Low milk prices unsustainable, say producers

By Chris Mercer

- Last updated on GMT

Related tags: Milk prices, Supermarket, Dairy farmers

Milk producers have renewed their fierce criticism of low farmgate
prices in Britain, as the country's competition watchdog prepares
to open an in-depth probe into the market practices of top
supermarkets.

The Office of Fair Trading this week succumbed to four years of pressure from politicians, suppliers and environmental organisations by asking the Competition Commission to investigate Britain's top grocery retailers.

It is the first time Britain's big four - Tesco, Asda, Sainsbury's and Morrison's - will be subject to a far-reaching probe into market dominance, land bank practices and pricing strategies.

The move has been welcomed by many of Britain's dairy producers, who have again blamed the big supermarkets for pushing down farmgate milk prices.

UK producers are paid an average 18p per litre for their milk, the lowest price among the 15 pre-accession member states of the European Union. It costs roughly 20p to produce a litre of milk.

Dairy farmers will simply not go on at a price level which is below the cost of production, said Malcolm Thomas, director of the National Farmers' Union in Wales, after a meeting with European Union milk producer representatives last week.

"There must be a far greater acceptance by the major supermarkets of their role in ensuring the financial viability of their farmer suppliers," he said.

Many producers are incensed that payments have been cut as retailer profits rise. Farmgate milk prices have fallen by an average 8p in the last 10 years, while retailer profits on liquid milk alone have increased by a quarter.

Rising input costs and pressure from retailers has led to further farmgate price cuts by some processors in recent weeks.

Some dairy farmers took part in strikes last year, withholding their milk supplies, although the action was not supported by either the National Farmers' Union or industry association Dairy UK.

Ironically in the face of the new probe on supermarket policy, the Office of Fair Trading (OFT) announced last autumn it was investigating alleged deals between supermarkets and dairy processors to raise the milk price.

It is thought several such deals have been done over the last few years to raise retail milk prices in order to pass more money down the supply chain.

The Rt. Hon. David Curry MP, chairman of Dairy UK, last year criticised the OFT for victimising the dairy sector. He did, however, concede that milk prices could only change via market-driven competition.

The OFT has taken a firm line on the issue from the start, and warned the dairy industry in a letter in January last year that "price fixing agreements are among the most serious breaches of competition law"​. It said dairy farmers' difficulties were no excuse.

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