The milk price war is offically over for the time being at least as Tesco raised the price of a four-pint bottle of standard milk to £1.55 this week.

Tesco's 24% hike, to a price 2p higher than before the milk price war began, was swiftly followed by similar rises for milk at Morrisons, Waitrose and Sainsbury's.

But Asda, which kickstarted the war in July, was still selling at £1.25 and CEO Andy Clarke told The Grocer he was "very comfortable" with Asda's milk prices, which had "given us double-digit volume gains".

None of Asda's rivals would be drawn on why they had raised prices, but one analyst said the job was now done. "They've regained share from the discounters, which I think was the aim of the exercise," said Damian McNeela, research analyst at Panmure Gordon & Co.

Another milk industry source added that retailers may have increased prices to boost both sales and profits over the crucial Christmas period, with half an eye on both the new year and year-end results.

"There is a bit of nervousness as to what the new year will bring, and they want to get a good Christmas under their belts," he said.

Tesco strongly denied suggestions they wanted to "build a war chest" to fund other promotions, either over the festive period or in the future.

The price hikes followed growing protests from farmers about unsustainably low milk prices. Last week, the National Farmers' Union and the Women's Institute held Mission Milk, a public debate with farmers, retailers, processors, MPs and policy makers, to raise awareness of the need to support dairy farmers throughout the supply chain. Farmer advocacy group Farmers For Action has also staged protests at Asda and Tesco depots over what it described as prohibitively low milk prices.

Lee Woodger, head of the NFU's food chain unit, said the price increase was positive because it sent out a message to consumers that "milk is a product to be valued", but added that increases in retail prices did not necessarily mean farmers would end up getting paid more.

In September, shares in Robert Wiseman fell by a third after it issued a profit warning, blaming "fierce competition across the market". In its results last week, the dairy giant maintained its profit warning while announcing a new contract with Tesco to supply an additional 35 million litres per annum.

Earlier this month, Tesco ended the price war on another staple when it raised the price of bananas by 25%, to 69p per kg, again quickly followed by its rivals. Asda, however, only raised the price to 67p per kg. 

Read more
Organic, flavoured milks dragged into price wars (20 November 2010)
Tesco quits banana war with 25% price hike (12 November 2010)
Milk price war sacrifices value at altar of volume (6 November 2010)

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