The average consumer blandly assumes that farmers get paid on the total volume of milk they deliver to a wide range of buyers. Nothing could be further from the market reality. The fact is that dairy farmers are paid according to the constituents of their milk - protein and butterfat - but the real guide is the international price of cream, and that is now in serious decline.

Wiseman has a long tradition of being fair to farmers, but is now up against the wall in terms of what it can pay. The Milk Development Council reckons that the divergence between sterling and the euro will see the price of bulk cream sales on the international market drop at least £80 per tonne.

Pete Nicholson, the director of procurement with Wiseman, said: "It is often forgotten that the significant price premium [around 2p per litre] - which we offer above the commodity of farm gate milk - is achievable because we supply the fresh product to high-quality retail customers. We are placing importance on promoting stronger links and relationships between the dairy farmers and our major customers.

"With the reforms of the Common Agricultural Policy exposing dairy farmers to the rigours of the market to a greater extent, it is going to become increasingly important that all parts of the chain understand each other's requirements. Added to that, we are maintaining an unrelenting focus on unearthing efficiencies within our business coupled with a significant investment in new products."

Ex-farm prices for milk are at their lowest level in real terms for many years, but the fact remains that the most efficient farmers, according to recent remarks by Ian Kenny of the Royal Bank of Scotland, can produce milk at 14p per litre and still make a reasonable profit. At the other extreme, there are producers whose costs are in excess of 22p per litre - they will not remain in business much longer, even if there was a modest increase in price.

Source: The Scotsman