Cut-throat promotions have seen standard 400g packs of mature Cheddar retailing for as little as £2 recently, but there will be few sold for less than £3 by the end of the year, industry experts have warned.
The price of other dairy commodities has already increased dramatically recently skim milk powder is currently at a seven-year high, while the price of bulk butter in the UK has hit its highest level on record, with a tonne of butter currently costing about £3,700 [PTF].
Nick Peksa, of commodities analysts Mintec, said it was only a matter of time before cheese prices would follow suit. Rising prices are sometimes disguised by manufacturers and retailers promoting more heavily, but Peksa said he did not believe aggressive promotions would be sustainable once prices went up. "When that happens, aggressive marketing will no longer be possible and many promotions will simply disappear," he said.
Cheddar maker Wyke Farms said it was expecting the retail price of its mature Cheddar to go from about £6.30/kg at the moment to £7/kg and possibly more by early summer.
Wyke Farms managing director Richard Clothier said his company was already pulling back from running aggressive promotions on its lines, and added that getting retailers to push their Cheddar prices up was now a key priority for everyone in the cheese industry.
"There's a pinch point between the rising input costs and greater demand for dairy products worldwide, and perhaps that's the retailer margins," he said. "Maybe the golden era of retailers making 40% to 50% margin on dairy products is coming to an end."
Dairy prices have been driven by many of the same factors that have seen other commodities spike recently, including higher input costs and greater demand from BRIC countries.