Müller Wiseman Milk Group members are being circulated with new contracts which include, for those who receive the standard milk price, an option to link their milk price to movements in the value of global dairy commodities.
The ‘Müller Wiseman Formula Price’ option for dairy farmers is contained within the revised contract which has been sent to all Müller Wiseman Milk Group members as part of the company’s commitment to the Voluntary Code of Practice.
Developed collaboratively by dairy farmers and the company as part of the Müller Wisemilk Initiative, the Müller Wiseman Formula Price will initially be available for nine months from 1st July 2013, for a maximum of 110 million litres
The formula will calculate a farm gate milk price 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 will be reviewed quarterly.
Dairy farmers who are currently being paid the company’s standard milk price will be able to apply to sell a minimum of 10% of their milk volume (based on previous year’s figures) under this new Formula option. Müller Wiseman Dairies is looking to declare the opening Formula Price within the next few days with a view to canvassing interest amongst farmers in June for commencement on July 1.
Pete Nicholson, Agricultural Affairs Manager for Müller Wiseman Dairies said:
“The current Müller Wiseman Standard Price will remain the default for non retailer aligned suppliers to the company. But the new contract offers an additional option which addresses the desire amongst some dairy farmers for their milk price to have a direct and clear link with published dairy commodity values.
“Members will get support from the company’s Farm Services team to understand the principles of the option, and we are developing an online calculator on the member’s website to help them predict trends and track movements to determine whether it is of interest.
“I have no doubt that the Müller Wiseman Formula Price will generate interest amongst existing and prospective suppliers to the company as the Müller Wiseman Milk Group continues to grow.”
Roddy Catto, Chairman of the Müller Wiseman Milk Partnership Board which represents the Muller Wiseman Milk Group members, said:
“The Müller Wisemilk group has delivered a new way to value farm-gate milk which is transparent and linked to recognised market indicators so that the price paid tracks their upward or downward movement .
“We have achieved excellent collaboration between farmer representatives and the company and also with industry analysts, farming unions and other interested parties.
“What sets the Müller Wiseman Standard Price apart is its simplicity and flexibility. The Müller Wiseman Formula Price follows the same approach and unlike prices offered by competitors, it is not then eroded by deductions like member contributions, capital levies, balancing charges or haulage charges.
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 Muller Wiseman Milk Group members can benefit from the Müller Wiseman Milk Group Expansion Incentive and new suppliers can benefit from the Muller Wiseman Recruitment Incentive regardless of which contract option they choose.
- Dairy farmers who supply the Muller UK & Ireland Group now and in the future will be covered by all relevant aspects of the Voluntary Code of Practice.
Müller UK & Ireland Group
The Müller UK & Ireland Group is wholly owned by the Unternehmensgruppe Theo Müller. It has 21 sites nationwide and employs around 6,000 people across 3 businesses, Muller Dairy, Muller Wiseman Dairies and Muller Minsterley.
Müller Dairy is based in Market Drayton and is the UK’s leading yogurt manufacturer, with major brands such as Müller Corner, Mullerlight and Müller Rice. Müller Wiseman Dairies processes and delivers almost a third of the fresh milk consumed in Britain every day and is famous for its black & white cow-print branding.
The most recent addition to the Group is Müller Minsterley, the chilled desserts facility near Shrewsbury at which the Cadbury chilled desserts, including Cadbury Mousse, Trifle and twin-pot products, are made, which Müller sells under an exclusive licence from Cadbury.