Arla underlined the retreat in the dairy commodity market by
blaming it for a cut in the milk price it pays farmers, ending a long run of
increases to payouts.
The Nordic-based dairy giant, which had raised its milk
price twice this year, after a succession of increases in 2013 too, blamed the
drop in the payout on a "significant negative trend in commodity markets".
"While the business remains strong, unfortunately, we are
not immune from trends in the global dairy markets," the co-operative said, in
a statement to its UK suppliers.
"Consequently, we have had to reflect some of the recent
downward movements in the on-account price."
The reduction, which kicks in on April 28, affects only the
co-operative's 12,600 farmer members, with the payment to other suppliers, who
are paid at a lower rate, kept the same.
In the UK, this means that farmers will receive 33.74p a
litre, compared with the 35.01p a litre they currently receive, bit remaining
above the 33.50p offered to non-member suppliers.
The downgrade follows a sharp reduction in world dairy
commodity markets, which have fallen more at GlobalDairyTrade, the benchmark
auction run by New Zealand's Fonterra, the world's top milk exporter, have
fallen more than 20% from an early February high.
The decline has been blamed on a strong start to the
northern hemisphere production season - after hefty growth in output in New
Zealand, the biggest exporting country, too – as farmers maximise output to
exploit prices which remain at historically elevated levels.
The US should see a 2.4% rise in milk output this year,
according to the US Department of Agriculture, while production in the European
Union started the year growing at twice that rate.
Data on Friday showed UK milk deliveries averaging 41.5m
litres a day for the two weeks to April 19, up 13.0% year on year.
Arla's downgrade follows a series of cuts by Dutch rival FrieslandCampina
to its milk price, from a peak of E44.00 per 100 kilogrammes of milk in
November and December.
FrieslandCampina on April 7 announced a reduction of E1.25
per 100kg of milk, to E42.50, in its monthly guaranteed price, also
highlighting a production rise.
"Prices for cheese, milk powder and butter are under
pressure due to higher milk supplies in Western Europe," the co-operative said.
Its milk price nonetheless remains well above the recent low
of E32 per 100kg reached in summer 2012.
There has yet to be any sign of the southern hemisphere processors cutting milk prices, which they ramped up strongly last year to attract product, enabling them to cash in on strong import demand from the likes of China.