Significant price volatility in dairy wholesale markets this month has not yet had a major impact on retail prices. Most dairy products changed very little month-on-month.

The overall cost of our basket of 12 dairy items fell 0.4% since December, due largely to a 5.2% price drop on Brie and a 1.9% price drop on Cathedral City, which continued its long run as the most promoted branded cheese – it was these short-term discounts that drove this month’s price change.

Wholesale markets this month were much livelier, however, as European oversupply continued to drive down the price of UK butter despite the weakness of sterling.

European butter prices actually fell below the level where the EU typically intervenes to protect pricing. A Provision Trade Federation report warned prices were near their lowest level since 1968.

Cheddar prices followed a similar trend, plunging 8.6% this month as Irish and Continental suppliers work to clear stockpiles (see p37).

In October, The Grocer reported on discrepancies between plummeting wholesale prices on butter and cheese and rising retail prices. Since then the average retail price of own-label butter at the big four has fallen 5.6%, from 89p/kg to 84p/kg. The wholesale price was £2,150/tonne in October last year and has now been reported as low as £1,750 at Christmas, a fall of 18.6%, though prices have now recovered somewhat, at about £1,900.

Cheddar prices have diverged still further: since October the average retail price of own-label Cheddar has increased from £6.32/kg to £6.71, while the wholesale price of English mild Cheddar has decreased from about £2,750/tonne to £2,500.

The farmgate price of milk has also been under pressure in recent weeks, despite tight UK supply. Processors have been reducing the price paid to farmers as they struggle to maintain their bottom line in tough financial circumstances.

Late last year Dairy Farmers of Britain became the first to lower its prices, which remain the lowest in the industry, while Arla, First Milk and Dairy Crest all reduced prices this month.

Robert Wiseman Dairies this week became the latest to cut its farm prices, by 2.2p per litre (p35).

But this is not likely to lead to reductions in the retail price of milk, which held steady at £1.53 for four pints this month.

Wiseman claimed it had reduced its prices as a result of the weakening market for bulk cream, evidenced by falling retail prices on cream, down 4.5% year-on-year.

“With bulk cream to sell to weak commodity markets, it is clear that Wiseman is not immune,” said Wiseman Milk Partnership chairman Colin Telfer.

“But I am bitterly disappointed that the milk price is falling, because it sends the wrong signals, and undermines confidence and the sustainability of the industry.

“I hope now that we see some stability in the milk price going forward, which will allow farmers to plan ahead.”

Tight supply led to two increases in retail milk prices over the past year, to £1.44 for four pints in May and £1.53 in October.

Retail milk prices are up 14.2% year-on-year.