Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
First Milk is reducing payout to suppliers by an average 66c/L and will lay off 70 staff.
Fonterra has close links with First Milk: in 2011 it launched a joint venture in innovative whey protein products to meet growing European demand.
The two co-ops produce premium whey proteins for Fonterra’s food ingredients business, combining their intellectual property and expertise to add value to whey at First Milk’s Lake District creamery in Cumbria.
First Milk’s new chief executive Mike Gallacher says the decisions to lay off 70 staff and reduce the milk price were “necessary steps in the process of rebuilding a secure and stable future for First Milk, its members and its employees”.
“First Milk plays an important role in many rural communities across the UK and values the support it has received from all stakeholders. We aim to restore the health of First Milk so we can [pay]… better milk prices.”
The collapse of dairy markets and the big increase in milk volumes during 2014-15 exposed weaknesses in First Milk’s existing milk pricing system, he says.
From June 1, pricing will be based on net commercial returns from First Milk’s plants and customers.
“As part of this, the tightest and closest milk fields have been identified which will be used to service those outlets most effectively; we will have four manufacturing and three balancing milk pools.”
Farms near the co-op’s Arran, Campbeltown, Lake District and Haverfordwest creameries will make up the manufacturing pools. Farms on the Scottish mainland, in Northern England and the Midlands of England/ East Wales will make up the balancing milk pools.
First Milk’s board has agreed to cut $6.6 million in member payments and this has been built into milk prices, equating to an average price reduction of 66c/L.
NFU dairy board chairman Rob Harrison says the drop in milk payout brings little or no comfort to members across England and Wales who have supported First Milk over the years.
“We all want to see a secure future for First Milk but this should not be done at the expense of their members,” he says.
First Milk will get an independent review of governance and commercial learnings from the business’s recent performance.
Harrison welcomed the review. “The recommendations are to be presented to members before the summer. We look forward to this painting a full and clear picture of what has happened in recent times and help explain the rationale for the turnaround strategy.
“We have already been in touch with First Milk, [seeking] to understand the rationale behind this latest price movement, and to seek clarity on their long term plan.”
First Milk facts...
- First Milk is the UK’s only major dairy company 100% owned by British farmers.
- It supplies a wide range of dairy products and dairy ingredients to customers in national and international markets including block cheeses, soft cheeses, raw milk, butter, skim milk powder, whey proteins and sports nutrition brands.
- Its headquarters is in Glasgow and it has seven factories in England, Scotland and Wales.
