Crest fallen: Milk producer agrees supply terms changes

Pressure from farmers and a grilling by MPs has led producer Dairy Crest to make “key changes” to the terms of its standard milk supply contract.

Dairy Crest will be among those quizzed by MPs about the crisis in dairy farming caused by industry-wide milk price cuts. More than 2500 farmers gathered in London last week to protest about cuts of up to 2p a litre by major milk processors.

Farmers’ representatives, supermarket Asda and Dairy Crest will be called to answer questions this afternoon.

Dairy Crest, which produces 1.7 billion litres of milk a year, said it will now allow farmers to move their supply with only three months’ notice following any milk price reduction.

It will also introduce a price floor for milk, guaranteeing the price paid to farmers will not be cut further this year.

Dairy Crest, which is hosting its AGM today, said its milk business continued to struggle but its financial targets for the full year will be met.

Analyst Clive Black at Shore Capital said: “Let no-one be in any doubt that Dairy Crest Dairies is not ‘creaming it’ within the dairy chain.”

But in contrast to its dairy business, Dairy Crest’s foods operation, including Cathedral City cheese and Clover, has been performing well.

It plans to hit its medium term target of a 3% return on sales from its dairy business. It has spent the past year reducing loss-making operations, and is closing two dairies. While last month it agreed the sale of its French spreads business, St Hubert, for €430m. Proceeds would be used to pay down debt and look at potential new investments in the UK.

Mark Allen, chief executive, said: "Our focus at the start of the year has been on doing the right things to restore our dairies business to a satisfactory level of profitability and we are pleased with the progress we are making."