Dairy UK has made a further submission to the Competition Commission to explain milk pricing.

This was one of the areas flagged up by the commission for more information when it released its Emerging Thinking in February. It appealed for pointers on how the farmgate price of milk had fallen while retail prices had increased.

Dairy UK said there was no link between retail and farmgate prices. Instead, financial pressures on farmers stemmed from weakness in the market for commodity products such as butter and milk powder. "Farmers need to invest to achieve economies of scale," said Dairy UK director general Jim Begg. "Farmers' declining return on capital employed means there is a greater reluctance to make this investment."

Dairy UK acknowledged Britain's falling milk production - expected to be 400-500 million litres short of quota in the year to 31 March. But it said there was no danger yet of a shortfall in milk supplies.

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