The decision in recent years by a number of dairy co-ops to offer fixed-price deals to farmers was broadly welcomed across the industry as a positive move.

While the majority of farmers didn’t take up the contract, a significant number remain locked in for a proportion of their supply in 2022 and 2023 at prices ranging from 26p/l to 29p/l.

In the case of some of the older schemes offered by both Dale Farm and Lakeland Dairies, a higher price is paid during autumn and winter months (28p/l and 29p/l), which falls back to 26p/l from April to September.

Given that the current market is pointing to base prices of over 36p/l for April, it is a difference of at least 10p/l. For a farmer with only 10% locked in, it works out at a 1p/l deduction across all milk produced.

There is also the double whammy that this 26p/l price coincides with peak output months, and for someone producing 1m litres annually, they are likely to supply just over 28% of all their milk through April to June. Where 10% is locked in, it is an income hit of £2,850 over these three months.

If 15% is locked in, and the differential is 12p/l, this increases to £5,130. If there is a 12p/l gap across all six months (entirely possible in the current market), a 1m litre producer takes an income reduction of £9,360.

It is difficult to envisage a scenario where a fixed-priced scheme would ever end up being to the farmer’s benefit to a similar extent.

Extraordinary times

We are living in extraordinary times, and no one could have foreseen the current escalation in prices or costs.

It is simply not right that some suppliers will be selling a proportion of their milk to a farmer-owned co-op this spring/summer at around 12p/l below costs.

While it is fully understandable that co-ops would not want to renege on existing customer contracts, surely there is some action that can be taken to ease the burden.

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