Iceland 89p milk

The Efra Committee report on the dairy industry told us little we didn’t already know and then, having correctly concluded that there’s no quick solution, the members passed the buck to the Grocery Adjudicator in search of what we might call a magic bullet. There isn’t one.

“Producer organisations would marshal bargaining power”

The root of the industry’s problem is price instability throughout the supply chain. Supply and demand for the staple product are periodically out of balance for reasons beyond the control of any government. Although the price of milk is relatively inelastic and reductions do not increase consumption, its position in the normal household shopping trolley makes it vulnerable to the price war from which all consumers are now benefiting. In any case, the Adjudicator has no role in influencing price determination in this or any other industry.

In dairy, the conduct of contractual relations has for the past four years been governed by a voluntary code of practice that retailers, dairies and farmers alike insist they want to retain. The Committee itself was very clear that “neither a statutory nor a voluntary code can set or regulate prices in an open market.” But then the magic bullet appeared. The Adjudicator’s remit should, they opined, be extended to dairy farmers, presumably in the hope that Ms Tacon might find something amiss in the farmer-dairy contractual relationship. 

I doubt this proposal will go any further. Dairy farmers will always be at a disadvantage in any contractual relationship while they remain fragmented. The flipside is that the dominance of scale economies in this industry will continue gradually to drive out the smaller producers. The Committee itself urged them to follow the example of their counterparts in six other EU member states by forming producer organisations to marshal their collective bargaining power and use it to get better terms. 

This was a practical suggestion that will founder on the traditional individualism of British farmers - a cultural resistance to mutual support that is hard to justify in this market. As Benjamin Franklin famously warned his disputatious colleagues: “We must indeed hang together or, most assuredly, we shall all hang separately.”

Kevin Hawkins is a retail consultant