How much do aligned premiums inflate the Defra average milk price?

Published 12 May 16

The gap in prices paid on aligned and non-aligned contracts in GB has increased significantly over the last two years. The sharp drop in dairy markets since Apr-14 has, so far, triggered a 34% drop in prices paid for non-aligned milk*. Over the same period, prices paid on aligned milk* have fallen by only 7%. This has led to an increasing gap in the average prices paid for aligned and non-aligned milk to almost 9ppl. As a result, the Defra average milk price is currently 1.2ppl (5%) higher than it would be if the retailer aligned contracts were excluded.

Historically, the gap between aligned and non-aligned contracts has been around 2-3ppl. However, because the aligned prices are paid on a small proportion of total milk deliveries, the premium has had a relatively small impact on the average. Between Jan-10 and the beginning of the downturn in Apr-14, it is estimated that the aligned premium inflated the Defra average milk price by just 0.35ppl (1%).

As markets rebalance, and prices recover, the non-aligned prices would be expected to increase quicker than the aligned prices. As a result, the price differential between aligned and non-aligned milk would be expected to revert back to more typical levels.

aligned vs non-aligned milk prices

*estimate based on weighted average of prices paid on AHDB Dairy league table prices