Supermarkets Making More And More From Milk

SCOTLAND, UK - Supermarkets are making growing profits from milk and dairy products at the same time as the majority of dairy farmers continue to receive a price for their milk that sits well below the true cost of production.
calendar icon 6 October 2010
clock icon 3 minute read

Ongoing retailer profiteering at the expense of others in the supply chain is the alarming conclusion drawn by NFU Scotland following the publication of industry body, DairyCo’s annual Dairy Supply Chain Margins report. The report looks at gross margins made by farmers, processors and supermarkets from the sale of fresh milk, mild cheddar and mature cheddar and this year paints a bleak picture for both primary producers and those manufacturing the products.

In the year ending March 2010, supermarkets managed to increase their margins on all three dairy products – fresh milk, mild and mature cheddar - despite only marginal changes in the retail prices being charged to consumers. In the same 12-month period, margins for those processing the milk were squeezed and the average price paid to farmers for their milk fell by 2p to 23.8p per litre. That fall in price came at a time when the cost of producing the milk on farm was estimated to be between 26p and 27p.

NFU Scotland Vice-President Allan Bowie said, “There is no defensible position for retailers over the long term damage they are currently wreaking on the dairy sector.

“In a very short chain like fresh liquid milk, many farmers will be losing 2 to 3p per litre on every litre they produce and a liquid milk processor will be making a modest margin of between 1.5p and 2.5p on every litre they bottle. By comparison, a retailer will be making anywhere between 15p and 18p on every litre that they sell.

“Given that our major retailers individually sell anywhere between 400 million and one billion litres of milk every year, they are generating an astonishing and disproportionately large amount of their total annual profits from milk and cheese alone.

“I believe when consumers are shown these figures in black and white they will balk at the power major supermarkets are exerting down on the chain – power that is stifling development at a processing level and ultimately denying hard-working dairy farmers a fair return for their efforts. That cannot be sustainable in the long run.

“At the kind of profits being recorded by supermarkets, there is no need for consumers to be paying more for milk and cheese. At the same time, calls for a fairer share of the clear profits involved in milk and cheese to be immediately passed back down the line is something that we imagine consumers will back wholeheartedly.

“Supermarkets cannot continue to stick their heads in the sand over this report when they are ultimately responsible for many of the ongoing failures in the dairy supply chain. It is time they were called to account and engaged with the industry on how the current imbalance can be addressed.

“It is good to see that DairyCo is to report in the future on how well the markets are working, and how quickly and fully changes in dairy market prices filter through farmgate milk prices. Ahead of that report, retailers must take steps to address the blatant imbalances that exist and help deliver a positive message to dairy farmers, ahead of very costly winter, that their milk is wanted and valued appropriately.”

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