DAIRY GIANT Müller has shocked the sector by knocking 1.25pence per litre off the price for fresh milk on offer at the farmgate.

From March 1, Müller has confirmed that the milk price paid to farmers who satisfy the conditions for its Direct Premium, will be 26.75ppl, which industry observers have described as its lowest ever March price.

The German giant, which became a major milk buyer in Scotland after taking over East Kilbride-based Robert Wiseman Dairies, blamed the reduced price on a surge in milk production from farms, and cited AHDB figures recording the highest UK off-farm milk production levels for a quarter of a century in December.

Milk supply director Rob Hutchison said: “Supplies of milk from farms are well ahead of forecast and this is impacting the value of this milk. At times like this in the market cycle it is important that processors retain the flexibility to be able to offer different solutions.

Dairy sector pundit Ian Potter suggested that Müller's reasoning was that it has been 'irresponsibly scare-mongered' by the various organisations that had warned that overall milk production would be hit hard following last summer's drought. The reality was that Müller, and others, were now having to handle the biggest GB milk output for more than 25 years – and simply could not absorb all the extra litres and associated costs in the 'cut throat and margin-less' liquid packing business.

"There can be no doubt Müller have broad shoulders and 'big balls' especially given they are one of the few remaining voluntary code compliant milk buyers and offer a short three-month farmer notice period," said Mr Potter. "All eyes will now be on Arla when they declare their March 1 milk price. If Arla do manage to announce a no price change it will leave a whopping 2.81ppl standard liquid litre price gap between them and Müller," he noted.

Mr Potter added that there was no doubt what message the German firm was sending to the UK sector – after years of the farming unions saying that their members deserved a better share of the market's rewards, they were now being given a taste of its risks.

NFU Scotland milk committee chair John Smith said: “This announcement is a bitter disappointment to NFUS and our milk committee as we consider this to be a clear step backwards in the market which creates serious concerns around Müller’s profitability.

“On the face of it the price drop is a significant one, but when you take into consideration the direct bonus for Müller farmers won’t kick in until January 2020, this price drop is actually down as low as 26.25ppl rather than their reported 26.75 ppl," claimed Mr Smith.

“This figure is even worse for Müller farmers in the North-east who have a 1.75ppl reduction for transport. This is in contrast to Tesco farmers in the North-east who are receiving 7.11ppl more than their non-aligned neighbours. With such a stark difference in prices and no obvious reason for it, Müller have to look at their practices and realise that they are not currently contributing to a fair supply chain," he said.

“These margins are only amplified by the high costs dairy farmers are currently dealing with this winter, with fodder and bedding at such a premium following last year’s difficult weather," added Mr Smith.

“The market needs to improve going forward and NFUS is keen to sit down with Müller representatives to gain a better understanding of where this pressure, which is pushing prices down, is coming from. The union is keen to work with the partners in the supply chain in order to get a fairer price for our members."