Monday, June 22, 2009

And finally......

Who makes money from a pint of milk?

Dairy farmers warn they are struggling to survive on what they are paid for milk. So who gets the money when you buy a pint?

  • 61p - cost to farmer to produce four pints
  • 58p - paid to farmer by processor
  • 3p - farmer's loss
  • £1.07 - paid to processor by supermarket
  • £1.45 - cost to customer to buy four pints from supermarket Source: DairyCo
  • Times are not good for many dairy farmers. The gap between how much it costs to produce milk, and how much they are paid for it, is being squeezed ever tighter. And one of the industry's biggest cooperatives has gone into receivership, leaving hundreds unable to sell what they are producing.

    Milk is a staple of the average Briton's daily diet. According to industry figures, 98% of households in the UK buy the white stuff, and on average we each consume over two-and-a-half pints a week.

    We pay on average 39p for a pint, according to the milk trade body, DairyCo. It comes to this figure by dividing the average cost of a four-pint carton in the supermarkets. So where does that money go?

    Getting milk from a cow to the chiller cabinet involves the farmer, the processor and the supermarket. The first produces the milk, the second collects, pasteurises, bottles and distributes it, and the third sells it.

    Each has costs and overheads to cover, from feed and vet bills for a farmer, to staffing and electricity bills for the supermarkets. When all these costs are taken into account, it's the farmers who are missing out.

    Farmers made a loss of 1p for every pint they sold last year, according to DairyCo figures for 2007/2008. Obviously, this is an average across the industry. Some farmers, with more cost-effective operations, will be making money.

    But no one disputes that times are hard, with the farm-gate price of milk - what the processor pays the producer - falling month on month. In May, it was down to just 23p a litre, on average.

    "Prices are simply unsustainable. The average farmer is losing money on each litre of milk produced, leaving no room for reinvestment on the farm," says a spokesman for the Royal Association of British Dairy Farmers (RABDF).

    Processors on average make money from each pint they sell, but the story isn't straightforward here either. The Dairy Farmers of Britain cooperative (DFOB), responsible for 10% of UK milk production, went into receivership earlier this month.

    The co-op had been struggling to pay its 1,800 member farmers a competitive price for their milk, and large numbers were leaving. It also lost the milk contract for Co-operative supermarkets.

    The supermarkets' margin on fresh milk has increased steadily over the years, according to DairyCo figures. The big few enjoy considerable bargaining power with many of their suppliers, so can keep prices competitive for customers.

    "Farmers have been placed under extreme pressure by retailers and the service sector for far too long to produce milk at the lowest price possible, and they continue to make a loss," says the RABDF's spokesman.

    But retailers say paying farmers a fair price is important. While Tesco, the UK's largest supermarket group, will not discuss margins - "it's commercially sensitive," says a spokeswoman - in 2007 it signed up its own group of dairy farmers, paying above the market rate for their milk.

    "We were credited with bringing up farm-gate prices," she says.

    Story from BBC NEWS:

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