Arla exchange rate mechanism supports UK farm incomes by £70m

Published 5 November 15

AHDB estimates that the exchange rate mechanism used by Arla Foods UK to calculate farm prices has boosted dairy farm incomes by £70m over the last 18 months.

The mechanism uses a rolling 24-month exchange rate, updated quarterly, to convert the Arla Foods amba milk price into a UK equivalent. By AHDB’s calculations, the Arla UK milk payment to members would have been some £20m lower in 2014 if they’d used the actual exchange rate in the month, rather than the mechanism.

The position is even starker in 2015 due to the rapidly declining Euro since the start of the year. Over the first 8 months (Jan-Aug) the price paid to Arla UK farmers is estimated to be £50m higher than it would have been if they’d used the monthly exchange rate. That would be equivalent to around 2.3ppl if split across all Arla UK milk suppliers.

While this has been helping Arla UK farmers over the last 18 months, it brings a word of warning that UK prices will start to lag behind when the exchange rate moves the other way.