Supply and Demand Overriding Factor on Prices

GLOBAL - Supermarkets have influence in trading terms but the critical factor in farmgate price is supply and demand, says a leading agricultural costing book.
calendar icon 23 February 2015
clock icon 2 minute read

Agricultural economist John Nix has said that retail prices are more affected by cost of production in terms of commodities in general, although acknowledges the argument that some farmers suggest they see an insufficient share of retail prices.

Responding to UK government figures for beef, milk, eggs and wheat from 1990 to 2013, Nix underlined the different levels of processing needed to get raw farm goods to the shelf.

“The value of wheat in a loaf of bread is only about 10 per cent of its total retail price,” said John Nix. “At the other end of the scale is beef where the farmer receives around 50 per cent of the total retail price.”

Milk and eggs have both secured around 30 per cent of retail values in recent years, well adrift of beef but ahead of wheat. 

Retail prices were front and centre for Spanish and UK dairy farmers this week when rallying the government and consumers respectively.

They pointed to retail prices often not being reflective of production costs.

Chris Dickinson, county adviser for the National Farmers Union, told TheDairySite that world supply and demand issues are a fact of modern farming, but strong domestic demand can help producers.

The NFU has called for the whole supply chain to work together, in which farmers can play their part by being as efficient as possible and keeping tabs on production costs.

“Farmers have got to make sure their cost of production is right and if they can do that they can produce milk efficiently and for the right price, that’s important,” said Mr Dickinson.

“We then need to make sure the processors are paying a fair price.”

He praised supermarkets using the cost price plus models, which see farmgate prices sympathetic of production costs, and called for more of this work in the future.

Spanish retailers, however, have been hammered by producers this week who have named and shamed seven “fraudulent” retailers.

Spain’s Food Control and Information Agency (AICA) was told to expect notice relating to multiple retailer practices contravening food market laws.

Such measures include unsustainable pricing, using milk as “bait” to entice shoppers and promotional milk giveaways as meanwhile dairy farms across the country struggle to keep going.

Michael Priestley

Michael Priestley
News Team - Editor

Mainly production and market stories on ruminants sector. Works closely with sustainability consultants at FAI Farms

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