Farmers are pulling out of supermarket-aligned milk supply contracts as the mults fail to keep up with soaring farmgate prices – triggering a “recruitment war” among buyers, industry experts have warned.
AHDB’s latest GB ‘all-milk’ average farmgate milk price (published this week) stood at a record 34.13p per litre in December, up 12.8% on December 2020. And the GB five-year average price for December of 29.45ppl was also 5.7% higher than the same month in 2020.
It follows months of rising prices, caused by a surge in on-farm costs and global dairy commodity inflation.
A raft of further price increases have been announced since the turn of the year, including hikes by major processors for April such as Arla (up 1.8ppl to 39.38ppl for non-supermarket aligned suppliers), Müller (up 1.5ppl to 36.5ppl for non-aligned Müller Advantage farmers) and Saputo Dairy UK (up 2ppl to 38ppl).
This looked likely to push average farmgate prices up further over the coming weeks, suggested John Allen, director of Kite Consulting, who added pricing was also being influenced by a tightening in global milk supplies, with world production down 7.1% from December to January.
So-called spot prices traded on commodity markets were now in the region of 45ppl, Allen said, while the benchmark Global Dairy Trade index rose by 5.1% this week, compared with its last dairy commodity auction two weeks ago.
But with aligned supply deals for the likes of Tesco’s Sustainable Dairy Group and Sainsbury’s Dairy Development Group standing at 34.18ppl and 33.98ppl respectively, retailer pools now risked lagging behind rocketing market averages, he added – despite the price stability these deals had offered farmers in recent years.
“We’re seeing a battle for suppliers in the UK market, with a lot of dissatisfaction from those supplying into these retailer milk pools over the price they are paid,” Allen said.
The Grocer understands many farmers are already voting with their feet, with industry sources suggesting up to 15% of the Sainsbury’s pool resigned only last week, with some in the Tesco pool also deciding to look elsewhere for a better deal for their milk.
Tesco did not comment on whether it had seen the loss of any of its farmers, while Sainsbury’s declined to comment directly on whether it had lost farmers and whether the 15% resignation claim was true.
However, a spokeswoman for the retailer stressed volume from the SDDG group had “gone up as well as down over the years, and this is for a range of reasons”.
Sainsbury’s remained “committed to supporting our farmers and making sure they receive a fair price for their milk based on our independently managed cost of production model”, she added.
“We have also recognised there are uncertainties impacting the milk supply chain and recently moved to more frequent reviews of the price we pay for milk, so that we can help our farmers to navigate this and manage their cash flow.”