Is Dale Farm’s new 27p/L contract for you? What you need to know

Bosses at Northern Ireland’s largest milk processor, Dale Farm, say they have had a “very encouraging” response to its new 27p/L fixed-price contract – but spring-calving producers are frustrated that they can’t sign up.

Around 200 farmers turned out to the last of four meetings held across the province last night in Castlereagh, Co. Down.

The scheme boasts one of the highest fixed prices on offer to northern farmers and equates to around 30.78c/L – but what exactly does it involve?

  • The contract will begin on January 1, 2018 and will take farmers up to 2021 – almost two years after the UK is scheduled to leave the EU.
  • Farmers are legally bound to the agreement for three years and can tie up between 10% and 60% of their lowest month of milk production in the scheme, should they decide to sign up.
  • The lowest month will be taken between September 2016 and August 2017.
  • On top of the price, farmers will also still be eligible for most of the main bonuses including protein, butterfat, and bacteria count and somatic cell count.
  • The scheme is voluntary.

Dale Farm said it compares favourably with an average milk price paid in Northern Ireland of 25.1p/L when averaged over the last five years and 23.8p/L over the last 10 years.

Speaking after the last of the four producer meetings, United Feeds chief executive Keith Agnew said the turnout had been “very good” and “very encouraging”.

“Why are we in a position to offer 27p/L?” he said. “Because of the process we have gone through – we have a number of customers who are looking to contract, for a three-year period, a certain amount of product – and they are differing products.

When we sat down and negotiated the prices they are willing to pay for those products [it] equates back to a milk price of 27p/L.

“So we are now offering that back to our farmers to see if they are willing to sign up a portion of their milk production, and when they have decided and return the offers to us, we will be able to go back to those customers and say we have a volume of milk that will equate to this level of production.

“We have been having very positive feedback, there have been lots of very interesting questions and good debate had.”

However, he said it was “too early” to gauge how many farmers were likely to sign up.

Managing volatility

“We would like to be able to bring offers like this to the membership on a regular basis, but at what milk price that will be, and what the actual terms of that contract are, you can’t speculate – we’ll just have to wait for negotiations,” he said.

He clarified that there is no risk of the Dale Farm suppliers who don’t sign up having to subsidise those on the fixed-price contract.

“It’s been protected because the volume that we are selling has been guaranteed at a given price, so you’ve sold a certain volume of product to a buyer that’s willing to pay that price so that price is guaranteed – so nobody that’s outside of this will end up subsidising that price.

Nick Whelan, Group Chief Executive at Dale Farm

“It may be Brexit-proofing a little for the customers that wish to buy the product, but it’s not particularly Brexit-proofing for us.

“Obviously if you go back two years, milk prices weren’t where they are today; a lot of farmers were asking: ‘How do we minimise risk in terms of volatility?’; ‘Are fixed-price contracts a way forward?’; ‘Why aren’t you offering fixed-price contracts?’

“We have a precedent that means we will not offer a contract that is below the cost of production, so we have come out with a contract which won’t be below the cost of production and which is a way for farmers to manage the volatility potentially going forward.

“There is no obligation for any member to sign up – it’s completely voluntary.”

Dale Farm producers’ views

However, some producers remain unconvinced; one Banbridge dairy farmer said the deal had “come too late” and at a time when prices were now much higher.

Another in Newtownards said the price “wasn’t high enough above the five-year average to make it worth-while”.

“Your costs could go up but you’d be tied in to one price and you will no longer get your loyalty bonus and your winter bonus, so it’s not a big enough pay off,” he said.

Two spring-calving farmers both said they were interested in the scheme but were ineligible because their lowest month saw them produce 0L.

“I think a lot of people are interested and thinking it over, but it’s just unfortunate we can’t sign up,” one said.

Farmers will have until October 6 to make up their minds.