European processors feel raw milk cost pinch

By Neil Merrett

- Last updated on GMT

Related tags Dairy processors Milk First milk

The average price paid to European farmers for their milk is up 12
per cent on the previous year to €30.66 per 100kg, according to a
new market report.

The information is from the UK Milk Development Council's (MDC). The findings, sourced from the Dutch Farmers' Union (LTO), highlight the increasing cost pressures on the region's leading processors as supply is tight and demand is high. Of all the groups affected, French giant Danone was strongest hit by the increases, paying on average €5.09 more per kg than in the previous year, the MDC stated. Finnish group Hameenlinnan and Germany's Nordmilch also faced strong hike in prices of €2.56 per 100kg and €4.75 per 100kg respectively. While the increases were felt Europe-wide, UK based groups like Arla Food's British arm and First Milk continued to fare better than continental competitors, posting decreases in their farm gate milk payments, the report stated. MDC said that Arla paid €28.10 per 100kg on average for the year, €2.56 per 100kg less than 2006. First Milk cut its farmgate payments by €4.75 per 100kg to 25.91 per 100kg. Despite the higher costs facing European processors, the LTO's figures suggested that rival international markets have been even more responsive to the changes in milk commodity prices. In July alone, milk prices in New Zealand increased by 17.6 per cent over the rates paid out during the previous month, according to the figures. Rising prices in the US were even more pronounced though, increasing by as much as 90 per cent on a monthly basis over the same period the previous year. The LTO conceded that the figures were based on a different standard of milk compared to July 2006 on account of changes in the profile of European milk. These amendments have resulted in a rise in the protein percentage from 3.355 per cent to 3.4 per cent. The findings will be particularly significant for European processors, following allegations made last week that some groups had colluded over fixing prices of their goods. Major supermarkets and dairy processors allegedly cheated consumers out of £270m (€389m) by colluding to increase prices for dairy products, the UK's Office of Fair Trading (OFT) claims. In a provisional decision, the competition regulator alleged supermarkets Asda, Morrisons, Safeway, Sainsbury, and Tesco, as well as dairy processors Arla, Dairy Crest, Lactalis McLellan, the Cheese Company and Wiseman, collaborated to fix the retail price of milk, butter and cheese. If found to be true, these supermarkets and dairy processors will have broken UK law under the Competition Act 1998, which "prohibits agreements, practices and conduct that may have a damaging effect on competition in the UK".​ The OFT claims the companies shared "highly commercially sensitive information, including details of the levels of price increases"​ over a two year period of 2002 to 2003. In response, a number of the processors including Arla and Dairy Crest have stated that they are continuing to work with the OFT over the allegations.

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