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‘Unacceptable, impossible, unsustainable’ - The sorry state of UK milk pricing

1 commentBy Ben Bouckley , 06-Jul-2012
Last updated on 06-Jul-2012 at 12:57 GMT

We like that cheap white stuff on our cereal. Milk has always been a loss leader in UK supermarkets for years now. Everyone knows it: The farmers, the processors, the retailers, even the cows…

Fundamentally, this supply chain malaise is linked to consumer ignorance or lack of concern as to where our food actually comes from. I’m as guilty as anyone else. I need to change my ways.

In a previous life, I had a Saturday job delivering fruit and vegetables to swanky golf clubs in rural Essex, and was forced to tear around country lanes in a suspicious-looking white van with no handbrake and bald-ish tyres. The guy no-one wants behind them at the lights. Fond memories…

I doubt anyone in those plush saloons and stately clubs doubling as wedding venues really cared about the ‘story’ behind the food they were eating (at least one that wasn’t linked to its ‘artisanal’ origins), notably the human sweat, toil and tears it took for it to reach their table.

Marxist rash

Their restaurant meal was just another version of ‘commodity fetishism’ where the steps it took to reach the table were hidden out of sight. I enjoy such an experience myself, so can I say that without you coming out in a Marxist rash? Such is the case with your four pint HPDE carton of milk.

I often got soaked to the bone and some verbal abuse doing this job, but I didn’t care. I was being paid to do a Saturday job that lasted all of six months and got to see some of the most beautiful farming land in England. And the job covered my costs.

This is the least one can ask. Dairy farmers have a job that doesn’t cover theirs, and have been the dairy supply chain whipping boys for far too long. They have been asking for the least for too long. No-one is listening, least of all the retailers – led by the discounters in the ‘middle ground’.

This week Dairy Crest announced a 1.65p/litre price cut to its Dairy Crest Direct suppliers from August, with milk priced at just 24.92p/litre: a milk price loss of 4.41p/litre on every litre supplied.

Impossible to break even

Kite Consulting said the latest ‘break even’ milk price position was 29.33p/l, and DCD warned that the average farmer would lose ₤53,000 per year, and summarily issued a ₤35m profit warning.

Chairman David Herdman called DairyCrest’s new price cut “completely unsustainable”, “impossible to agree to” and “clearly unacceptable”, and warned that unless price cuts were reversed his members would be forced to stop supplying milk.

Dairy Crest, Arla, Robert Wiseman. Despite significant liquid milk exposure, all the leading processors have made desperate (and pretty successful attempts) to diversify into higher-margin brands. Say, Frijj, Castello, Cathedral City. But liquid milk is a big business that is still profitable for them. Just.

Levy-funded farmers’ body DairyCo published a teaser to its Dairy Supply Chain Margins 2011/12 report due for publication this month, which promises a detailed analysis of the impact of events in dairy markets on liquid milk and Cheddar margins.

DairyCo’s senior analyst, Patty Clayton, said: “It seems unlikely that processor gross margins increased given the continued high levels of competition in the retail market, pressure from retailers to keep selling prices down and the increase in average farmgate prices.”

Fruit juice on cereal

This despite UK farmgate prices rising for the second consecutive year in 2011/12, Clayton said.

“Given the strategic importance that retailers have placed on milk and its use to help bring consumers into stores, retailers have resisted any increase in processor selling prices,” she added.

So blame the supermarkets. Nothing will change unless they either freely take an ethical decision to stop using liquid milk as a loss leader, or are compelled to do so. Easing the pressure here would undoubtedly ease everyone’s situation further up the supply chain.

But since the coalition government is unlikely to forbid milk as a loss leader – and the retailers would just take their pound of flesh from another product or sector – this will take concerted consumer action, and willingness to pay more for milk. Otherwise, just get used to fruit juice on your cereal.

Ben Bouckley, pictured, is deputy online editor at William Reed Business Media (SAS).

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1 comment (Comments are now closed)

The Milk Processers will wake up too late.

Remember the fable ' of killing the goose that laid the Golden eggs. This is going to happen to the major milk processors and also the Supermarkets. It is a fact of life that between them, they take more than double the cost than the dairy farmer gets for all the hard work producing the milk in the first place.

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Posted by Brian Robinson
21 July 2012 | 19h31

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