Research reveals real story behind retail price rise

The reason for recent increases in the retail price of fresh milk was the escalating costs of producing milk on farms.  Yet, research requested from the Milk Development Council by NFU Scotland has revealed most farmers have received 10 per cent or less of the extra revenue.  

Major supermarkets and middle ground retailers have recently increased the retail price of liquid milk by 3.5 pence per litre (ppl).  The price of doorstep deliveries also increased by 2.5 ppl.  However, despite agreement across all retailers that at least 1.5 pence of the increase should reach farmers to reflect the increasing cost of producing milk, the Milk Development Council (MDC) has concluded that, on the back of recent price cuts, only between 0.3ppl and 0.88ppl is currently being paid to farmers.  

NFUS has expressed its disgust that a cost recovery move for farmers has ended up with most only seeing a fraction of that increase.  Based on the MDC's calculations, NFUS has concluded that up to 90 per cent of retail revenue has disappeared elsewhere.  The MDC concluded that this missing money has ended up either with retailers or processors, but could not determine exactly where.  

NFUS has today sent letters to the three major UK milk processors asking them why they have not passed on the level of increases expected.  Likewise, retailers have also been contacted for their explanations over the missing money.

NFUS President John Kinnaird said:

“There has been plenty of rumour and mixed messages over who is really benefiting from the increase in prices for fresh milk and we wanted to get to the bottom of it. This MDC paper has really shed light on the state of the dairy sector and confirmed our worst suspicions.  The retail price rise was to reflect farmers' increased costs, but it has done no such thing.  Instead, the margins of those further up the chain have been bolstered and producers have been left with a pitiful rise, already eroded by a round of price cuts.”

Chairman of the NFUS Milk Committee, Willie Lamont, said:

“The retail price rose, consumers paid more, and up to 90 per cent of that rise ended up in other people's pockets.  That sums up the current state of Scotland's dairy industry.  This research asks some fundamental questions, not just about this latest price war, but about the whole sector.   Producers are debating their future in the dairy sector.  Unless processors and retailers start delivering, efficient dairy farming businesses which are their lifeline will quit and jeopardise their supply.  Production is already forecast to drop and we have the lowest production figures for a decade - that should be warning enough.”  

·On the back of the recent rises in the retail price of milk at supermarkets, corner stores and on the doorsteps, the Milk Development Council has estimated the increase that each of the three main milk processors should be paying to farmer suppliers on liquid milk contracts.  That is compared to the actual increase being paid, taking into account the recent price cuts.  This table takes into account the volume of liquid milk each processor sells into each retail market.

· The full Milk Development Council paper, produced for NFU Scotland, is available on request.