Arla Foods is to increase the price it pays its co-operative members in the UK for milk in a move, it said, would “build confidence” in the UK dairy industry.

The Cravendale milk owner said it will now pay 29.5ppl for milk supplied by members of its dedicated supply group Arla Foods Milk Partnership (AFMP), from 1 October.

The move, announced today (3 September), comes as AFMP launches a milk sourcing model, which it says will allow a more transparency in milk pricing.

Key elements of the model include: anticipated improved returns from its customers and markets. It also said it would give its “full support” of the new voluntary code of practice drawn up by UK dairy processors and farmers, announced today.

Arla said it would also offer “a range of contracts to suit the needs of dairy farmers”.

The milk sourcing model will allow Arla to share with members the benefits of retailer-aligned contracts by pooling retailer premiums, it said. Arla argued AFMP members which receive a price not set through a formulaic model – which covers around 75% of partnership – would see better returns.

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“We have worked tirelessly for a number of months to develop this model,” said AFMP chairman Jonathan Ovens. “We were fully aware when we announced a reduction in the milk price that it was not sustainable for our membership.

“The increase in cost of production is very real for members but we don’t believe that a cost of production model is the long-term answer because it would lead to a UK dairy market that is uncompetitive and at risk post 2015. The milk sourcing model has allowed us to improve returns to members, addresses their concerns and gives choice and confidence in their processing partner.”