Dairy farmers who have opted to sell their milk to Müller Wiseman Dairies through the ‘Müller Wiseman Formula Price’ contract are to receive 34.55ppl from October 1.
Introduced from July 1 this year, the formula was developed collaboratively by Müller Wiseman Dairies and dairy farmers elected to represent all Müller Wiseman Milk Group members.
The price is calculated using publicly available benchmarks: Actual Milk Price Equivalent (AMPE), Milk for Cheese Value Equivalent (MCVE) and a basket of competitor milk prices, all of which are reviewed quarterly.
Dairy farmers were given the option to sell all or a portion of their milk to Müller Wiseman Dairies using the formula price, to a combined maximum of 110 million litres this milk year.
Existing and new Müller Wiseman Milk Group members are also entitled to valuable expansion and recruitment incentive payments each worth up to an additional 1ppl on all litres produced, as a 13th payment.
Martin Armstrong, Supply Chain Planning Director for Müller Wiseman Dairies said:
“The formula price will perform very well in a strengthening market for global dairy commodities , but equally could suffer a sharp correction if commodities decline in value in the way that they did in 2012.
“Dairy farmer members were given the option to opt in to this formula in line with their attitude to risk and many have chosen to hedge by committing a portion of their output to the formula whilst maintaining the rest of their supply through the Müller Wiseman Standard Price, which is less volatile and reflects competition in the fresh milk sector (currently 31.5ppl).
“The prices of both options are extremely competitive and benefit from an additional production incentive of up to 1ppl and it should be stressed that they are not then eroded by capital levies, membership retentions, transport or balancing charges.”
Ends… 02 September 2013
Notes to Editors
- The new Müller Wiseman Formula Price will be calculated as follows from 2014 onwards:
- In February of each year a specified total volume of Müller Wiseman Dairies milk requirements will be offered to members of the Müller Wiseman Milk Group to be priced under the Formula Option. Following application by members of the Müller Wiseman Milk Group individual offers will be made and confirmed in writing. Once a volume is committed to by a dairy farmer under this pricing option it is binding for a 12 month period starting on 1st April.
- The Müller Wiseman Formula Option price will be adjusted quarterly based on movements in AMPE, MCVE and the specified Competitor Basket. The commodity price movements will track solely the movement against the benchmark set at the start of the 12 month period.
- AMPE will be used as reported independently by DairyCo less a specified allowance for milk collection cost. At the start of the 12 month period the AMPE value is fixed (at the equivalent level of the average of the immediately preceding December to February AMPE values) and then the subsequent quarterly average values are compared and the variance from the fixed benchmark are calculated. Changes from the benchmark are included in the price calculation. An element of volatility in AMPE is managed through the creation of a “corridor” within which AMPE value movements have no effect on the model. The concept of the corridor is that there is an agreed percentage tolerance whereby no adjustment in the price will be made until this tolerance is exceeded. In this way an element of risk and reward is shared between Müller Wiseman Dairies and the members of the Müller Wiseman Milk Group as prices will not move until this tolerance is exceeded. The tolerance is set at +/- 5% of the annual AMPE benchmark and could therefore be calculated to represent a fixed ppl for the year.
- The Milk for Cheese Value Equivalent, or MCVE, provides an indication of the value returned by processing milk into mild cheddar and its associated by-products. The MCVE calculation will be done on the exact same basis as AMPE using the monthly MCVE figures as published by DairyCo.
- In addition to using the commodity pricing indicators there will be a quarterly review of the movements in a basket of competitor prices. There is no tolerance built into this indicator and an adjustment will be identified on a straight arithmetic calculation of the movement in the quarterly average price from the previous quarter’s average. The basket will include a mix of liquid processors and cheese producers.
- As we are looking at three separate indices a weighting is required for each to reach a quarterly adjustment in price. The weighting to be applied is:
· AMPE : 50%
· MCVE : 25%
· Competitor Basket : 25%
- The Producer will be given at least one month's notice in advance of any change to the Müller Wiseman FormulaPrice as a consequence of the quarterly review process.
- The Müller Wiseman Milk Group comprises 1094 producers, of which 381 currently receive the Müller Wiseman Standard Price and are therefore eligible to access the Müller Wiseman Formula Price. The remainder are in groups aligned to major supermarket customers which have their own pricing arrangements.
- Current Müller Wiseman Milk Group members can benefit from the Müller Wiseman Milk Group Expansion Incentive and new suppliers can benefit from the Müller Wiseman Recruitment Incentive regardless of which contract option they choose.
- Dairy farmers who supply the Müller UK & Ireland Group now and in the future will be covered by all relevant aspects of the Voluntary Code of Practice.