A Chatham House defence research project into threats to the medium-term security of the British food supply is taking the milk industry as one of its two case studies. So the fact that around half of the UK's dairy farmers have left the industry since 1995 is causing alarm.

Today the National Federation of Women's Institutes is launching a Great Milk Debate with meetings around the country to highlight milk farmers' plight and to work out why such a key group of producers should be in crisis. The ready villains in the story are the big supermarkets, and the Competition Commission inquiry into them has already said: "We are concerned to understand why ... the benefits in the retail price of milk since 1999 have generally been retained by grocery retailers." The supermarkets' margin on fresh milk has increased from 3p a litre a decade ago to about 16p, according to the National Farmers' Union. During that time the share of what we pay for milk that went to the processors, the companies that collect, pasteurise and bottle milk, stayed about the same, but the farmers' share kept going down, even as their costs for fertiliser, fuel and feed rose dramatically.

Retail margins

"Look at the graph," says Colin Rank, chairman of Kemble Farms, which has a dairy herd of 700 cows in the Cotswolds. "You can see the division of spoils: in the 1990s the retail margins were very small. You can see the points at which supermarkets flex their muscle and their share goes up, the price to processors goes down a little shortly after, and it's followed by a fall in price to the farmer. There's no risk for the supermarket, they take the cash in the morning, and pay 10 days later. That's what a controlled market looks like."

But like most other people in the industry, he traces its problems beyond the familiar target of the supermarkets. The Milk Marketing Board used to hold a monopoly on collection and selling of farmers' milk. When it was broken up and the market was deregulated in 1994 farmers were left with little power.

The government's head of sustainable food and farming delivery, Sir Don Curry, says it was clear at the time that British farmers would be left unable to compete. "It led to a fragmentation of marketing and processing of milk just at the point when the global market was consolidating. Because it was fragmented, processing companies have competed to get contracts with supermarkets who have single, or just two, suppliers, and they have been undercutting each other, which then adds to pressure on farms."

Source: Guardian Unlimited