Milk pricing and contracts

The contract to supply raw milk to a processor or retailer will be the most important document a dairy farmer is likely to sign and is thus a very important commitment to make. Milk contracts, however, are generally deemed to be complex and inflexible, with a variety of confusing permutations and little room for standardisation.

The existence of a contract should effectively aid cash flow planning, due to the ability to plan income from a given price per litre of milk produced and sold, although in practice contracts can allow for a good deal of variability in price.

In basic terms, contracts can be devised to reward the production of milk with clearly-defined compositional factors, namely base protein and butterfat content. Milk hygiene quality can be rewarded or penalised by payment banding according to the Stomatic Cell Count and Bactoscan readings. Some contracts may simply reward the production of 'white water' or raw milk without defined constituent characteristics.

Other factors such as seasonality (rewarding the production of milk at the times of year when production is more expensive and levels are therefore likely to be lower) further complicate matters. Some contracts may involve a wider remit, some closely defining farm assurance requirements.

The DairyCo website has a list of the latest milk prices from a variety of buyers, and includes a milk price calculator.

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