Weak commodity markets and competition between processors has meant that retailers are the only ones making a decent margin on milk, a controversial new report has claimed.
A study by the Milk Development Council claims that while farmers’ margins have slumped over the last decade, processors’ margins have remained roughly the same and retailers’ margins have shot up.
The six pence per litre fall in the farmgate price between 1994 and 2003 has increased retailer margins, while CAP reform would weaken commodity prices and place further downward pressure on farmgate prices, said the report.
However, British Retail Consortium director general Kevin Hawkins said that at 27%, the gross margin that retailers made on milk was consistent with gross margins on many grocery lines. The figure was also pretty meaningless as net margins were what counted in terms of profitability, he added. The fact that there had been huge consolidation in the processing sector, yet the report claimed processors’ margins remained the same also appeared dubious, he said.
NFU chief dairy advisor Tom Hind said supermarkets were disingenuous in ascribing farmers’ woes purely to market forces when price competition between processors to win big contracts was clearly exerting pressure on farmgate prices.
However, he conceded that recent moves towards longer term contracts with fewer suppliers would provide more stability for farmers.
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Elaine Watson