Retailers are close to making record margins out of cheese, according to a new report from the Milk Development Council.

Mild Cheddar earned supermarkets a gross margin - the difference between buying in and selling costs - equivalent to 15-16ppl of milk last year, an increase on 2004.

Mature Cheddar saw a slight fall in profitability last year, but still hit 33ppl, according to the MDC's head of economics, Ken Boyns.

"Retail margins are well above those expected for a perishable grocery product, with mature margins approximately double the typical margin of 25-29%."

In contrast, the MDC reckons processors make very little margin - perhaps 2-3ppl on mild and 5ppl on mature. Latest figures for Dairy Crest's own branded cheese business, since sold to First Milk, showed the business made an operating profit of £3.4m on sales of £194.2m in the year ending 31 March 2006.

Retail margins also increased on liquid milk, with the price of a four-pint poly-bottle rising now to £1.11. NFU dairy adviser Tom Hind said farmers needed more than they were getting at present, and urged retailers to take more responsibility for their supply chain.

It led the MDC to claim "there is now little link between the pricing of liquid milk at a retail level and the price of milk to farmers".

But the report heralds the start of a new stability in pricing, particularly for farmers.

While the 2006 figures may show further deterioration in margins, 2007 should be better, Boyns added.

"Those who are focusing on improving their farm productivity and maximising the price of their milk at the moment may start to see better returns compared with the present."

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