28/03/2011

Milk producers supplying Tesco have been given some relief from rising feed and raw materials costs after the company announced it would pay its dairy farmers a record high price on Friday (18^th March). Milk producers in Tesco’s Sustainable Dairy Group, supplied in the main by Wiseman’s Dairies, will now receive 29.78 ppl (pence per litre).

The news follows other positive price announcements in the cheese market from two of the country’s cheese manufacturers, Wyke Farms and Barbers, which are to pay the highest prices on record for milk being made into cheese from April (27.6ppl).

The rate Tesco’s dedicated dairy farmers will receive is 3p over the average UK processor’s price, although even with this latest supply price hike, the amount paid to farmers will be just above the NFU’s estimated cost of production (29ppl). Nevertheless, Andrew Butler, policy advisor for the NFU, welcomed the increase, saying, “This means that our milk producers are getting something near a fair price. Tesco has guaranteed the figure for six months which means that, while farmers do not know exactly how much milk they will produce, they can be fairly sure of the price they will receive.”

The NFU’s dairy board chairman, Mansel Raymond, said most UK retailers are still paying their producers an unsustainably low amount for their milk. He announced in a press release, “Tesco has secured its milk supplies for the future and has a great story for its customers – it’s a win-win situation. I just can’t understand why more retailers and buyers of milk and dairy products aren’t showing the same level of commitment to their farmer suppliers.” However, Raymond did say last week’s developments show promise for farm-gate prices paid for dairy. He described Tesco’s announcement as “a very encouraging sign.”

Australian producers losing out due to Coles’ aggressive discounting

In Australia, dairy and egg producers have expressed concern over Coles supermarket’s decision to slash prices on eggs, dairy products and alcohol, a move which has sparked a price war as other companies follow suit.

Wesfarmers, Coles Supermarket’s parent company, chair Bob Every was reported in The Australian as saying that the company’s main intention is to offer value to customers as part of a long-term plan to restore customer loyalty and enhance the profitability of the business. Wesfarmers chief executive Richard Goyder revealed milk sales at Coles had grown by 20 percent after the company cut the price to $1 per litre in January.

However, the move has been openly criticized by farmers and politicians who say those further down the supply chain will feel the effects of the supermarkets’ price cuts. Suppliers to the supermarkets have cited a legal provision, allowing them to withdraw supplies to prevent their products being used as loss-leaders. Nick Xenophon, an independent politician, appealed on 9^th March to the Australian Competition and Consumer Commission, demanding it takes action over the price war. Xenophon described the laws that have allowed Coles and Woolworths to control the price of milk as "a joke".

Australian farmers are gathering today (28^th March) in Canberra ahead of a hearing of the Senate Economics Committee Inquiry into Dairy Retail Prices, which will take place on Tuesday; the farmers demand senators commit themselves to ending the price war on drinking milk, which they claim is damaging the industry. Ian Zandstra, Chairman of Dairy Farmers Milk Co-operative (DFMC) explained the farmers grievances and outlined their demands, “The Coles/ Wesfarmers led price war is destroying value in every state of Australia right along the dairy supply chain. Coles and Woolworths must end their aggressive milk pricing, which is destroying the value of milk, reducing competition and negatively impacting returns to farmers.”