UK Dairy Farmers ‘Most Squeezed in Europe’

NO COMFORT whatever for them, but UK dairy farmers are not alone in having their farm-gate prices squeezed by supermarkets.

However, as UK farmers have suspected, a report published today by the Milk Development Council indicates their prices are being squeezed harder than anywhere else in the European Union.

Introducing the council’s dairy supply chain margins report for 2004-5, its chief economist, Ken Boyns, said: “The UK dairy industry is not alone in witnessing a growth in retail margins. It appears to be happening across other EU dairy markets, where falling wholesale and farm-gate prices don’t always lead to the same fall in retail prices – which increases retail margins.”

Boyns questioned why this was happening, saying: “This could be market power at work or a number of other factors including menu pricing, differing costs, efficiency changes at different levels of the supply chain or differing amounts of value added at different levels of the chain.”

He drew attention to the phenomenon that “when wholesale prices do move in some EU markets, so do retail prices by a similar amount”.

He said: “You have to ask the question: why does this happen in some markets and not others? It is important that these trends are investigated further to find out what is causing them and whether markets are working efficiently or not.”

The full report confirms farmers’ suspicions that in the past decade European dairy farmers have received a shrinking share of milk’s retail price, with the downward trend most rapid in the UK.

It also shows that in the same period – in the UK effectively the period since statutory milk boards were scrapped and replaced by a free market – UK retailers’ gross margins on cheese have increased faster than for European retailers.

But the report also indicts the UK milk industry for a worsening trade deficit in dairy products, with the value of dairy imports significantly higher than export value.

That, said Boyns, suggested the UK was still losing added-value markets by failing to react as quickly to change as competing countries, which are cutting back on production of butter and skimmed milk powder and increasing production of higher value fresh products and cheese. “These factors combined are potentially weakening the UK’s future competitive position,” he said.

One bright spot in the report is that retail liquid milk sales are rising for the first time in 30 years, with branded sales up 23 per cent. However, dairy farmers are failing, despite three years of protests, to get a bigger share of those rises.

John Kinnaird, NFU Scotland president, said: “Increasing consumer demand for milk and real potential for developing added-value markets is good news.

“However, the industry simply won’t be able to take advantage of either of these if supermarkets continue to increase their margins at farmers’ expense.

“Supermarkets have happily pointed the finger at the processors for failing to pass on to farmers a fair share of the recent increase in retail prices. Yet, the financial squeeze on dairy farms across Scotland is a direct result of supermarkets negotiating unsustainable contracts with processors, which can only be afforded by cutting prices to farmer suppliers.

“The market is clearly failing us. UK dairy farmers have been bottom of the Europe price league for ten years, yet our retail prices remain among the highest. Dairy farmers simply want a fair price.”