mitigate their exposure to market falls. These changes also give members the opportunity to achieve a higher milk price by tailoring their production to the specific market requirements for their milk.

The next steps in terms of communication to First Milk members will be:

At the start of March, members will receive a letter and new pricing schedule from First Milk’s Farm Enterprise Team, setting out how these changes will be implemented, specifically for their own milk supply.
This letter will also inform members of dates in their area for “drop-in days”, where they can have a face-to-face meeting with a Farm Enterprise Team member
At these meetings, members will be taken through the calculations for their own farm, using the new schedule that applies from 1 April.

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