7-Year Liquid Milk Low Highlights Industry Squeeze

UK - With 2011/12 average retail prices dropping to their lowest levels in over seven years and a year-on-year increase of 11.6 per cent in farmgate prices, DairyCo’s Supply Chain Margins report, published this week, confirms another year of tight margins.
calendar icon 18 July 2012
clock icon 1 minute read

“In the past, increases in processor costs have been matched with rising retail prices” says DairyCo/AHDB analyst Patty Clayton, “but a significant factor in the liquid milk market in 2011/12 has been the lack of such an increase. Price promotions on liquid milk and consumers tightening their belts meant retail prices did not rise.” Prices were down to 55.5 pence per litre (ppl), 4.6 per cent lower than the 2010/11.

The recent milk price cuts are evidence of the continued squeeze on processor gross margins.

“Unless there is significant change in the structure of the liquid milk market to alter the balance of power, it is likely that processors’ gross margins will remain under pressure.

“This reinforces the importance of the current industry activity on improving milk contracts and the negotiating power of farmers” says Mrs Clayton.

“It also identifies the need to understand dairy markets. For example, farmgate prices will continue to be driven by wholesale markets for dairy products, with demand for milk from the various product segments driven by their profitability. DairyCo’s fortnightly Datum update will continue to highlight the movements in these markets.

“It is also important that farmers align their individual circumstances with the right milk buyers and understand their position in the market. DairyCo’s annual company reviews will continue to explore this area,” concludes Mrs Clayton.

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