DAIRY co-op First Milk has increased its October farmgate price by two pence per litre for all of its membership pool, its largest monthly increase since 2007.

The increase consists of a 'market movement' increase of one pence for all non-aligned pools and an additional 'business performance supplement' of 1ppl. The co-op is forecasting that its milk prices will continue to rise in the coming months.

The increase brings FM's Scottish mainland price to 20.02ppl; the Lake District price to 20.88ppl; the Midland and East Wales price to 19.19ppl; and the Haverfordwest price to 21.98ppl. The B price across all the pools sits at 20ppl.

In a letter to members, chairman Clive Sharpe said: “For the fourth month running we are increasing our milk price to members. The increase reflects both the improved market returns and the accelerating improvements in our own business.

"Due to the changes made over the last 18 months we are now able to pass market moves directly onto members. In addition our improved internal business efficiency has allowed us to deliver a further business performance supplement that we committed to pay earlier this year.

“Our view of the market outlook is positive as we see prices moving towards 25ppl in coming months. First Milk is well positioned to deliver these improvements directly to our members who can now plan their businesses accordingly.”

Chief executive Mike Gallacher added: “This increase reflects both the strengthening market and the positive impact of huge changes made at First Milk over the last 18 months. We promised members that we would deliver an initial 2ppl improvement in addition to any market moves and I am delighted that this is now coming through ahead of our internal plan.

“In total over the last four months our members have seen prices increase by between 4ppl to 5ppl," said Mr Gallacher. "However the board and management team are fully aware that the recent improvements are only now starting to be seen on farm after two years of falling prices.

“With a fourth increase in a row, members can have confidence in continuing improvements both from the market and from First Milk’s internal business performance. Our aim is to get further increases to our members as quickly as possible. Meanwhile our forecasts are pointing to market prices of mid-20s and beyond.

“Our members can be confident that in the new First Milk as the market rises so will our milk price," he stressed. "In addition, we are working on further projects that can add to our existing 2ppl business performance supplement. Member meetings are planned around the country in October and members will be informed of meetings in their areas over the coming days."

Meanwhile Arla producers will see a 1.6p per litre increase from October 1, taking the conventional price to 21.65p per litre.

NFU Scotland milk committee chairman Graeme Kilpatrick said: “These positive price moves will be welcome by members of these co-ops with the promise of more to come as we head into winter.

“While these are significant increases, the sad reality is that milk prices are still a long way short of production costs and it is imperative that if we are to rebuild long-term confidence in milk production that this momentum is carried right through into next year.

“Market signals around falling production, lower cow numbers, buoyant futures markets, rising commodity prices and high spot prices are crystal clear indicators that all milk companies should be driving ahead with significant price shifts, but some are sadly dragging their feet with modest priced offerings to date," said Mr Kilpatrick.

“There is a cast iron case for the whole supply chain, which includes processors, retailers and other end users, to recognise the urgent need for a fairer share of these market lifts to be more rapidly relayed back to the farmgate than is happening at the moment.”