New research from AHDB Dairy has supported claims there is very little connection between the price of milk in supermarkets and the price farmers are paid.
Analysis of Kantar and Defra data by the levy body revealed only a weak correlation between retail and farmgate fresh milk prices, supporting the argument the supermarket price war on milk is not to blame for the current dairy crisis.
AHDB Dairy senior analyst Patty Clayton said the data showed that commodity markets were “the main driver” of farmgate milk prices. “The retailer sets shelf prices for milk to be in line with its competitors rather than on the basis of what it pays its suppliers,” she said.
“The prices paid to farmers for milk, however, are primarily determined by the value it can return once made into consumer products such as fresh milk, cheese and butter.”
However, the report also highlighted data from the AHDB Dairy League Table, which showed a big gap between current farmgate prices for aligned and non-aligned fresh milk.
“The difference between prices received under dedicated supply chain contracts and under other types of contracts is at a historically high level,” said Clayton.
NFU head of Food & Farming Phil Bicknell, said the difference between aligned and non-aligned milk highlighted the investment made by some retailers in their liquid supply chains in recent years, and showed “why some of the recent steps from retailers with non-aligned supply chains were so important.”
He agreed liquid milk was “only half the story” when it came to farmgate prices – and said there was a need to look at other products, such as cheese.
“I am concerned that farmers supplying milk for processing tend to remain at the bottom of the milk price league table,” he added.
The AHDB research also underlined the importance of fresh milk for supermarkets - with evidence that shoppers spend almost 40% more on baskets containing milk than those without, and switch between retailers based on the price of milk.
However, it found the supermarket price wars have stripped nearly £100m out of the fresh milk value chain over the past year, with spend down 3% despite a 3.3% increase in volumes [Kantar 52 w/e 21 June 2015]. NFU head of food & farming Phil Bicknell said this supported farmers’ concerns the industry was facing a “race to the bottom” on dairy.
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