Supermarkets’ Milk Support

A number of retailers have announced price pledges in response to the ongoing ‘crisis’ in the milk market.  The first to make a move was Morrisons.  It announced a new milk brand, ‘Milk For Farmers’, which would cost 10p per litre more than its usual own-brand milk.  The extra revenue would go back to farmers.  Subsequently, the retailer also announced that it would pay a minimum price of 26p per litre to processors throughout the winter.  Again, the expectation is that the minimum price would be passed back to farmers.

Following these announcements, both Aldi and Asda pledged they will pay 28p per litre for their milk. 

Whilst positive, these initiatives in themselves will not resolve the problem of low farmgate milk prices.  A number of issue remain;

• the price guarantees only apply to the price the retailers buy in their milk at.  They are still likely to heavily discount the retail sale price of milk to attract customers.  Producers may think that if the supermarkets wish to fund this from their own margins then it does not matter.  However, it means that milk is still devalued at the retail level.  Other users/buyers of milk such as the foodservice sector and ‘middle ground’ retailers (corner shops etc.) will not pay more for wholesale milk if they can go to a supermarket and buy it cheaper.
• Morrisons gets around two thirdsof its milk from Arla.  Asda is 100% supplied by the co-op, and Aldi is supplied by Arla, Muller and Grahams.  Because of the nature of the Arla co-operative all farmers throughout Europe are paid the same standard price – the extra money from UK supermarkets cannot be ring-fenced for the UK.  Therefore the additional money will be spread across all 13,500 Arla members rather than just its 3,000 UK farmers.
• liquid milk accounts for only around half of the UK milk production.  The other half goes into products such as cheese, butter, milk powders etc.  The focus of farmer protests has been on the supermarkets and the price they pay for liquid milk.  But what has really been driving the market down is the price for commodity milk products which is an issue of (global) supply and demand.  The UK Farming Unions are lobbying retailers to extend their pricing guarantees to products such as cheese – Morrisons has indicated there will be a ‘For Farmers’ cheese brand.  However, for milk products it would be very difficult to insulate the UK market from what is happening to global commodity prices.