Dairy Crest launches formula-based contract
Non-aligned Dairy Crest Direct liquid milk producers are being offered the chance to sign up to a new formula-based 12-month contract.
Developed by independent consultant Stephen Bradley, the formula price mechanism tracks five key costs – bulk cream, retail liquid milk (four pints), concentrates, fertiliser and red diesel – before calculating a monthly milk price.
The formula goes one step further than current cost of production pricing models, giving farmers much earlier warning signals about market-driven price cuts, said Mr Bradley.
However, producers needed to be aware the contract would deliver both the highs and lows of the market, he added.
Dairy Crest and its producer organisation DCD said the formula would take the heat out of milk price negotiations and bring more transparency and trust to the pricing process.
A series of roadshows explaining the concept had just finished and producers were today (Friday 8 March) sent leaflets explaining the formula and how to sign up.
“With the appropriate support of our customers, we would like all the non-aligned volume to be on it. It’s our ultimate goal.”
Dairy Crest’s Mike Sheldon
Applications to join – with the option of committing 25, 50, 75 or 100% of milk to the contract for 12 months – are by email only on a first-come, first served basis. Sign-up opens at 10am on Tuesday 19 March and ends at 12pm on Friday 22 March.
Farmers will then be informed about whether or not their application has been successful on Monday 25 March, with the contract taking effect from 1 April at a start price of 29.95p/litre – 0.1p/litre more than the April standard liquid price.
Dairy Crest said the contract was fully compliant with the dairy voluntary code of practice, with the exception of a three-month notice period (only applicable on discretionary contracts), and asides from a change in pricing formula, all the other elements of the DCD liquid milk contract would remain the same.
At present the formula is only being offered to the 600 non-aligned liquid DCD members, with an initial cap of 100 million litres, but the company hopes to extend the scheme if it gains backing from retail customers.
Dairy Crest group procurement director Mike Sheldon said: “With the appropriate support of our customers, we would like all the non-aligned volume to be on it. It’s our ultimate goal.”
The company hoped to apply the principles of the formula to all contracts, and in the future it could be opened up to new members to boost recruitment, he added.
NFU chief dairy adviser Rob Newbery said it was a positive move as all along the dairy coalition had been calling for more determinable pricing models.
Dairy Crest milk pricing formula ready by April