Monday, 24 March 2014

Price of milk cut

Three weeks ago Tesco cut its price of milk from £1.39 to £1 for four pints and since then Sainsbury’s and Co-op have followed, matching the price already offered by Asda, Lidl and Aldi. This price is equivalent to 44p per litre.

Then, a fortnight ago Morrisons not only announced it had made a £176m loss in the year to 2 February but also that it was planning to take Lidl and Aldi head on. This new policy is evidenced by their announcement that they will be cutting the price of their two litre “Meadow Park” pack to an equivalent of 42p per litre which it claims will make it the cheapest price on offer.

This was followed last week by and announcement from Sainsbury’s that its sales excluding fuel had dropped by 3.1% in the last three months. This is a substantial fall and what this seems to indicate is that despite the reported strength of the economy, we as consumers are still looking for good value and supermarkets as a whole have to be extremely competitive to maintain their market share.

This is of course good news for consumers because it means supermarkets are having to squeeze their margins to maintain sales but what concerns me for British agriculture is that it will not be long before the supermarkets will look to transfer some of their pain down the supply chain to farmers and other suppliers.

At present this does not appear to be happening in that the price farmers are being paid for their milk is at an all time high although this is partly because the price of milk products on world markets has also been very strong. However, there are signs that the tide may be moving in the other direction as indicated by recent auctions held by New Zealand based dairy co-operative, Fonterra. These auctions are a good indicator of world dairy commodity prices and at their last auction the global dairy price index dropped by 5.2%.

So with global dairy markets beginning to drift and a supermarket price war in progress, dairy farmers should perhaps prepare themselves for lower milk prices in the months to come. Having said that, the best dairy farms are making good money at present and should continue to do so provided they keep a close eye on their costs and ensure that their milk production system is aligned with the requirements of their milk contract.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

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