Retailers 'receptive' to milk price increases

By Chris Mercer

- Last updated on GMT

Related tags: Milk price increase, Milk

Supermarkets in the UK have softened their stance on farmgate milk
prices in recent weeks, as public scrutiny of the dairy supply
chain has grown.

An experienced source involved in negotiations between farming groups and retailers said they had "never known retailers to be more receptive to a milk price increase"​.

Recent bilateral discussions between one farming association and individual retailers and processors have sought to lay foundations to improve milk producer earnings.

Retailers and dairy processors have come under intense pressure recently over their dealings with dairy farmers, and the UK Competition Commission said last week it would examine the sector further as part of its grocery supply chain probe.

Average farmgate milk prices have fallen to below the cost of production for some farmers, while supermarkets have increased profits from liquid milk sales over the last decade, figures show.

Concerns have also grown about the security of Britain's milk supply, after industry data revealed nearly 1,000 producers had quit the sector in the last year and more large, efficient businesses had quit than anticipated.

The National Farmers' Union this week said "the tide was turning for British farming"​ after new figures showed average incomes had improved.

But it warned "milk, beef and lamb prices remain well short of the level needed to provide long-term sustainability".

The last few months have seen signs of a shift in retailer behaviour, however.

"There is [public] scepticism about the amount of money passed on to suppliers,"​ said Sir Stuart Hampson, chair of the John Lewis Partnership, which owns the Waitrose supermarket. He spoke as a panellist at last week's City Food Lecture, sponsored by the Food Standards Agency.

He said "long-term relationships between retailers and farmers"​ would be essential in creating an economically and environmentally sustainable supply chain.

Many in the dairy industry believe the industry must sort its own problems through better contracts and more communication through the supply chain - rather than with government interference.

Some supermarkets have made moves in this direction.

Sainsbury's said it would work directly with 450 farmers, linked to processing firms Robert Wiseman and Dairy Crest, in a new Dairy Development Group. It said this could provide better foundations for producers to invest.

Industry analysts have also predicted a more stable climate for UK milk producers in 2007, thanks to tightening supplies on a national and global level, as well as rising sales of added value dairy products.

Both retailers and suppliers must tread cautiously on milk price rises, however, in light of competition authorities' investigation of 'pricing initiatives' on retail milk.

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