Dairy Crest Renews its Morrisons Contract

20 Jan 2015 --- UK supermarket retailer Morrisons has announced that it will continue to buy its milk from both Dairy Crest and Arla for the coming three years.

Morrisons already has an existing relationship with the farmer-owned cooperative, Arla Foods, for liquid milk but the new agreement guarantees increased volumes.

The agreements will also bring closer Morrisons’ ambition to introduce a scheme that will help farmers manage the volatility of their milk price. This will involve working with a group of farmers to help them hedge prices.

Casper Meijer, Morrisons Group Trading Director said “Following the end of our previous five year contract, we have chosen to continue the relationships with our existing dairy companies ensuring no further volatility is brought to the dairy industry. It’s important that we can assure customers of a long term supply of liquid milk and our existing relationships with both processors have already shown us they can deliver that.”

Arla has just opened what is understood to be the most efficient milk processing plant in the world in Aylesbury, where the retailer’s fresh milk is processed and Morrisons believes that this investment in the British dairy industry will lead to stronger returns for Arla farmers in the long term.

Morrisons also has an existing relationship with Dairy Crest and although it will be reducing volumes for liquid milk, the processor will continue to supply Morrisons with high volumes of other dairy products including cheese, butter and soft spreads.

Martyn Jones, Morrisons Group Corporate Services Director said “Arla is owned by farmers which means that members will not only receive more business from Morrisons but should receive a benefit from their cooperative. Also, by working with a second processor, Dairy Crest, we will be reaching a greater number of farmers than we would with a single dairy company.”

As part of the contract negotiations Morrisons held discussions with all the major dairy companies including Graham’s of Scotland. As a result of these discussions Graham’s will now begin to supply their brand of milk and butter to Morrisons stores in Scotland.

Dairy Crest said that it does not expect this move to materially affect its financial results for the year ending 31 March 2015.

The sale of Dairy Crest’s Dairies business to Müller Wiseman Dairies for an estimated £80m is currently going through. Once completed, Dairy Crest will focus on its cheese and butter & packet spread business. The Dairies business currently sells some 1.3bn litres of liquid milk to major retailers, small businesses and direct to consumers.

The worldwide dairy crisis has hit milk producers in the UK hard. Farmers are faced with falling prices and an oversupply of produce.