SCOTTISH dairy co-operative First Milk has announced a two pence per litre increase in its farmgate price, its largest monthly increase since 2007.

Taking its Scottish mainland price up to 20.02 pence per litre, the October increase is a combination of a 'market movement' adjustment of one pence per litre and a 'business performance supplement' of the same, with the co-op forecasting that its price will continue to rise in the coming months.

In a letter to members, chairman Clive Sharpe said: “For the fourth month running we are increasing our milk price to members. The increase reflects both the improved market returns and the accelerating improvements in our own business.

"Due to the changes made over the last 18 months we are now able to pass market moves directly onto members. In addition our improved internal business efficiency has allowed us to deliver a further business performance supplement that we committed to pay earlier this year.

“Our view of the market outlook is positive as we see prices moving towards 25ppl in coming months. First Milk is well positioned to deliver these improvements directly to our members who can now plan their businesses accordingly.”

Chief executive Mike Gallacher added: “This increase reflects both the strengthening market and the positive impact of huge changes made at First Milk over the last 18 months. We promised members that we would deliver an initial 2ppl improvement in addition to any market moves and I am delighted that this is now coming through ahead of our internal plan.

“However the board and management team are fully aware that the recent improvements are only now starting to be seen on farm after two years of falling prices. Our aim is to get further increases to our members as quickly as possible. Meanwhile our forecasts are pointing to market prices of mid-20s and beyond.

“Our members can be confident that in the new First Milk as the market rises so will our milk price," he stressed. "In addition, we are working on further projects that can add to our existing 2ppl business performance supplement. Member meetings are planned around the country in October and members will be informed of meetings in their areas over the coming days."

Meanwhile Arla producers will see a 1.6p per litre increase from October 1, taking the conventional price to 21.65p per litre.

NFU Scotland milk committee chairman Graeme Kilpatrick said: “These positive price moves will be welcomed by members of these co-ops, with the promise of more to come as we head into winter.

“While these are significant increases, the sad reality is that milk prices are still a long way short of production costs and it is imperative that if we are to rebuild long-term confidence in milk production that this momentum is carried right through into next year.

“Market signals around falling production, lower cow numbers, buoyant futures markets, rising commodity prices and high spot prices are crystal clear indicators that all milk companies should be driving ahead with significant price shifts, but some are sadly dragging their feet with modest priced offerings to date," said Mr Kilpatrick.

“There is a cast iron case for the whole supply chain, which includes processors, retailers and other end users, to recognise the urgent need for a fairer share of these market lifts to be more rapidly relayed back to the farmgate than is happening at the moment.”