Processors defend costs as MPs fail to solve milk price mystery

Liquid milk processors have slammed claims by MPs that their costs are "improbably high"

In a report by the Select Committee on Environment, Food and Rural Affairs, MPs cast doubt over dairy company figures which showed they made around 3 pence per litre (ppl) after incurring processing costs of around 18ppl. The report implied that the industry was either misleading or grossly inefficient and it called for greater transparency to show who got the lion's share of the shelf price of milk.

"We believe dairy companies should provide dairy farmers with a detailed justification of why they appear to take such a significant chunk of the retail price to cover their costs," said the report.

But defending the industry, Jim Begg, director general of the Dairy Industry Association, said: "The British liquid milk market is the most competitive market there is. It drives cost efficiency. Contracts change regularly and processors have to be hugely efficient. To suggest that costs are high is wrong."

Nick Holt-Martyn, director of the consultancy ADAS Dairy Group, said MPs had hit on the wrong target. While processors were making 8% on a litre of milk, the report had seriously underestimated supermarket returns. He pointed to supplier Robert Wiseman's latest results which showed an average wholesale price of just 40.6ppl, implying that many retailers were making between 16% and 20% profit on milk.

Holt-Martyn said that there was still a large imbalance between the liquid milk profit margins of producers, processors and retailers and criticised MPs for not putting enough pressure on supermarkets.

"The imbalance in the industry will be solved by retailers fulfilling their social responsibilities to ensure their UK suppliers receive adequate return for their efforts," he said. "The MPs had the chance to put a lot of pressure on the retailers to be more responsible in their dealings in the market. Their margin is too high and should be shared more fairly with the primary producer."

Begg, however, claimed that retailers and processors were passing price increases back to suppliers and that MPs had accepted that was happening.

"As we anticipated, the committee is satisfied there was transmission," he said.