Last week, First Milk, a leading UK supplier of cheeses said it was in discussions with leading retailers over raising the price paid for its cheese. This followed a decision by Wal-Mart-owned ASDA to lift payment to the company for its cheese products by £300 per tonne.
However, Jim Begg, director general of industry association Dairy UK told DairyReporter.com that processors in mainland Europe did not appear to have the same problems in ensuring milk availability for their production.
Begg stressed it was unlikely that other EU retailers would be raising cheese payments as a result.
"After falling away from the high prices seen in late 2007, EU cheese prices stabilised in April and have shown some signs of firming since then," he stated. "This is largely due to the seasonal decline in milk production causing a reduction in availability."
Begg added that UK markets were significantly different due to the falling value of sterling between April 2008 and August last year up, which helped maintain the price for some dairy commodities like Cheddar.
"In the end, the market determines the price according to the value it places on a product. Milk output has been dropping in the UK, driving some buyers of dairy products to increase prices to secure supply," said Begg. "That situation is not replicated in Europe."
Another unique feature of the UK is the direct relationship between manufacturers and retailers, Begg claimed.
First Milk communication manager Paul Flanagan, said that Asda's agreement to lift the price of cheese payments was not necessarily a reflection that products down the milk production line, such as cheeses, yoghurts and added-value goods, would bare the brunt of higher milk costs.
"Milk costs have gone up significantly over the last year as production expenses spiralled on the back of fee, fertiliser and energy prices," he said.
Flanagan claimed it was unlikely though that retailers, which are in control of setting product prices, would allow the market to pay more for cheese than milk.
He added that there remains a natural hierarchy in the dairy cost chain designed to ensure that liquid milk will catch up with cheese prices in order to balance out as market demand dictates.