David Strachan, a third-generation farmer, is clearly not a happy man as he struggles to understand Tesco’s decision to slash the price of milk from £1.39 to £1 for a four-pint carton in the latest battle to win shoppers. Like many of the UK’s 10,500 dairy farmers he worries that the escalating price war will put the financial squeeze on his own business, at a time when stability is returning after price cuts two years ago.
Strachan believes the price cuts could have a wider impact on his business: “A lot of my hotel and restaurant customers will see the reduced price flagged up and expect that from me as well. I don’t have a sufficiently wide product range or scale to be able to offer that and absorb it. It is all very destabilising.”
Marybelle, a dairy business set in the Suffolk countryside, has deliberately retained old-fashioned traditions, such as low-intensity care of its award-winning pedigree Jerseys and Holsteins and an enviably short supply chain.It has aslo struggled to make money from milk and has diversified into cream, artisan yoghurts, creme fraiche and ice cream which has sealed its reputation and attracted a slew of impressive national awards. Its products are available throughout Suffolk, Norfolk and Essex, within a 60-mile radius of the processing plant, from farm shops and supermarkets, including Morrisons, Asda ,Waitrose and East of England Co-operative.
Tesco’s aggressive move on Monday was matched two days later by Sainsbury’s and by the Co-operative, cutting the price of one and two-pint bottles to 45p and 85p respectively. Pricing is a complex business depending on the individual farm and quality and fat level of the milk, but National Farmers’ Union says the farmgate price (what farmers and processors receive from retailers) is an average of 17p per pint.
Tesco, Sainsbury’s, the Co-op and Morrisons insist that the price cuts will not affect how much farmers are paid. Tesco even took out adverts in national newspapers to say the price the 650 members of its Sustainable Dairy Group are paid will not be affected.
Rob Newbery, NFU chief dairy adviser, said,” Creating this impression or illusion that food is cheap is damaging on the agricultural industry and how the public view food. We do not want the price of food to be the ground on which the retailers go to war on each other. Farmers do not set retail prices but we will be monitoring the situation to ensure this short-term marketing effort does not have an impact on farmgate milk prices now and further down the line. This is not good news for the industry “.