Supply reduction incentives of a different kind

Published 20 April 16

In response to deteriorating conditions in dairy markets, some European co-ops have started to offer their suppliers higher prices for reduced deliveries.

In Austria, Gmundner Milch has implemented a series of bonuses for farmers who provide less milk than they produced in the previous year. Similarly, if suppliers increase deliveries, penalties are applied. The base price is estimated to be about 23.2ppl at current exchange rates and if a farmer delivers 5%-10% less on a monthly basis, they’ll receive a bonus of about 0.6-1.7ppl. However, the penalties for delivering more milk are double that of delivering less. In other words a farm producing 5%-10% more would be a subject to a penalty of 1.8-3.5ppl.

Earlier this year Friesland Campina introduced a temporary scheme which offered their suppliers a bonus of approximately 1.6ppl for similar or lower supplies compared to December 2015. This bonus was paid on deliveries between the start of January and the middle of February, due to the processor not having sufficient processing capacity during this period.