Processors have been urged not to pass escalating costs down the line to farmers who are already experiencing inflationary price pressures.
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Despite a relatively stable market, the warning follows Arla’s announcement of a 0.90ppl price drop from September 1 due to rising inflation costs, taking its standard manufacturing litre to 32.30ppl for conventional milk.

Noting there was a ’real danger’ processors’ fuel, haulage and logistics cost increases could be passed down the supply chain rather than up, NFU dairy board chair Michael Oakes was wary other processors would follow suit in the coming months, citing the same reasons.

“Historically when one processor goes, the others do, but this needs to be thought about seriously as farm level margins are too slim to absorb the rest of the supply chain costs and farmers do not have the ability to share costs,” he said.

Dairy market commentator Ian Potter said there had been a pushback from some businesses.

One middle-ground liquid processor had told him it had a sizeable customer which had resisted any price increases it tried to pass on due to rising costs and the need to increase farmgate prices so the processor had told it to find a new supplier.

“More of that will be needed to prevent the costs pushing back down the supply chain to the last domino in the line,” Mr Potter said.

Mr Potter added it would be interesting to see if any of Arla’s competitors felt the need or seize the opportunity to follow Arla’s lead but the ‘smart money’ was on them holding their own price.

Kat Jack, AHDB dairy analyst, highlighted other processors have stood on, or slightly upped their milk price, with several of the increases from aligned contracts tied to cost of production.

“For non-aligned contracts, in some cases it may be that processors who serve the foodservice industry are benefiting from the removal of lockdown restrictions,” she said.

Trading at 33-34ppl, the spot milk price has also been ’pretty high’, reflective of a tighter milk supply.

Chris Walkland, dairy market commentator, said while the market was reasonably stable, prices were not positive enough to deliver a price that matches the cost of production.

“The milk price to feed price ration is pretty awful and the only farmers feeding cows to produce milk are those on aligned contracts or those who want to lose money,” he added.

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