Retailers have increased their gross margins on milk and Cheddar at the expense of British dairy farmers, new figures have revealed.

In 2009/2010, the average gross margin made by retailers on liquid milk rose by five percentage points to 34%, DairyCo's Dairy Supply Chain Margins report said.

The average processor gross margin, however, remained static at 44%. The report "lifted the veil" on what was really going on in the industry and showed that in the dairy supply chain, retailers were the only winners, said the NFU.

Retailer margins on mild Cheddar increased almost as much as on milk, by four percentage points to 51%. This compared to a one percentage point increase in processor margin to 12%. And whereas the processor margin on mature Cheddar fell from 25% to 24%, retailer margin climbed by two percentage points to 52%.

DairyCo accused retailers of using the margins built up over the last year to fund the latest supermarket price war on milk.

This week, Aldi and Lidl waded into the price war, offering four pints of whole and semi-skimmed milk for £1. The big four are currently offering four pints on a two-for-£2 deal. Poundland also sells two litres (3.52 pints) of semi-skimmed milk for £1.

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