The firm has increased the standard price it pays to milk suppliers from 27 pence per litre (ppl) to 29.5ppl. The price increase will take effect from 1 October 2012.
The 2.5ppl mil price increase will be delivered through improved returns from customers and markets, said Arla. Retailer premiums will also be incorporated into the new, improved standard litre price.
The announcements follow a summer of dairy farmer-led protests in the UK relating to processor-planned milk price reductions and low retailer pricing of fresh milk.
Farmers for Action (FFA) campaign group organised demonstrations outside processing plants and distribution sites up and down the UK from July. Arla Foods UK was one of several processors targeted by protestors.
The new standard litre milk price will cover Arla Foods Milk Partnership (AFMP) members in the non-aligned, Asda and Tesco seasonal milk pools – approximately 75% of the AFMP milk pool.
The Tesco Sustainable Dairy Group (TSDG) and Sainsbury’s Dairy Development Group (SDDG) milk prices will continue to be formulated in accordance with existing pricing models.
Alongside its milk price increase, Arla UK is aiming to deliver a more transparent and sustainable pricing model in 2013. It has vowed to implement monthly price announcements to smooth the transition of milk price changes.
The firm also plans launch a study into the costs of production, in order to develop plans for its supplying farmers to reduce overheads and improve their profitability.
“The coalition has been successful in raising public awareness of the plight of farmers in a way that we couldn’t,” said Arla head of milk procurement, Ash Amirahmadi.
“We believe it is our duty to take over the baton and deliver a price and a sustainable sourcing strategy that step changes the returns for our members, restores confidence and takes a major step in moving AFMP towards the cooperative model of Arla Foods amba, where all farmers benefit equally from the returns from our customers.”
Rebuild farmer trust
The announcement has been welcomed by Arla Food Milk Partnership (AFMP) members, the National Farmers Union (NFU), and the FFA campaign group chairman, David Handley.
Arla’s price increase and new sourcing model comes just one week after Robert Wiseman Dairies announced the launch of a similar project – the Wisemilk Initiative.
Under the Wisemilk Initiative, Robert Wiseman – which was also targeted during the summer milk price protests - will work alongside farmer representatives to better transparency on the way milk prices are determined.
“It is cleat at the moment the relationship between processors and dairy farmers is under some pressure. Market returns have been in decline, while farming costs have increased,” a Robert Wiseman Dairies spokesperson told DairyReporter.com.
“We are trying to rebuild trust with dairy farmers, while maintaining our competitiveness.”