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 Tight supply is being exacerbated by the impact of wet weather on production

Retail prices of dairy products such as milk and cheese could rise later this year due to a continuing tightness in supply, Kite Consulting has warned.

The UK average farmgate milk price fell by 0.9% to 37.34p per litre in February, according to Defra’s most recent data. This was 27.6% lower than the record 51.60ppl price seen at the peak of farmgate price inflation in December 2022.

A subsequent 26.7% slump in the price between January and May last year helped bring retail prices down – meaning the price of four pints of milk fell from £1.55 to £1.45 across most of the mults.

However, average farmgate prices have been edging upwards since last September. And in January, prices were tracking more than 7% above the five-year average.

Following a spate of price hikes by processors over the past month, average farmgate prices would likely continue rising into the spring and summer, said Kite director John Allen.

The likes of Freshways (up 2p to 37ppl), First Milk (up 0.72p to 37.72ppl) and Yew Tree Dairy (up 1p to 37ppl) are among 15 processors to have recently announced price increases, with many pointing to sluggish supply and the impact of bad weather on herds.

This had pushed the current average around 38ppl across the sector, rising to an average of almost 41ppl for those supplying retailer milk pools, according to more up to date farmgate pricing analysis by the consultancy. It comes as the average cost of production was still around 40ppl, despite a fall in the cost of many inputs. 

Allen suggested average farmgate prices could therefore rise above 41ppl by the summer, amid a 1% year-on-year contraction of milk supply in Europe. It comes as AHDB said last month that GB milk deliveries for the 2023/24 season had ended at a seven-year low.

Continued rain putting harvest and planting on hold, industry says

Weather challenges were adding further obstacles – particularly around feed prices – he added, due to the impact recent floods had on feed production and the cost of supplementing silage and hay with manufactured feeds.

His comments echo those of AHDB in recent weeks, which has been warning that production could be hampered by wet ground, delaying the shift outdoors to pasture for many dairy farms.

“I don’t see any prospect of prices remaining low, so our expectation is that we will see a steady increase in farmgate milk prices during the second half of the year,” Allen said.

“Processors are now increasing their prices to secure supply,” he added, while refusing to rule out “slight” retail price increases as a result, despite the wider deflationary picture across food pricing.

The upward shift in price has so far failed to impact on retail milk prices, with analysis of Assosia data for The Grocer’s Key Value Items tracker (below) this week showing the price of two pints of milk across the mults has averaged £1.22 since last July.

However, there has already been upward movement when it comes to cheese pricing, with the KVI data showing the average price of a 350g Cathedral City Mature cheddar block increasing by 8% on last week.