In response to further unjustifiable cuts in the farmgate milk price, NFU Scotland has vowed to continue with its concerted efforts to address the imbalance of power within the food supply chain and to aid the farming industry to move towards greater market focus.

The country's biggest milk processor, Arla, has confirmed that it will be reducing the farmgate milk price by 0.9 pence per litre for February and March whilst increasing it again by 0.6 pence per litre in April. Arla claims that in future it wishes to create a more market linked and transparent milk pricing system.

In response to such drops, and unsustainable prices coming from the market place within other sectors, NFU Scotland urged the Scottish Parliament to take action and succeeded in securing an inquiry into the problems within the food supply chain to be conducted by the Scottish Parliament's Environment and Rural Development Committee. The inquiry begins tomorrow, February 1, and NFU Scotland will be giving evidence.

In addition, representatives from NFU Scotland, including the President, John Kinnaird, are travelling to Westminster to meet with Scottish MPs, Gerry Sutcliffe, Minister for Competition and Consumer Affairs, and also with representatives from the Office of Fair Trading.

John Kinnaird, NFU Scotland President, said:

"The problem that we are tackling here goes way beyond the yo-yo pricing adopted by milk processors. There are inherent problems within the food supply chain which mean that farmers are weak players within the chain and at the mercy of the processors and retailers when it comes to the prices they receive.

"I use the milk example because it is representative of what is happening industry wide. Only last week we saw the supermarket price for milk rise by between 2 and 4 pence per litre to apparently cover the increased costs faced by processors. Today we saw Arla drive down the price its pays to farmers to boost its own profitability, its share price and meet city expectations.

"I don't buy the Arla justification that they are wanting to move towards a more transparent system and must 'clear the decks' first. It simply seems to be a smokescreen for reducing the price yet again and boosting their profit levels for another two months. I hope, for the sake of the industry, that they remain true to their word and prove me wrong. However, experience has shown us that the Arla price cut could have implications for the whole industry going forward. Someone has to break this cycle.

"It's time that all retailers and processors recognised that farmers have been facing increased costs too and that, being at the bottom of the chain, they have nowhere to pass the rises to. Long term security of supply and the future structure of rural economies do not appear to register on the list of priorities for some.

"To use milk as the example again, the retail price of milk has risen from 39 pence per litre in 2001 to 51 pence per litre in January 2006. This is an increase of 50%. In sharp contrast, farmgate prices have fallen by approximately 25 pence per litre in 1996 to around 18 pence per litre in 2006. This fall defies logic and is simply not sustainable.

"We are seeing the same problem within the dairy sector as is also demonstrated throughout the farming industry. Big slices of the profit margin are ending up in every part of the supply chain except where it is really needed, at the bottom.

"The apparent commitment of major retailers and processors to sustainable food supply chains will be seen as little more than lip service unless these key players start to genuinely deliver a fair price to all suppliers.

"We at NFUS are doing all we can to enable our members to become more market focussed but others within the supply chain, in addition to the law makers in Westminster and Holyrood, need to realise that the imbalance of power must be addressed before a level playing field can be achieved and all within the chain can profit fairly and equally."

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