Jonathan Ovens, chairman, Arla Foods Milk Partnership (AFMP), represents around 1,400 farmers who supply 1.8bn litres of milk per year to major supermarkets.
He told the European Farming and Food Partnerships (EFFP) annual conference in London that with commodity price rises difficult for producers to absorb, AFMP was looking “to take the rollercoaster ride out of ex-farm prices for members” that has been worsened by a retail price war since the summer.
Ovens said the discounting began this summer and led to current low farm gate prices for members: “A litre of milk delivered to Westbury [Dairies] today is worth around 28/29p, I am currently doing quite a few farming meetings across the country, and it is a burning issue.
“I’m looking for discount stores and frozen foods centres to add value back into the supply chain by moving away from selling four pints of milk for a pound.
“As a direct result of their actions – £252m has gone out of the sector, money hard-earned through building relationships within the supply chain and creating value.
“The price of four pints of semi-skimmed has fallen from £1.53 to £1.25 across the board since July, it’s a spectacular fall that has removed value from the sector, and transferred it to the pocket of the consumer.”
Discounters must give value back
Warning of ill-effects for producers if major retailers passed on margin losses, debate about which he said is “ongoing at the moment” within the industry, Ovens said that Tesco' formula that based farm gate prices on the cost of production was seen as fair by most farmers.
Ovens said that price cuts by discount stores had hit leading supermarkets hard, with the latter losing a market share of 200m litres in volume terms in the year to August 2010.
The supermarkets’ response was to cut prices, and Ovens said: “No-one can blame them for doing what they’ve done, for getting Mrs Housewife through the door to buy milk from them again.”
He said the current £1.25 price point would be the selling price for four pints of milk for some time going forward, but stressed that discounters had responsibilities to farmers and the supply chain as a whole.
However, Graham Jones from Panmure Gordon told FoodManufacture.co.uk that it was hard to see the cut-price milk sales at discount stores stopping, given what he dubbed the “middle ground outside the major multiples, where there’s over-capacity – this makes prices very competitive.”
Toothless tiger?
On the wider issue of food prices, agriculture minister Jim Paice revealed further details at the event on the remit of the new grocery supply chain adjudicator, the watchdog that will ensure retailers follow the Grocery Supply Code of Practice (GSCOP).
“All the supermarkets tell me that they are complying anyway so an adjudicator is not needed. If that’s the case then he’s going to get very bored, and I hope that is the case.
“But I know it will disappoint some members of this audience to hear that the office won’t get stuck into margins and prices.”
EFFP chief executive Siôn Roberts stressed that the major challenge ahead for the food industry was to provide a secure, affordable food supply to the UK population, given commodity price fluctuations and a growing world population.
BRC-Nielsen data shows that food prices are up 4.4% in the year to October, and Roberts said the EFFP expected “some further food price rises over the next month or two, with levelling-out through 2011. But our view is that we’re not going to see double-digit food inflation by Christmas, as some commentators have predicted.”