The Scottish dairy sector is reeling after the announcement that major Scottish-based milk processor Robert Wiseman Dairies is to slash the price paid to its farmer suppliers for the second time in three months.

East Kilbride-based Wisemans, taken over by European dairy giant Mueller in January of this year, cut the price paid to its farmers by 2p per litre in June and is following that up by a further 1.7p cut for August. For an average Wiseman supplier, producing around 1.4 million litres of milk a year, these two cuts equate to a potential reduction in annual income from milk sales of more than £50,000.

The disappointment that Mueller/Wisemans has imposed further cut prices at this time is deepened by the fact that dairy commodity prices for cream, butter and milk powders, which dipped at the start of the year, have rallied in both May and June.

Chairman of NFU Scotland's Milk Committee Gary Mitchell said:

"The seriousness of this price move should not be under estimated by any in the dairy supply chain or our politicians. A cut of this scale has sent shock waves through the whole dairy sector.

"Prior to being taken over by Mueller, Robert Wiseman Dairies had a proud record in delivering league topping prices but for it to lead the way in slashing returns to its producers is in stark contrast to the company's normal approach to pricing. In a few short months, Mueller/Wisemans has cut its farmer supplier prices by almost 15 percent.

"Although Mueller/Wisemans have opened the door, we would urge all other processors to take stock and seriously consider the importance of delivering a fair price, confidence and stability to their suppliers rather than adopting a knee-jerk reaction and following suit. There is every indication that the dip in demand for dairy products worldwide is over and producers have every right to expect prices to improve in line with strengthening markets.

"The Mueller/Wisemans cut simply underlines the fundamental flaws in the current dairy supply chain. Dairy farmers did not receive their fair share of returns when markets were flying last year and, as a result, have little reserves in the bank to cope with the current volatility. 

 "It is also clear that a liquid milk contract is no longer a guarantee of a premium price. Those who are supplying supermarkets with their fresh milk are likely to continue to receive a price at or near the cost of production. Today’s announcement from Sainsbury’s that those providing its own label milk requirements will see their price go up to 30.56p per litre proves that point. However, those that are on a non-aligned Mueller/Wiseman liquid milk contract are now 4p to 5p adrift of dedicated supermarket suppliers, and that is creating significant animosity.

"Those affected by this cut will take stock of what this price drop means to them, and consider their options. Speaking to members who supply Mueller/Wisemans, there is a level of suspicion that the timing of the cuts is pre-planned and strategic as, due to the peculiarities of the Wiseman contract, the earliest an affected producer can resign is December.

"It highlights that, along with NFUS, all Scottish dairy farmers need to keep tackling their milk buyers about their long-term ambitions. The Scottish and UK dairy sector will grow and prosper when we have milk processors with the will and ambition to add value and look to new markets. Farmers will benefit from working with those processors who are willing to pay what they can and not what they can get away with.

"Dairy growth and prosperity is at the heart of the work that NFUS and others are actively developing as part of a Scottish dairy strategy. We continue to challenge all processors and co-ops to identify strategies that will deliver for the Scottish dairy sector and we encourage dairy farmers to do the same.

"Our politicians have made encouraging noises about the need for a Code of Practice that addresses the fundamental flaws which deny milk producers a fair and reasonable milk price, and impacts on the efficiency and competitiveness of the UK dairy sector. These milk price cuts lay bare some of those flaws.

"The negotiations on the Code have made progress, but have stalled because farming unions, in representing their dairy farmer members, need to believe that the concluded Code will deliver the radical and progressive benefits the farming end of the industry urgently needs. If it does not deliver, them we must consider the unpopular option of legislation in this area.

"In the meantime, milk committee members at NFUS are being canvassed for their views and I encourage any Scottish dairy producer to contact their local committee member to discuss the current crisis. NFU Scotland will speak again to Mueller/Wisemans early next week."