UK dairy farmers have experienced a greater drop in their share of the retail price of liquid milk compared with their EU counterparts, according to new figures from the Milk Development Council (MDC).

The Dairy Supply Chain Margins 2004-05 report - issued today (7 September 2005) - reveals that over the past 10 years most EU dairy farmers have been receiving an increasingly lower proportion of the retail price of liquid milk, but this downward trend has been most rapid in the UK.

Other new figures in the report also confirm that over same period, UK retailers' gross margins on cheese have increased faster than for European retailers.

However, although these changes have been most rapid in the UK, there are instances where some retailers in the EU have greater retail gross margins, or farmers are receiving less of the retail price than UK farmers.

Ken Boyns, chief economist at MDC, says: "The UK dairy industry is not alone in witnessing a growth in retail margins. This phenomenon appears to be happening across other EU dairy markets where falling wholesale and farmgate prices don't always lead to the same fall in retail prices, which increases retail margins.

"This could be market power at work or a number of other factors including menu pricing, differing cost or efficiency changes at different levels of the supply chain or differing amounts of value added at different levels of the chain."

"What is even more interesting is that when wholesale prices do move in some EU markets, so to do retail prices by a similar amount. This means 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 in order to determine what is causing them and whether markets are working efficiently or not."

This year's report also highlights the continued worsening of the trade deficit in dairy products, meaning the value of the UK's dairy imports is significantly higher than the value of its exports. This suggests the UK is still losing added-value markets to competitors.

Mr Boyns says: "The UK doesn't appear to be reacting to changing markets as quickly as some other EU countries."

These countries are, according to the MDC report, cutting back on their production of commodity products such as butter and skimmed milk powder, and increasing the amount of high value fresh products and cheese they make.

"These factors combined are potentially weakening the UK's future competitive position," says Mr Boyns.

The 2005 report does highlight some brighter results for the UK dairy industry with sales in the retail liquid milk market seeing a growth for the first time in thirty years. Sales of branded dairy products appear to be increasing, with branded liquid milks up 23% and branded cheese up by 11%.