Milk, Milk, Lemonade…

Dairy farmers are protesting at cuts in the prices they are being paid for milk by processors (the businesses which bottle up their milk or turn it into butter, cheese, yogurt and other products) and supermarkets. It certainly does sound pretty bad that apparently the prices are now so low that they don’t even cover the costs of production so that dairy farmers make a loss on every pint of milk they sell.

However, the difficult question is what should be done about it. One measure which may help is the beefing up (no pun intended) of the system for regulating relationships between supermarkets and their suppliers. However, this will be too slow to come into effect to help save the businesses of those dairy farmers who say that current pricing will put them out of business before the end of the year. There is also a risk that increasing the prices paid to dairy farmers will lead to higher prices for consumers. Perhaps as consumers we ought, as Jamie Oliver and Hugh Fearnley-Whittingstall have said, to value milk more highly. But, at a time of austerity when we hear of poorer people finding it hard to afford to eat or being able to manage to give their children breakfast before school, is it necessarily a good idea to drive up the retail price of milk or any other staple foodstuffs? Maybe the supermarkets will be able to absorb some increases in input prices for milk products by reducing their own profitability but, as one of the few sectors to be growing rapidly and increasing employment substantially during the current recession, is this a great time to be dampening down their economic prospects?

It isn’t as if the supermarkets, processors and dairies haven’t tried to maintain price levels for dairy products. It is inconvenient for the protestors mentioned in the Guardian article linked above, but worth noting that the Office of Fair Trading actually imposed fines of £50 million less than a year ago on a range of supermarkets and their suppliers for entering into a cartel to keep milk and cheese prices higher than they might have been in 2002 and 2003. With the risk of subsequent re-investigation and massively increased fines for recidivism, it is difficult to see how any of the major supermarkets or milk processors could decide to raise the prices they were going to pay dairies and charge their customers in a suitably co-ordinated way to give dairy farmers what they are asking for. One could attempt to do so unilaterally and to hope that their competitors would follow suit, but while we as consumers find our spending power constrained and will move to supermarkets which reduce our overall shopping costs that would be a very brave decision. Even if they kept the retail price for milk the same while increasing the price they paid, the difference would come out somewhere else, whether in reduced profits (which would impact on shareholders, employment and expansion plans, pensions and the broader economy), increases in the prices of other products or more aggressive negotiation of the prices they pay for those products (moving the pressure from dairy farmers to other producers with less market power – it won’t be Coca Cola who will get forced to reduce their wholesale prices).

A solution could be, once again, to return to the 1970s and to reinstitute the Prices Commission to set prices for milk and who knows what other products. I’m mildly surprised that Ed Miliband hasn’t yet suggested this given his broader rhetorical shift towards the world of Harold Wilson and Ted Heath.

Back in reality we need to decide whether we as consumers want to protect UK dairy production and if so, whether we are prepared to campaign to the supermarkets that we are willing to pay more for British dairy products. This is not without precedent – consumer preferences have helped to drive egg production standards and prices up. So, we don’t need farmers blockading the factory where Anchor butter is made but consumers going on the supermarkets’ facebook and twitter accounts and saying they’d like to pay more to save British Dairy farms.


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