Morrisons follows Co-op in raising milk payments amid farmers' protests

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Media captionDairy industry expert Ian Potter says farmers lose money on milk production

A second retail chain has raised payments to milk suppliers after fresh protests by dairy farmers.

Morrisons announced increased premiums on milk for farmers, after a similar move by the Co-operative on Friday.

The government has said it will hold talks on securing the dairy industry's future with farmers on Monday.

The BBC's Norman Smith said ministers hoped more retailers would follow the Co-op and Morrisons' example and a code of conduct on pricing could be agreed.

He said the government wanted to avoid more blockades of milk processing plants by farmers who have been warning they could go out of business.

The protests which began on Thursday night continued on Friday and Saturday.

Campaign group Farmers for Action (FFA) is warning that cuts in the price paid to suppliers by dairy processors, combined with rising feed costs, could force hundreds of dairy farmers out of business.

Further protests

The UK could end up having to import much of its milk, says the FFA.

Some dairy farmers say they are planning further action.

A second protest is planned for Sunday night at the Robert Wiseman dairy processing plant near Bridgwater, Somerset. The FFA's West Midlands branch has also warned of further protests.

Supermarkets assess how much it costs farmers to produce milk and then decide how much to pay above that as a premium, taking into account factors such as rising feed prices.

The FFA says supermarkets must pay more for milk and that this should come out of the retailers' profits rather than the cost being passed on to customers.

On Saturday, Morrisons announced it was increasing the premium to farmers on milk from 1p per litre (ppl) to 3ppl, as well as introducing support payments equivalent to 3ppl for farmers affected by the recent bad weather. It brings the total price they receive to 31ppl.

The increases - from 1 August when the processors' latest cuts come in - would help "to support all farmers, not just those that have dedicated contracts", said commercial director Richard Hodgson.

'Sustainable model'

On Friday, Co-operative announced the premium farmers receive would rise to 2.57 pence per litre with immediate effect, and to 4.27ppl when the processors' price cuts came in from 1 August. It brings the total price they receive to 29ppl.

Asda had already announced it would increase its premium from 1ppl to 3ppl from 1 August, meaning dairy farmers will continue to be paid 27.5ppl after the processors' cuts.

Co-op and Asda ruled out the increase being passed on to consumers through rises in the price of dairy products. Morrisons has yet to respond.

National Farmers' Union president Peter Kendall welcomed the announcements but said a "sustainable funding model" was needed.

Environment Secretary Caroline Spelman and farming minister Jim Paice are to meet dairy farmers on Monday in Llanelwedd, at the Royal Welsh Show, one of the largest agricultural events in the UK.

The BBC understands the government is also arranging to meet representatives of the big supermarkets in the next few days.

Mr Paice said the price cuts by four leading dairy processors were "a severe blow for dairy farmers".

"Government cannot and should not set prices but I will do everything in my power to get all levels of the supply chain to make the real changes needed to guarantee the industry's long-term future," he said.

"Farmers and processors need to work together through an industry code of practice on contracts and retailers have to help shift the focus away from short-term practices which are completely unsustainable."

A spokesman for the Department for Environment, Food and Rural Affairs (Defra) said talks with dairy farmers aimed at agreeing an industry code of practice had been brought forward to Monday because the situation "must not drag on any longer".

Profit margins

As many as 400 farmers and 20 tractors blockaded a processing plant in Foston, Derbyshire, on Friday night, the FFA said.

Meanwhile, a four-hour blockade of the Robert Wiseman Dairies processing plant in Droitwich Spa, Worcestershire, involved about 200 protesters and 40 vehicles, according to West Mercia Police.

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Media captionFarmers have been out in force to call for higher payments for milk

The FFA said 750 of its members in total turned out at both protests.

It followed protests by hundreds of farmers on Thursday night at sites in Somerset, Yorkshire and Leicestershire.

In the dairy industry processors set the price they pay farmers for their milk.

From 1 August, Robert Wiseman Dairies and First Milk are cutting the price by 1.7ppl, Arla Foods UK by 2ppl and Dairy Crest by 1.65ppl.

They say they have no choice because the price they can sell cream for on the commodities market has fallen sharply in the past 12 to 18 months.

The NFU said the cuts would be felt by more than a quarter of suppliers. An average farmer with about 150 to 200 cows, the union said, would lose about £37,000 in revenue from the combined effect of previous cuts in May/June and the new cuts in August.

Ian Potter, a dairy industry commentator, said: "The cost of production at the moment is over 30ppl and rising because with the wet weather the cost of feed is increasing quickly for the coming winter.

"In the last two months processors like Arla have dropped the milk price that they pay to farmers by 4ppl so farmers have been facing competing forces - the cost increasing and the price that they sell the milk for dropping."

He said retailers were making money on liquid milk while processors were working on "very thin or non-existent margins".

"They (processors) are not making any money, with a 4ppl cut the farmers are losing money, and the only people who are left are the retailers, who are making healthy margins," he told the BBC.

Farmers believe that blockading the processors would in turn put pressure on major retailers, he said. But he added it was likely farmers would begin blockading retailers this week.

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