The £1 milk club

There are few things that agitate farmers quite as much as supermarkets messing with the white stuff.

Milk prices are hot political currency, so Tesco’s announcement yesterday that it was slashing the price of four pints of milk by 39p – as part of a £200m investment in everyday low prices – was always going to cause waves.

A near 30% retail price cut is a hefty reduction by any standards; but, crucially, it takes Tesco’s four-pinters back to the iconic £1 price point, which became the focus of much farmer anger during the dairy farmer summer of discontent of 2012.

The mood in the dairy industry today is much improved (indeed, we recently reported dairy farmer confidence is at a record high), not least because global dairy commodities markets have been strong, milk processors have been running aggressive recruitment drives and UK farmgate milk prices are much better. Only last week, Arla announced an increase on its direct milk price, and yesterday Dairy Crest said the price on its formula contract was also moving up.

But confidence is a fragile thing. With UK milk production already running at record levels, the likely impact of the impending ‘spring flush’ is currently weighing heavily on the industry’s minds. Although many dairy experts continue to believe dairy prices will hold up despite the flush (as we outline in the most recent issue of The Grocer), there are other voices who are becoming increasingly concerned the UK could be headed for a milk price collapse.

Tesco’s price cut will be adding to such anxieties – even though it’s a retail and not a farmgate move (and even though Tesco isn’t the first mult to move back to £1 for four pints – Asda has been there for some time).

Indeed, it is widely recognised that Tesco (through its dedicated milk farmer group, TSDG) offers one of the most generous milk price packages available to British dairy farmers, and the retailer has stressed its retail price cut today will not affect the price it pays its TSDG farmers.

But the symbolic nature of its price cut shouldn’t be underestimated. Farmers and processors want to be able to add value to their milk, and seeing the price of their core product slashed so aggressively by a retailer as big as Tesco will make them feel rather less confident about such ambitions.

Many will be hoping that the other major mults – which currently still sell four pints for £1.39 – will resist the pressure to join Tesco and Asda in the £1 milk club. It remains to be seen if those retailers will have the nerve to hold steady on their milk prices, especially against the ongoing debate about cost of living and soaring rates of food poverty in the UK.

Reconciling farmer interests with the demands of consumers is no easy task in the current economic climate. Although farmers understandably won’t have liked yesterday’s milk price cut, there’s no question that many cash-strapped British households will have welcomed it with open arms.