MÜLLER WISEMAN FORMULA OPENING PRICE SET AT 33PPL

Müller UK & Ireland Group has confirmed that its opening ‘Müller Wiseman Formula Price’ from April 1^st 2014 will be 33.00ppl.

In a letter to all non-aligned members of the Müller Wiseman Milk Group, the company confirmed that it is to make 150 million litres available within the contract which links milk price directly to the value of global commodities and a basket of competitor prices.

Prices paid to dairy farmers who sold milk to the company through the Müller Wiseman Formula Price surged to 34.62ppl in the last quarter of the 2013/14 year but have softened as the new milk year approaches reflecting recent changes in the value of commodities and the year end competitor price re-balance.

Martin Armstrong, supply chain planning director for Müller Wiseman Dairies, said: “The formula price performed very well in 2013 in a strengthening market for global dairy commodities. 

“By its nature this contract is likely to be more volatile than the company’s standard litre price (currently 32.50ppl plus 1ppl recruitment and expansion bonus) with higher peaks and lower troughs but farmers who opted to sell a proportion of their milk to us in this way over the last year have enjoyed strong returns.

 “The current Müller Wiseman Standard Price will remain the default for non-retailer aligned suppliers to the company but the ‘Formula Price’ will again appeal to those who are happy to take the risk and the reward associated with aligning themselves with volatile European and Global commodity markets.”

“We ask for farmers who are interested to commit a minimum of 10% of their production to this contract and to notify us in writing by 21^st March, 2014.”

NOTES TO EDITORS:

•The Müller Wiseman Formula Price will be calculated as follows:

◦In February of each year a specified total volume of Müller Wiseman Dairies milk requirements will be offered to members of the Müller Wiseman Milk Group to be priced under the Formula Option. Following application by members of the Müller Wiseman Milk Group individual offers will be made and confirmed in writing. Once a volume is committed to by a dairy farmer under this pricing option it is binding on all milk for a 12 month period starting on 1st April to 31^st March 2015.

◦The Müller Wiseman Formula Option price will be adjusted quarterly based on movements in AMPE, MCVE and the specified Competitor price Basket. The commodity price movements will track solely the movement against the benchmark set at the start of the 12 month period.

◦AMPE will be used as reported independently by DairyCo less a specified allowance for milk collection cost. At the start of the 12 month period the AMPE value is fixed (at the equivalent level of the average of the immediately preceding December to February AMPE values) and then the subsequent quarterly average values are compared and the variance from the fixed benchmark are calculated. Changes from the benchmark are included in the price calculation. An element of volatility in AMPE is managed through the creation of a “corridor” within which AMPE value movements have no effect on the model. The concept of the corridor is that there is an agreed percentage tolerance whereby no adjustment in the price will be made until this tolerance is exceeded. In this way an element of risk and reward is shared between Müller Wiseman Dairies and the members of the Müller Wiseman Milk Group as prices will not move until this tolerance is exceeded. The tolerance is set at +/- 5% of the annual AMPE benchmark and could therefore be calculated to represent a fixed ppl for the year.

◦The Milk for Cheese Value Equivalent, or MCVE, provides an indication of the value returned by processing milk into mild cheddar and its associated by-products. The MCVE calculation will be done on the exact same basis as AMPE using the monthly MCVE figures as published by DairyCo.

◦In addition to using the commodity pricing indicators there will be a quarterly review of the movements in a basket of competitor prices. There is no tolerance built into this indicator and an adjustment will be identified on a straight arithmetic calculation of the movement in the quarterly average price from the previous quarter’s average. The basket will include a mix of liquid processors and cheese producers.

◦As we are looking at three separate indices a weighting is required for each to reach a quarterly adjustment in price. The weighting to be applied is:

1.AMPE : 50%

2.MCVE : 25%

3.Competitor Basket : 25%

◦The Producer will be advised in writing of any change to the Müller Wiseman Formula Price as a consequence of the quarterly review process.

•Current Muller Wiseman Milk Group members can benefit from the Müller Wiseman Milk Group Expansion Incentive and new suppliers can benefit from the Muller Wiseman Recruitment Incentive regardless of which contract option they choose.