Shortly after publication of your analysis ‘Soaring costs create crushing climate for milk processors’, Tesco cut its milk price to Tesco Sustainable dairy Group (TSDG) farmers by 0.65ppl.
The TSDG price relies on an estimate of costs of production, based on performance of farmers benchmarked from within the group, and projected input costs. It guarantees never to drop below the base price of the respective processors (through whom the milk is supplied).
To suggest that liquid milk buyers, who do not commit to cover farmers’ costs of production, should take this as a cue to cut milk prices is ridiculous.
If cream deflation is now the reality, don’t look to the farmer’s non-existent margin to balance the equation. Recent cost of production research on behalf of Dairy Crest farmers put the breakeven price for milk at 29.33ppl. The average price received in January by farmers was 28.84ppl!
Farmers will not tolerate price cuts this spring. The money to rebuild processor margins has to come from the market.
Mansel Raymond, NFU dairy board chairman