The company has developed the Arla Foods Milk Price Equivalent, a mechanism similar to the industry-wide Actual Milk Price Equivalent, but will be based solely on Arla’s returns from its two commodities linked to liquid milk, salted butter and skimmed milk powder.

The new contract gives producers a guaranteed 2p/litre premium over the equivalent price of Arla’s commodities business. It will effectively offer AFMP members a price floor.

A spokeswoman said the new pricing agreement reflected the market in which Arla operated, rather than other milk buyers.

Sensible and sound

Peter Walker, Arla Foods’ director of milk buying, said the new contract offered members something that would underpin their milk price. “We have been analysing the performance of commodities for a small part of our payments and it seems sensible and sound to extend that. It’s related to our business but based on the principle of AMPE, which is clearly understood.

“We are willing to hang our hats on this as a minimum price over our commodities returns. When you talk to producers they say they want a definitive premium over the commodity sector and that’s what this aims to do.”

The new contract also commits Arla to buying 90% of its standard milk supplies from AFMP members by April 2008, together with a longer notice period for the processor – ten years - and shorter notice for producers – one year.

It also includes a “differential price clause” to allow Arla to reflect any future “retailer-specific” premiums directly back to its members.

Clear incentive

Jonathan Ovens, chairman of the Arla Foods Milk Partnership, said: “This significantly strengthens the relationship between Arla Foods and ourselves.

“We believe it provides AFMP members with a clear incentive and the confidence to invest in their dairy enterprises and promote the expansion of AFMP.”

The take-over of Arla Foods UK by Scandinavian co-operative parent company Arla Amba looks set to go ahead untroubled, with an extrordinary general meeting of Arla Foods UK on 12 March. Mr Walker said that, subject to agreement and legal approval, the buy-out was likely to be completed in early April.

TheCattleSite News Desk