Retail milk price increases viewed as a step forward

An increase in the retail price of milk has been welcomed by the dairy industry as a positive step forward in ending the loss leader culture of the past 18 months.

This week Farmers Weekly investigated how much major retailers were charging for four pints of whole milk. Since our last report (2 November), the average price has gone up from £1.18 to £1.29.

Kite consultant John Allen said the move marked a positive change in the supply chain as a result of tightening milk supply and an upturn in dairy commodity prices.

“These moves [by retailers] show that discounters cannot maintain a price war on the back of rising prices,” he said.

“I think it’s been highly damaging and destructive to the dairy sector that liquid milk has been a loss leader for the past 18 months; it’s not done anyone much good in the supply chain.”

Consultant Nick Holt-Martyn from The Dairy Group welcomed the news, but said farmgate milk prices needed to rise.

Average cost of production was about 32p/litre, he estimated, with many producers facing a rise in production costs due to lower forage stocks this winter.

“The recent rises are definitely positive, but we should not get too complacent that it’s all going to fall into place – the farmgate milk price needs to go up irrespective of what retailers are charging for milk,” he said.

NFU chief dairy adviser Rob Newbery said the retail price rises had emerged as a result of diminishing milk availability and milk buyers realising they needed to pay more.

“For a farmer facing the winter with costs of production that are 2-3p/litre higher than what they are receiving for their milk, it’s a very difficult place to be and a lot of businesses are still in jeopardy,” he said.

“But the market is going in the right direction and that has to be positive. We are on a journey where we are seeing price rises on a fairly regular basis and we are expecting further price rises in the new year.”