MULTI-NATIONAL co-op Arla has cut its milk price by 0.42 pence per litre from April 1, raising fears that the dairy sector has reached the end of its upward price swing, and that other buyers may now jump on a bandwagon heading in the other direction.

The Arla Foods on-account price is actually decreasing by one eurocent per litre, which equates to a reduction of 0.79p per manufacturing litre. However, a positive currency adjustment of 0.37p has mitigated the full impact, resulting in the 0.42ppl net reduction.

Arla Foods amba board director Johnnie Russell said: “We are extremely disappointed to be in a position of having to reduce our milk price to our owners, after seven consecutive increases. The reduction in our April price is unwelcome news.

“Over recent weeks, the reduction in commodity prices has impacted yellow cheese, protein and spot market prices and this is putting pressure on the European market in particular. International value added markets on the other hand seem to be more stable.”

Dairy industry analyst Ian Potter said: “It’s a big blow to Arla members and regrettably if Arla sneeze others will catch a cold.

"This cut will hurt. There are strong rumours that a similar reduction is already in the pipeline from May 1, coupled with the belief that Arla have overpaid producers for milk, especially the 13th payment," said Mr Potter. "If Arla does kick start a trend which others seize on, it will be the final straw for a number of dairy farmers who haven’t even begun to recover from the last slump in prices.”

NFU Scotland’s milk policy manager George Jamieson commented: “Arla’s price cut has come as a blow but it must not be used as an excuse by others to follow.

"The Arla price is set at a European level, transparent and based on Arla’s performance and markets. All milk processors should be paying a price that reflects their own performance, their markets and the value they put on their farmers’ loyalty and commitment, rather than looking over their shoulder at another processor," said Mr Jamieson.

“It is frustrating for milk producers that we are even talking about cuts. The recovery in wholesale prices from late summer 2016 was steep and significant, while farm prices rose much more slowly, hence there should be no rush to drop prices at the first sign of a slowing market," he stressed.

“Processors are justifiably concerned about over supply for their needs in advance of a potential spring flush, but each processor must learn to manage volume and price in collaboration with their farmers. The supply chain would benefit greatly if it stopped using primary producers as its risk management tool, but instead developed genuine collaboration, underpinned by better contracts, more proactive pricing and volume management, and sharing added value."

Asked about Muller's farmgate price intentions, a company spokesman told The Scottish Farmer: “We are currently in discussions with our farmer board regarding our May 1 price.”