Retailer milk price pledges: What difference do they make?

Last week’s flurry of supermarket milk price promises will inject millions into the struggling dairy sector. They cannot turn round the crisis overnight – but they look a strong step in the right direction.

Farmers Weekly has dug into the pledges made by Aldi, Asda, Lidl and Morrisons, asking what difference they will make.

What’s been promised?

Aldi, Asda, Lidl have unveiled new minimum milk prices of 28p/litre, with agreements for that money to be passed to farmers.

Farm leaders have been told this will last at least for the “medium term”.

Morrisons announced a similar price floor of 26p/litre from late August until next March.

In all the deals, dairy firms will be paid on top of that for processing, bottling and transport.

Does that mean farmers will now be paid 26-28p/litre?

In short – no.

Aldi, Asda, Lidl and Morrisons are not starting direct supply schemes, such as those run by Tesco and Sainsbury’s.

Instead, the processors who provide their milk will be sharing that extra money between farmers in non-supermarket-aligned pools.

In co-operative Arla, any benefit is spread across the 13,500 producers throughout Europe – not just the 3,000 in the UK.

For Dairy Crest, Graham’s and Muller Wiseman, British farmers will enjoy a boost. But other products and customers still feed in to their milk price.

Muller says it is still working on details with Aldi and Lidl, and it has already set its September farmgate price.

A spokesman said any increase would be “properly reflected in our farmer proposition”.

Graham’s managing director Robert Graham said the higher prices would be “helpful” for his 100 farmers.

AHDB Dairy senior analyst Luke Crossman said the cash would inevitably be diluted across milk pools. And the fundamental problems of global oversupply and weak demand continued to hurt producers.

“On the plus side, there is more money going into the liquid market and hopefully more coming back to farmers,” he says.

“But we cannot ignore the other products – there is still cheese, yoghurts, butter and the prices [for that milk] are at a low level.”

How much does that “cash injection” add up to?

Farmers Weekly estimates the four retail promises cover about 1.4bn litres of milk a year – about 10% of UK production.

The value of that milk could be boosted more than £50m, assuming it was previously priced at the June market average of 23.66p/litre.

Dairy expert Chris Walkland has worked out this could lead to a benefit of 0.25-0.3p/litre for all British non-aligned farmers – after Arla shares the extra across Europe.

What don’t we know?

Questions still hang over the announcements.

No retailer would reveal what it was paying for milk before these latest promises, calling the figure “commercially sensitive”.

It is also unclear how long the higher prices would last.

Aldi, Asda, and Lidl have committed for the medium term, while Morrisons’ price floor will run until next spring.

Morrisons is launching a “Milk for Farmers” line, with 10p/litre from liquid milk and cheese going direct to farmers. There’s no guarantee how much they will sell.

What’s the verdict?

However the retail promises shake down, lobbying efforts by the NFU, Farmers For Action and others have secured a landmark: nine supermarkets now have a clearer sourcing model in place for liquid milk.

NFU dairy board chairman Rob Harrison said these were significant commitments but the work would carry on.

“We have got to continue to roll this out. What is the food service sector doing? What are some of the smaller retailers doing? And on cheese [and other products], why could we not use the same pricing model?”