Source: Alamy  

Soaring farmgate milk prices appear to be driving further price hikes at the supermarket tills

Soaring farmgate milk prices appear to be driving further price hikes at the supermarket tills, with the cost of an own-label four-pint bottle of milk rising by up to 17.4% since the start of the year.

The SKU – a long-time bellwether of milk price inflation – rose 12.2% from £1.15 to £1.29 across the big four, Waitrose, Aldi and Lidl between 3 January and mid-May, according to analysis of Assosia data.

But both Morrisons and Asda went even further at the start of this week, hiking the price to £1.35 – marking a 17.4% rise since January – as part of a raft of increases across their liquid milk offerings.

Other notable increases this week include an 8p rise in the cost of an Asda/Arla farmers Milk four-pinter to £1.60, meaning the product has seen a total rise of 14.3% since January. And Tesco increased the price of two pints of organic milk to £1.35 a fortnight ago – also representing a 17.4% rise since the start of the year.

Some branded milks have also seen steep rises, with a 15p increase in the price of 1l bottle of Graham’s organic milk in Sainsbury’s this week meaning the SKU, at £1.40, was 21.7% more expensive than it was at the turn of the year.

Meanwhile, a 2l bottle of Arla’s Big Milk rose by 15.4% this week to £2.25 after spending all of this year at the £1.95 price point.

These examples are among a total of 89 liquid milk price increases across the seven retailers over the past two weeks.

They follow a glut of recent farmgate hikes from processors such as Arla and Müller in the face of rapidly increasing production costs throughout the dairy supply chain.

Müller follows Arla with another hike to its farmgate milk price

However, analysis of farmgate prices show there have been more modest increases in returns to producers, with Defra’s UK average milk price rising by 5.7% from January to the end of April (the most recently available data) – suggesting inflationary pressures could filter down to drive even more retail increases in the coming weeks.

Dairy consultancy Kite suggests average farmgate prices are now at about 42ppl or even higher, dependent on a farmer’s pricing arrangement with its milk buyer, while a break-even price currently stands at around the 45ppl mark for farmers.

Soaring input inflation meant dairy producers were having to constantly recalculate costs in the face of ever-rising input prices, suggested NFU dairy board chair Michael Oakes.

He said retailers such as Tesco and Sainsbury’s, which sourced via aligned milk pools, needed to do more to keep up with rising farmgate prices.

For example, Arla and Müller are now paying 47.79p and 46p respectively for a standard litre of milk at the farmgate for June. But farmers supplying the Tesco Sustainable Dairy Group and the Sainsbury’s Dairy Development Group were being paid 41.59ppl and 41.70ppl respectively, a disparity that – as previously reported by The Grocer – was now driving many farmers to resign from the groups.

“Some retailers haven’t reacted quickly enough to these rises. They have failed to read the market,” Oakes said, while suggesting aligned pools in such an inflationary market were in danger of becoming obsolete unless retailers “tweaked their pricing mechanism” to keep up with soaring open-market prices.

Both Tesco and Sainsbury’s were approached for comment. 

A Sainsbury’s spokeswoman said the retailer had recently “updated the way we calculate the price we pay for our milk, so that it is based on both current and forecast costs we believe our farmers will incur”.

The retailer had also updated the frequency we review the price we pay of our milk from quarterly to monthly. “It’s important to note the retail price and cost price of milk are not connected. Our farmers are paid based on our independently managed cost of production model,” she added. 

“The price we pay to our SDDG farmers remains in line with our longstanding principles to pay a fair price based on the actual costs it takes to produce milk. This has been widely valued by the farming community. We will continue to review this to ensure we are supporting our farmers and offering benefits over the longer term alongside the short term challenges they are facing.”