FIND out how milk prices are determined, how the market developed and keep up to date with all the latest news on farmgate prices around the UK.

Farmgate milk prices

History

Farmgate milk prices were, pre and post second World War, set by the statutory milk marketing boards, principally the Milk Marketing Board of England and Wales and the Scottish Milk Marketing Board. The boards bought milk from farmers and sold it to processors and dairies. Their existence, as monopolies, was challenged in the early nineties when the Conservative government accent was on a free market philosophy. The collection and distribution of milk for processing was then deregulated in 1994.

Development

• The successors to the boards were, in the main, Milk Marque and Scottish Milk. But the dominance of these two was also called into question and six years later, smaller co-operatives were formed.
• Big milk processors then competed for milk with the co-ops and there was a temporary escalation in farmgate price with the plc processors offering the larger ‘carrots’ to attract direct suppliers.
• Ultimately, some of smaller co-operatives merged to create First Milk, Dairy Farmers of Britain and Milk Link. United Dairy Farmers is the major co-operative in Northern Ireland and is the successor co-op to the Northern Ireland Milk Marketing Board.
• However, UDF was formed in 1995 and unlike the other UK MMBs was allowed to retain its processing operations on a number of provisos. One of these was the development of a milk auction process which still continues. Processors bid for their milk and this sets the milk price for UDF producers.
• The New Zealand dairy farmers’ co-operative Fonterra also has a monthly auction – regarded as a strong market indicator.
• In mainland Britain, the three main processors – Robert Wiseman Dairies, Dairy Crest (began life as the milk processing operation of the Milk Marketing Board) and Arla Foods have tended to pay the higher milk price.
• First Milk (the largest co-operative), Milk Link and the now defunct Dairy Farmers of Britain have been in the lower half of the ‘league table’. Many other private processors also compete for supplies of raw milk to produce cheese, ingredients, yoghurt and added value product and buy their milk direct from farms.
• The co-operatives themselves have invested in further processing capacity in a bid to add value to the milk they handle and return a better price to producers. They also act as balancing suppliers to the three big processors.
• The purchase price of additional processing capacity was cited as a contributing factor to the downfall of DFoB last year.

The price

Milk buyers have a ‘standard litre price’ – typically assuming one million litres of production at stated butterfat and protein levels, hygiene (bactoscan) standards, and mastitis levels in the herd (somatic cell count or scc).

The producer milk price varies around the standard litre price depending on the volume they are producing, the season of the year, frequency of collection and other factors. There may be a standard price for ‘milk-for-cheese’ and ‘liquid milk.’

In recent years, a significant influence on milk prices has been the development of supply chain relationships with major retailers demanding dedicated supply pools in return for a premium (maybe 1.5ppl or so, or a price related to cost of production or simply an enhanced price). Marks and Spencer and Waitrose usually head the field on around (currently) 27.5ppl or so.

Global influences increasingly impact on domestic milk prices – typically the traded values of milk powders, cream, butter and commodity cheddar. Most milk processors’ own returns are to some extent governed by their sales into one or several of these markets.

Milk production in the EU is also subject to the dairy regime of the cap)/31971.article” class=”intextlink”>Common Agricultural Policy (CAP) which currently involves production quotas, intervention support for dairy commodities and hence milk. Milk prices in the UK are also affected by exchange rates.

Useful dairy industry links

• Facts, figures and milk price league table – DairyCo Datum
• Dairy UK - The ‘united voice of the industry’ – policy, lobbying, promotion etc 
• The Dairy Council

Milk processors

• Arla Foods
• Robert Wiseman
• Dairy Crest
• Milk Link
• First Milk
• UDF

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