Contract review secures 90 per cent of Arla's milk needs

Arla Foods Milk Partnership (AFMP) will be providing 90 per cent of Arla Foods UK plc's total milk requirements within the next twelve months - giving producers secure and assured markets and providing Arla's customers with the highest possible degree of traceability and quality assurance.

A new package agreed between Arla Foods and its supplier group also includes the establishment of an Arla Foods Milk Price Equivalent (AFMPE) based on the company's recoveries from two key commodities which link to liquid sales - skimmed milk powder and salted butter. Producers will get a guaranteed minimum 2ppl premium over AFMPE, calculated on an ex-farm basis.

"Securing more of our milk needs from AFMP farms, enables us to respond to the demands of our customers for high quality, farm assured and traceable milk," said Peter Walker, Director of Milk Buying at Arla Foods.

Commenting on the review, Jonathan Ovens, Chairman of AFMP, adds: "This announcement significantly strengthens the relationship between AFMP and Arla Foods. 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."

Key elements in the new arrangement include:

• New contracts from April 2007 with a ten-year notice period from processor to producer (up from seven years) and one year from producer to processor (down from eighteen months)
• A commitment from Arla Foods to purchase 90 per cent of its standard fresh milk requirements from AFMP by April of 2008
• Establishment of AFMPE to be calculated on a rolling twelve month average and a guaranteed minimum 2ppl premium over AFMPE (on an ex-farm basis) to reflect supermarket values and volumes
• A differential pricing clause to allow Arla to reflect any future, retailer-specific premiums directly back to producing farms

"This new agreement is a natural progression for a relationship between producer and buyer that is now very mature and therefore able to focus on the long-term issues of securing market share and developing new business with both existing and new customers," explained Peter Walker.

"The arrangements will enable both Arla Foods and AFMP to concentrate on their part of the supply chain, and to invest, on farms and in the dairies, in the plant, distribution and technology that is going to make us all more efficient, maintain the confidence of our customers and generate market growth."

Jonathan Ovens adds: "We have been in discussion with Arla throughout 2006 in order to develop this complex, but very important, package of measures. We are particularly pleased to introduce both increased producer security and market responsive pricing into the milk contracts.

"This new package reflects a strong partnership between AFMP and Arla Foods, with both parties determined to ensure that AFMP is a 'club farmers want to join'. That is important as we will be seeking expansion from existing members and possible new entrants to hit the 90 per cent target."

Arla Foods UK plc is home to some of the UK’s leading dairy brands including Cravendale, Lurpak and Anchor. Processing approximately two billion litres of milk a year Arla continues to be one of the UK’s leading dairy companies and a supplier of fresh liquid milk and cream to the top seven retailers.

Over 2,500 daily deliveries are made directly to stores nationwide and Arla brands can be found across the dairy category. As well as the leader of the butter, spreads and margarine sector, and a major supplier of other added value products including flavoured milk and cheese, Arla continues to build working relationships with Arla Foods Milk Partnership, a unique group of dairy farmers, which supplies around 90 per cent of Arla's total milk requirements.

Behind this leading business is a team of circa 2,800 people across the UK located at our dairies, distribution centres and head office.