Farmers losing out as supermarkets profits increase

When it comes to making profits in the dairy industry, farmers are the biggest losers, while promotional activity has stripped so much value from the sector that retailers are the only winner, the NFU said today.

DairyCos annual dairy supply chain margins report on gross margins for retailers, processors and farmers, published this week, shows supermarkets are making growing profits from milk and dairy products at the same time as the majority of dairy farmers continue to receive a price for their milk that sits well below the true cost of production.

Over the 2009/10 milk year, the farmgate price dropped by 2ppl compared to the previous year. Retail gross margins for both increased over the same period.

NFU dairy board chairman Mansel Raymond said: These latest figures are a complete vindication of the NFUs Great Milk Robbery report. As ever, dairy farmers are the big losers and are yet to see their fair share of better market returns.

During 2009/10 retailers were able to grow their margins at the expense of processors and farmers, who both suffered a fall in gross margins, and despite there being no increase in prices to consumers.

He added: The lack of an increase in dairy producers prices also backs up the NFUs Great Milk Robbery report, which suggested that money which should be returned to dairy farmers has been used to compete for retail business, and that the level of promotional activity in the liquid milk and cheese sectors has taken value out of the supply chain for everyone but the retailers.

This adds further weight to the argument that farmers should not be forced to pay the price of ruthless milk promotions, and perhaps indicates a market correction of inflated retail shelf prices.

The publication of DairyCos report is also very timely given the challenging questions Peter Kendall posed to the major buyers and retailers at this years Dairy Event. As we await the final few responses to those questions we will be considering the answers we receive against the information in this report. It will also add weight to the Great Milk Debates in November, which will seek to challenge retailers and milk buyers on their activities and stress the need for greater supply chain responsibility and transparency.

Finally, despite the slight milk price increases farmers have received since June there is a definite lag which DairyCo highlights in detail in the report. There is certainly more money to come to farmers, the questions are why has it taken so long and will farmers get their fair share?

• The average retail price for liquid milk in multiple retailers remained stable in the 2009/10 year at 65.1ppl compared to the average of 64.9ppl the previous year.

• The gap between AMPE and farmgate price is currently the largest it has been for almost three years although with recent increases in milk prices, this gap has narrowed slightly.