Environment, Food and Rural Affairs Committee

Session 2003-04
8 June 2004 Milk pricing: Committee publishes its report

8 June 2004 Milk pricing: Committee publishes its report

The Environment, Food and Rural Affairs Committee has today published a report which examines the relationship between the retail price of milk and cheese and the prices paid to dairy farmers.

The Committee concludes that the much publicised retail price increases of 2003 were transmitted to farmers. However, the Committee is concerned about the way in which the price increases were achieved. Some farmers benefited more than others, and the price increases took some time to reach farmers. Furthermore, the major supermarkets appear to have increased their prices only when farmers applied political pressure.

The Committee's other main conclusions are:

  • The state of relations in the dairy industry is poor: the Committee has seen evidence of suspicion and mistrust, preoccupied self-interest and a lack of constructive dialogue. The Committee agrees with Dairy Crest's description of the dairy sector as characterised by an "engrained adversarialism and blame culture".

  • Dairy companies should provide dairy farmers with a detailed justification of why it is that they appear to need to take such a significant chunk of the retail price of liquid milk to cover their costs. Evidence received by the Committee suggests that about 18 pence per litre of the 50 ppl retail price of a litre of liquid milk is being taken up by the dairy companies' costs.

  • There remains a fundamental imbalance of negotiating strength between supermarkets and most of their suppliers. The supermarkets' code of practice appears to have been ineffective in redressing this imbalance, at least in respect of the dairy supply chain. If supermarkets are genuinely concerned about the farmgate prices received by all farmers, they should aim to establish a balanced spread of suppliers by increasing the proportion of products such as liquid milk that they buy from farmer-owned co-ops.

  •  Dairy farmers who are not members of farmer-owned co-ops should consider carefully their decision to remain outside the co-op framework. If farmgate prices are to increase, farmers must act to redress the uneven distribution of power currently characterising the dairy supply chain.

  • Instead of withdrawing from its role as facilitator of the Dairy Supply Chain Forum, the Government should instead continue to chair the forum in order to demonstrate the importance that it places on the dairy sector and the need for further change within the sector. The Government should use the forum as a means to improve transparency in the dairy supply chain and the information about the dairy market that is available, to communicate that information to dairy farmers regularly and formally and to address the poor state of relations in the dairy industry.

On publication of the report, the Chairman of the Sub-Committee that conducted the inquiry, David Drew MP, will say:

"The UK dairy industry is not working as it should. Relations within the industry are strained and appear not to have improved since the Agriculture Select Committee's inquiry four years ago. The vertical integration that is needed within the industry has been stymied.

"Immediate action is needed by the Government to address the lack of transparency in the dairy supply chain and the poor communication within the industry. Yet, instead of taking such action, the Government told us that it intends to withdraw from its role as facilitator of the Dairy Supply Chain Forum later in 2004. The Committee urges the Government not to withdraw, but instead to use the forum as a means to achieve change within the industry.

"At the same time, the imbalance of power in the dairy supply chain, away from the primary producers and towards the major supermarkets, needs to be urgently redressed. The supermarkets must place more weight upon their social responsibility to ensure, at the least, a sustainable farmgate price for British dairy farmers.

"Dairy farmers, too, must take some responsibility for achieving structural change in the industry. Although co-op membership may be a less financially attractive option for farmers in the short term, it is the most effective long-term option available for farmers to gain greater control over when, to whom and at what price they sell their milk."



The report follows an inquiry announced on 20 November 2003 and conducted in February and March 2004. The Committee appointed a Sub-Committee to conduct the inquiry, under the chairmanship of Mr David Drew MP.

The Committee received written evidence from a number of interested parties. The Committee took oral evidence from: the NFU; the Royal Association of British Dairy Farmers; Farmers for Action; Milk Link; Robert Wiseman Dairies; Dairy Crest; Arla Foods UK; the British Retail Consortium; the Federation of Milk Groups; DIAL; the Milk Development Council; the Minister for Food, Farming and Sustainable Energy, Lord Whitty of Camberwell; the Office of Fair Trading and the Competition Commission.

The full report will be available on our website.