Where are the missing millions in milk? Supply chain price cuts should be passed on to consumers, says Peter Kendall


The impact of the recession on household budgets hit home a few days ago when I spotted a charity shop advertising a half-price sale. Consumers are feeling the pinch and, understandably, price is at the forefront of their concerns. When that extends to the second-hand clothes market we can be sure they are not in the mood for having their interests disregarded by food chain operators.

Unfortunately, here at the producer end of the chain, there is not a great deal of leeway. Our input suppliers are not in the habit of doing bogof or half-price deals and output prices are, for the most part, determined by factors beyond our control. But that does not mean we ignore the interests of consumers.

It is the great British consumer who has gone out and bought more milk over the past year, pushing milk sales up by 36 million litres year-on-year. It was consumers who sought out British plums in supermarkets following news of a bumper crop and bombarded the Farming Today message board with their findings. They are the ones who are demanding more local and regional food and, as producers, we depend on them to keep us in business. We want to see them get a fair deal, just as we want a fair deal ourselves.

That is why I am still concerned by milk prices. The mystery of the missing millions in the dairy supply chain remains unsolved. The average GB farmgate price for liquid milk fell from 27.93ppl last October to 23.93p in July this year. And yet figures from DairyCo show that, promotions apart, liquid milk retail prices have remained unchanged since they rose by 7.25ppl in 2008. Where has the 4p difference ended up? It has certainly not been passed on to the consumer.

The EU Commission's September report on the 2009 dairy market situation makes the same point. It says that while producers have seen the price paid for their milk drop 31% in the past 18 months, the consumer is paying only 2% less for dairy products. The Commission goes on to warn about the consequences of ignoring consumers' interests: "Preventing consumers benefiting from lower prices constrains the development of demand for dairy products and thus hinders the strength and pace of recovery in the dairy sector."

The UK Competition Commission has voiced concern about the potential impact on consumers of supermarket buying practices. In its 2008 report into groceries retailing, the Commission concluded that "the transfer of excessive risk and unexpected costs by retailers to their suppliers, if unchecked, will have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers". It was in the same report that the Commission called for the establishment of an independent ombudsman to oversee a new Groceries Supply Code of Practice, a call that a broad alliance of consumers, producers and businesses continues to support.

Ultimately the interests of producers, processors, retailers and consumers should be one and the same; to see plenty of choice in quality food at a price fair to all. If pressures in global markets mean producer incomes take a hit, we at the producer end have to cut our cloth accordingly. But at the very least we would expect cuts to be passed down the line to give the consumer some benefit and drive renewed demand.


Peter Kendall is president of the NFU.

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