Steve McLean on bringing his Plan A game to M&S milk

Amid the kerfuffle about processors’ farmgate milk price cuts and hurriedly increased retailer premiums over the summer, there was one cut that went largely unnoticed. Farmers supplying milk to M&S, too, have been paid less since 1 August.

Feed costs came down in the run-up to August, so M&S’s farmgate price mechanism- which takes into account production costs - ruled a 0.2 pence per litre reduction, to 32.26ppl, was in order.

The reason not many people know about this cut is simple - its farmers didn’t actually complain. “Farmers are relaxed about this,” says one source. “With their milk price consistently well above all others, these farmers know they’re being well looked after.” And it could have been worse. M&S’s milk price mechanism doesn’t just take into account production costs it is also tied to the retail price of milk in M&S stores. It’s a clever way of strengthening farmers’ connection with what’s happening at retail level, but on this occasion it nearly caused a stink.

Under pressure from the intense milk price competition on the high street, M&S had lowered its retail price for four pints of milk from £1.25 to £1.18 on 10 July - and its farmers now faced a further milk price reduction, on top of the 0.2ppl cut, as a direct result.

A cost of production-related cut is one thing, but punishing farmers because of the milk price wars is a step too far, says head of agriculture Steve McLean. “This went right to the very highest level and a very clear decision was made that there was no way we wanted that price cut,” he says. The retail-related cut to M&S’s payments would, in fact, have been tiny - an additional 0.162ppl - but the retailer still felt it would have been damaging. “It’s about the principle,” says McLean. “We know times are difficult for farmers, and we didn’t want to see a further reduction in our price, no matter how small.”

To stop the cut, M&S decided to disengage the retail price element on its calculator. The retailer won’t be drawn on whether this shows linking farmgate prices with retail prices doesn’t work, but the retail link will remain disengaged for the time being. “With all the promotional activity happening in retail around milk, we don’t think it’s fair for our producers to feel the effects of any milk price reductions our trading teams decide to make,” a spokeswoman says.

Such protectiveness over its milk farmers is not surprising. Milk is a key plank of M&S’s corporate social responsibility agenda, so much so that McLean describes it as “the most iconic Plan A product we have”. Its headline Plan A commitments on milk include the Milk Pledge Plus price formula - which rewards farmers for higher animal health and welfare standards, as well as being linked to production costs and retail prices - and healthier milk, which is produced from cows fed on a natural diet without palm oil and therefore containing 6% less saturated fat than standard milk in other stores.

Farther away from the farmgate, M&S is holding its cards close to its chest on future NPD, but cheese will be a focus of upcoming new product launches. “For Christmas, building on the success of last year, we are focusing on value-added products such as cheese bakes,” says a spokeswoman. A Welsh rarebit and smoked cheese bake are already in the pipeline.

The retailer also introduced a range of fortified dairy products under the Active Health brand last year, including yoghurts with added Vitamin D and milks with Vitamin D and omega-3. Ever since healthier milk was launched last year, there has been speculation that M&S will eventually upgrade all its dairy products to be made with the reduced satfat milk, but McLean says: “We haven’t had it on shelves for long, so the focus is on liquid milk for now.”

Instead, the focus in the coming months will be to build on its work on animal feed, health and welfare, with McLean also keen to continue to improve how key performance indicators are communicated to farmers.

Meeting those standards isn’t easy - McLean says M&S expects its farms to be of a standard where “M&S customers can just walk on and be completely happy with what they see” - which is why the rewards have to reflect that. “We realise we’re asking our farmers to do a lot in terms of the standards and so the price has to be fair,” says McLean.

With competition on the high street still fierce, expect that retail price element in M&S’s milk price calculator to remain disengaged for some time.