Uncertainty of when dairy price will bounce back
Fonterra and its global peers believe future prices will show that the dairy market is not as imbalanced as the current prices indicate, John Wilson says.
NFU dairy board chairman Mansel Raymond says the decision by processor Dairy Crest is outrageous.
Dairy Crest says market pressures are forcing the drop in milk price. It will affect 575 farmers supplying into its non-aligned liquid contracts. The NFU says it will be difficult for the affected farmers.
Raymond says it's clear from its recent trading statement that Dairy Crest finds itself challenged in the marketplace, unable to get fair market value for fresh milk from its customers.
"But this is no excuse for paying a farmgate milk price 6-8c/L below the costs of production.
"This reinforces the need for balanced and fair milk contracts. Farmers supplying Dairy Crest liquid contracts are now forced to accept a price cut they have not agreed to, for at least the 12-month notice on their contract.
"This is sheer exploitation and the clearest demonstration yet that those dairy contracts, where buyers have the discretion to change price without mutual consent, must have break clauses which allow farmers to leave earlier."
NFU president Peter Kendall wants UK Farming Minister Jim Paice to act over unfair milk contracts.
"The exploitative position farmers find themselves in will continue to be used against them by milk buyers unless we see either a robust code of practice or legislation put into operation very soon."
Dairy Crest is facing tough trading conditions. Last month it shut two dairies to reduce costs and sustain profitability.
The company has also lost a lucrative liquid milk contract with supermarket chain Tesco. About 3% of Dairy Crest's liquid milk sales in 2011-12 were made to Tesco.
Dairy Crest chief executive Mark Allen says the challenges in the liquid milk industry are further underlined by the disappointing loss of the Tesco contract.
"However it represents just 3% of our total liquid milk volumes and has not driven [our] restructuring decisions. Tesco remains a large and important customer for our key UK brands Cathedral City, Country Life, Clover and Frijj."
Allen says Dairy Crest is a broadly based business which is succeeding despite a tough market.
"Our foods business has performed strongly and sales of our five key brands continue to grow. However, along with the rest of the sector, our dairies business is under sustained pressure and we have to continue to act decisively."
He says the decision to consult on the closure of Aintree and Fenstanton facilities has not been taken lightly.
"But it's the right decision for the long term. We will do all we can to help employees who may be affected by these proposals," says Allen.
