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Who got the cream from improved dairy markets?



The 2010/11 milk year was characterised by strong commodity markets although this was not fully reflected in farmgate prices, says the DairyCo Supply Chain Margins report published today [Friday 22 July].

“The prices farmers received for their milk increased by 5% compared to the previous year,” says DairyCo analyst Patty Clayton. “In comparison the market indicator AMPE, which reflects returns from butter and powder commodity markets, showed a 31% rise.”

“With the expectation that farm input costs will continue to rise in the short to medium term, the fact that farmgate milk prices have not responded to the same degree as commodity markets has caused great concern in the industry,” says Mrs Clayton.

The report looks at the events of 2010/11 within the liquid and cheese markets and how these have affected gross margins along the supply chain for the year.

The liquid milk market was a year of two distinct halves, with the first half of the year seeing prices and margins remain essentially unchanged from 2009/10.  In the second half of the year the retail price war led to events which dramatically reduced wholesale selling prices, leaving processors squeezed when farmgate prices also increased.

In Cheddar markets, processors were able to increase gross margins as a result of the combination of strong commodity markets and strong demand for Cheddar, while retailer margins fell.

“The report highlights that there was some short term disconnection between price movements on commodity markets and at the farmgate in 2010/11,” says Mrs Clayton. “For a sustainable dairy farming industry to exist, the key issue is that conditions within the supply chain do not disadvantage farmers in the long term. This means it is vital that the industry gains an understanding of how prices adjust along the supply chain. Our Price Transmission report, coming out at the end of the month, examines this issue in more detail.”

The DairyCo Supply Chain Margins report can be downloaded from here.


DairyCo’s  Asymmetric Price Transmission report is due to be published on Friday 29 July.


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