Müller sends letter to farmers explaining milk price

By Jim Cornall contact

- Last updated on GMT

In a letter to its milk suppliers, Müller says its standard milk prices are competitive.
In a letter to its milk suppliers, Müller says its standard milk prices are competitive.

Related tags: Milk price, Price, Competition

Ronald Kers, Group CEO for Müller’s UK business, has sent a letter to all the company’s UK dairy suppliers outlining its position on milk pricing.

It comes after the company was criticized by the NFU​ amid low milk price concerns for farmers.

The letter, dated August 11, 2016, says Müller is investing more than any other dairy business in the UK to build a diverse and successful dairy company.

“We place emphasis on adding value to milk and are doing this through acquisitions, strengthening our presence in existing categories, entering new sectors of the dairy category, innovation throughout our supply chain and product development,”​ the letter states.

Protection from extremes

It continues that being a diverse and well invested dairy business means greater protection from the extremes of a boom and bust commodity cycle. It adds that suppliers benefit from a milk price that is stable and competitive in a market characterized by extreme volatility.

Kers’ letter says that, “As the past few months have shown, our milk price doesn’t track the extremes of the spot market. During this difficult period, many of our competitors introduced contract variances at short notice which exposed their farmer suppliers to spot market returns which were as low as 7 pence per liter ($0.09).

“Given that this is the route they chose it is only right that they immediately reflect the changes in spot market values as the market begins to recover. But I would stress that whilst these increases are headline grabbing, they are only moving these competitor milk prices closer, on an average basis, to the price we pay you, our farmers.”

Price comparisons

In the letter, Kers includes some price comparisons that he says demonstrate that Müller’s average non-aligned milk price over the past year has been above the average of the company’s milk and ingredient competitors. 

From October 2015 to September 2016, the comparison says that the average of Müller non-aligned prices was 20.8 pence per liter ($0.27), and the average of Müller non-aligned prices plus the additional retailer supplement amounted to 22.9 pence per liter ($0.30).

The average of other liquid and ingredient milk purchasers is 20 pence per liter ($0.26), the letter says.

It adds that there is an even greater differential when compared to what he describes as “the less transparent pricing mechanisms of many milk purchasers.”

The comparison looks at prices from Arla UKAF (including value of retailer supplements and aligned pool premia), Arla Direct, Grahams, First Milk, Meadow Foods, Paynes, Pensworth, Freshways and Yew Tree. 

The prices for liquid milk buyers who use 'basket pricing' arrangements were not published and therefore were not included in the comparison.

Competitive pricing

Kers said that farmers on non-aligned contracts receive additional support as a result of the customers Müller supplies. 

“We offer a competitive standard milk price and in addition a retailer supplement. We show this supplement separately to be transparent, so that you can see how it benefits your total monthly price paid,”​ he tells farmers.

The letter states that this is a different approach from competitors who also receive this supplement from retailers but choose simply to incorporate it, and other retailer group premiums, into their standard milk price.

It adds that, “as a result your actual returns are significantly higher and we as a business are paying more for the milk that we buy.”

Maintaining milk service

Kers said, “Any work which is on-going with our farmer board is always halted when we are being threatened by illegal activity by third-party farmer organizations at our sites. Notwithstanding the need to manage disruption to employees, customers and farmers, illegality is serious and not an appropriate environment in which any meaningful discussions can take place.”​   

He added that Müller will do everything it can to maintain its milk collection service, but that it could not be guaranteed.   

“I therefore want to alert you to the possibility of delayed or missed collections in advance and apologise if there is any inconvenience.”

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