Lakeland Dairies and Aurivo have now joined with Dale Farm in offering what look to be increasingly attractive fixed price milk schemes.

On offer from Lakeland is effectively a milk price of 27p/litre, similar to that from Dale Farm. Trumping both is a 29p/l fixed price from Aurivo.

In all three cases, producers who sign up are locked in for three years. In the example of Dale Farm, a supplier could fix a volume at 60% of their trough month. In the case of Lakeland and Aurivo, the maximum that can be fixed is 10% of annual supply.

So effectively, for a relatively small percentage of milk, farmers will be required to commit 100% for the full three-year period to both co-ops starting from 1 January 2018. No doubt, fixed price schemes are an important element in managing volatile prices, but they are also being used in NI to protect a supply base, in a very competitive market, where a milk pool is an increasingly valuable asset.

Lakeland

Details of the fixed price contract from Lakeland Dairies were outlined to suppliers in a letter last weekend.

Farmers who sign up to the new contract will be guaranteed a base price of 26p/l for a six-month period from April to September.

The base price then increases to a guaranteed 28p/l from October to March.

Farmers who enter the contract must commit either 5% or 10% of their annual milk supply, based on what they produced in 2016.

On top of the 26p/l or 28p/l fixed price, milk under contract will qualify for the normal milk quality and volume bonuses that Lakeland currently offers.

However, the 3p/l winter bonus paid in November and December of each year will not be eligible on contract milk volumes.

Signing up to the contract is completely voluntary.

Farmers considering whether they should sign need to act quickly, as the closing date for applications is Friday 3 November.

If there is an oversupply of milk committed on contract, preference will be given to those suppliers who are currently supplying under Lakeland’s existing fixed price contract launched on 1 June 2016. It pays 20.75p/l from April to September and 21.75p/l from October to March.

Aurivo

Aurivo announced details of its new fixed price agreement earlier this week.

It is now the third fixed price contract offered by the co-op. Earlier agreements fixed milk at a base price of 23p and 25p/l respectively.

As with the two previous agreements, normal payments on milk quality and hygiene apply but the winter bonus payments are excluded under the agreement.

Impact

Based on current market signs, the latest milk price contracts are currently offering a strong base price for a three-year period.

The latest milk price indicator (MPI) from the Ulster Farmers Union is down by 0.94p/l to 30.17p/l before processing costs, on the back of reduced demand for butter and rising milk production in key dairy producing regions.

While Aurivo is offering a price of 29p/l, it should be pointed out that with around 4% of the NI market and approximately 80 suppliers, the total volume that would be committed under the current agreement is relatively small at 9m litres annually.

By contrast, Lakeland process 28% of the NI milk pool, which would equate to around 60m litres if the maximum volume of milk is committed by its suppliers.