Now the fears is that the German dairy giant’s move has lit the touchpaper for other milk buyers to add their weight to a new downward price spiral.
NFU Scotland, along with their union colleagues in England and Wales, have sought a crisis meeting with Muller next week, and as The Scottish Farmer went to press on Wednesday, fired off a letter to Defra secretary Michael Gove and grocery code adjudicator Christine Tacon asking them to do whatever is necessary to bring some badly needed price transparency to the dairy market.
Union vice president Gary Mitchell said: “Such a large drop in price from Britain’s largest producer of branded and private label fresh milk, butter, yoghurt, desserts and dairy ingredients needs to be properly explained.
“Why have Muller been the first to cut and cut so savagely when they have lucrative contracts that should provide milk price certainty to their dairy farmers?” asked Mr Mitchell. “Dairy farmers need answers and Muller needs to explain their action when we meet next week.
“It is impossible for the milk market to function properly while price transparency between farmers, processors and retailers does not exist. As a lack of transparency, it is now common knowledge that in aligned supermarket milk contracts there is a cream price tracker and rebate system – yet the industry knows little about how that operates.
“However, it is highly important in setting the milk price, as cream income to a liquid processor is currently worth 12.75p per litre – the fifth highest on record – when three years ago it was worth 5.5p. That is value in the chain that should be getting shared with producers and isn’t. Who’s getting the cream?”
Dairy industry analyst Ian Potter commented: “The harsh reality is there are a few liquid processors who have been praying for Muller to make this announcement and they will certainly follow, and quickly.
“New Year reductions were always a certainty for liquid purchasers, but I admit a hold by Muller would have been very helpful and appreciated in the season of goodwill. I am afraid the party is now over, and some didn’t arrive in time to get a slice of the cake.”
Muller blamed falling commodity prices for the farmgate cut: “AHDB data shows a slide in the value of butter and cream of more than 25% since September. We must now reflect this significant market change in a 5% milk price adjustment some four months after the decline started.”
But chairman of the Muller farmer board, David Herdman, said: “To be told of such a huge cut came as a huge shock to the whole board and to say there were some lively exchanges is an under-statement. Recent talk has pointed to prices likely to come down in the New Year, but to be the first to move so early puts us and Muller in a bad place. We’ll get the blame and it won’t do Muller any good.”
The only Scottish farmer on the Muller board, Stephen Foster, of Langside farm, Galston, Ayrshire, said: “This was a real bolt out of the blue. We had no indication this was coming. We were totally gobsmacked when told the size of the cut.
“We were seeking a period of relative stability but this move is totally dysfunctional for the whole of the dairy industry,” said Mr Foster. “Many dairy farmers in Scotland have not yet recovered from the debt built up by the price collapse they have already suffered. This is just another kick when they are already down.
“If this is the start of yet another raft of plummeting price drops, I fear the bottom 25% of producers will say enough is enough and quit.”