Stores Are Not Just Milking Dairy Sector

By Dan Buglass

AS WE sat in the splendour of the Fairmont Hotel in St Andrews on Thursday evening listening to the absolutely exquisite violin playing of Nicola Beneditti, few of the 400 guests of Robert Wiseman Dairies as could have been aware of what the following morning would bring.

Friday was to be the day when the Office of Fair Trading announced that it had fined several of the leading supermarkets and some dairy companies, including Wiseman, for effectively fixing the price of milk at an estimated cost of GBP 270 million to consumers.

The fine amounting to GBP 116m is a mere bagatelle compared to the collective turnover of the offenders, but it should send out a clear message: suppliers and customers have the right to be treated fairly.

Until recently, dairy farmers have been really struggling with prices at one time little better than 16p per litre, while the retail value was frequently over 50p for that same litre.

Large numbers of producers have quit milking cows, but with an ex- farm price of 25p and the near certainty of more to come, there is a living to be made once more from dairy farming.

So where and why did the OFT find fault? It became clear over the past 18 months that unless ex-farm prices increased supplies would dwindle. That reminds me of the late 1960s hit song by Herman’s Hermits: No Milk Today. That was in effect what would have happened unless farmers were paid more.

Retail prices did subsequently rise, but relatively little of that percolated back through the chain to the people who milked the cows, hence the allegations of price-fixing and the subsequent fine following a series of admissions by the big players. To be fair to Wiseman, which this year celebrates 60 years in business, the company has always endeavoured to pay farmers among the highest prices on offer.

That is the very ethos of this business, and little wonder as the founder, the late Robert Wiseman, was himself a dairy farmer who turned to retailing milk as his farm gradually disappeared under concrete as the new town of East Kilbride developed.

The days of cheap milk are gone for the very simple reason that the demand for dairy products on the international market is burgeoning, with China and India leading the way.

Only recently, China placed an order for 40,000 tonnes of cheese from New Zealand to be delivered over the next two years. Little wonder then that sheep are disappearing in New Zealand to be replaced by vast herds of dairy cows.

UK farmers can never compete with New Zealand in terms of production costs, but they will benefit from the rise in the value of all dairy commodities.

However, there is a far wider issue that needs to be addressed than just the price paid to farmers for their milk. The Competition Commission is currently investigating supermarket margins. An interim report has been issued, but the full findings will not be published until sometime next year – when it should make for interesting reading.

I trust those involved will have a close look at the lamb situation. The prices that farmers are currently receiving are nothing short of disastrous, with the deadweight trade being at least 40p per kilo less than this time last year. Yet, and to the utter shame of the supermarkets, there has been only modest movement in the retail price. This is utterly disgraceful and merits more publicity than I can engender, but I will try.

Each week I receive a market report from the Meat and Livestock Commission. Last Friday’s edition made for sorry reading from the perspective of a sheep farmer. According to MLC, the average producer price for November was 198p per kilo, which is the lowest since the dark days of the 2001 foot-and-mouth crisis. Yet the gap between what farmers receive and the price consumers are asked to pay stands at 65.6 per cent.

This technical measure is known as the retail spread and is a reliable barometer of trends. That figure of 65.6 per cent is a record. According to the statistics, farmers received 198p for each kilo of lamb in November, while consumers were charged on average 574.5p. Looking back to November 2006, one sees that farmers were being paid 235.6p per kilo, while the retail average was 565.7p per kilo.

In blunt terms, farmers are currently receiving significantly less, while supermarkets are charging more. That is the economics of greed in the eyes of every sheep farmer who desperately needs some consumer sympathy and cash.

There is no doubt that sheep farmers are totally devoid of confidence. The longer-term outlook may appear more encouraging, but that does not pay the immediate bills and rents.

Meanwhile, life is becoming a shade tougher for Richard Lochhead, the Cabinet secretary for rural affairs. Twice in the past two weeks he has been in receipt of adverse news from Brussels. The first setback came when it was made clear that Scotland must accept the European Commission’s strictures on nitrate vulnerable zones.

There is no room for negotiation and the added costs the regulations will bring to a minority of producers will be significant.

But last Friday’s ruling that the Scottish Rural Development Plan is unacceptable in its current form is equally damaging. Those who will feel the pain most are hill and upland farmers, who had been anticipating their LFASS (less favoured area support scheme) cheques before Christmas. That is not going to happen and it could well be February before this GBP 40m is paid out.

Poor sheep prices and a just about bearable cattle trade are straining the cash flow positions of many businesses. If the Scottish Government can help to fund a GBP 470m tram project in Edinburgh that almost no-one appears to want, then it should pay out that GBP 40m now to farmers and tell officials in Brussels where to go in blunt terms.

(c) 2007 Scotsman, The. Provided by ProQuest Information and Learning. All rights Reserved.