The importance of milk contracts to the dairy industry in the UK was highlighted by Welsh Agricultural Consultant Gareth Davies at the recent Teagasc Winter Milk Conference.
Davies, who runs this own grazing consultancy business in the UK said when he steps on a farm to advise farmers about their system the first question is always the same:
What milk contract have you got?
He said unlike in Ireland there is such a proliferation in milk contracts in the UK and it is having a major impact on how farmers look at the systems they are running.
“There are currently 57 different milk contracts available in the UK. That’s how ridiculous it has gone.
“You’ve got aligned with supermarkets, you’ve got liquid contracts, cheese contracts, balancing contracts, manufacturing contracts and various other contracts I’ve never even heard of.
“There is an absolute proliferation of contracts,” he said.
According to Davies, in some parts of the country a lot of the contracts are now actually defined by their location.
You are starting to find that the people producing milk up in Scotland or Cornwall or deepest darkest west Wales there is a very limited number of companies even interested in going to pick their milk up.
“Whereas if you’re in the middle of the country, every man and his dog wants to pick your milk up.
“There is becoming a real noticeable shift in milk contract depending on the region that you actually live.Also Read: Is late spring calving the future for winter milk production?
Davies also highlighted that there is also a huge variation in terms of the price paid to farmers between contracts.
He said there is a big split now between the people that are on aligned supermarket contracts and the ones that aren’t.
“It doesn’t matter which company it is there can be a difference of as much as 17c/L between the two prices.
“There is a huge variation there. The farmers that don’t have those contracts are really in a different industry,” he said.
“In a lot of situations farmers cannot get spring milk contract. It’s very much anti-spring milk in the UK. There is no doubt about it.”
Unfortunately, according to Davies grassland management, calving pattern and fertility goals are the first to suffer when people are chasing a specific milk price.
“This brings up the inherent problem in the UK.
“For maximum processing efficiency the plants want to be running at near maximum volume every month of the year.
“That tends to make the industry that supplies it inefficient because it is forcing farmers to produce milk in a less efficient manner than they would ideally like to,” he said.