Asda raises price paid to dairy farmer as value of milk sales plummets

Britain’s third-largest grocer said it is increasing the supplier price to “a level that will assist” farmers. Asda will commit to paying 28p per litre for 100 per cent of its liquid milk volume throughout its entire range, according to The Guardian.

A spokesman for the supermarket said: “We have confirmed to our milk supplier, Arla, that we are increasing the price we pay per litre from Monday to a level that will assist our farmers during the current crisis. Asda’s origins are in dairy farming which is why we are acting in the best interests of our farmers and our customers by increasing the price we pay, introducing the Farmer’s Marque label and not passing on any of the costs to customers – our retail price stays the same.”

The Asda move came as figures compiled for the Guardian by Kantar Worldpanel show that despite a steady climb over eight years in the amount of milk sold, the value of retail sales is likely to be the lowest since 2007.

The data supports farmers’ claims that supermarkets are using milk as a weapon in a price war with discounters such as Aldi and Lidl. The fall in the value of sales has been driven by a 17 per cent fall in the average price of a litre of milk since it peaked in 2009.

Dairy farmers are due to hold further talks with Morrisons on Friday in an attempt to resolve the crisis, which has prompted direct protests against supermarkets by farmers. The National Farmers Union has warned that dairy producers are facing a “state of emergency” after the price they are paid for milk has fallen by a quarter over the past year, taking it below the cost of production.

Since 2007, the amount of milk sold in the UK has risen by 11 per cent to a projected 5.5bn litres this year. This is thanks to population growth and households buying more milk.

However, the value of sales has fallen from a peak of £3.5bn in 2009 to an estimated £3.2bn this year, a drop of 9 per cent and the lowest since 2007. Projected sales for 2015 are based on the performance in the 12 months to July.

Rob Harrison, chairman of the NFU dairy board and a dairy farmer himself, said: “We work incredibly hard to produce milk and it is ultimately used by retailers to get people in their stores.

“People were optimistic about the dairy industry 18 months ago, there was the potential for growth and global demand, and there still is in the long term. But in the short term there is going to be a lot of pain, so some [farmers] won’t see the medium term.”

The impact of the dip in domestic sales has been exacerbated by a cooling in overseas demand for British milk. According to the European commission’s Milk Marketing Observatory, Chinese imports of whole milk powder from Europe were down 56 per cent in the first half of 2015, while skimmed milk powder imports fell 28 per cent and cheese imports dropped 58 per cent. This is down to China attempting to build up its own dairy industry and a slowdown in the economy.

Campaigners want supermarkets to increase the amount they pay dairy farmers for milk and change the way they sell the drink in stores.

The head of the campaign group Farmers For Action, which has organised protests against Asda and Morrisons, has called the row a “morality issue”.

David Handley, chairman of Farmers For Action, said: “Why is it necessary to use milk as a loss leader to get people into a shop? Why should farmers bear the brunt of that? There is a morality issue here, and corporate responsibility.”

Retailers claim the drop in the price of milks reflects an international decline in commodity prices and an oversupply of milk partly caused by falling demand from Russia and China.

The “Big Four” supermarket chains – Tesco, Asda, Sainsbury’s and Morrisons – have cut prices in an attempt to boost the volume of products they sell. However, milk volumes were growing before the average price per litre started falling.

Morrisons has responded to the debate by launching a new milk brand called Morrisons Milk For Farmers which will be 10p more expensive per litre, with the premium returned directly to dairy farmers. This means a four-pint bottle of the Morrisons Milk For Farmers will cost £1.12, compared with 89p for Morrisons’ standard own-brand milk.

Alex Bandini, strategic insight director for dairy at Kantar, said: “Retailers use lower prices for everyday staples to give the perception of value for money, so it could be difficult for them to pull back quickly from current pricing strategies.

“While we can expect to see retail prices stay down in the coming year on standard supermarket milk, it’s too soon to say what impact Morrisons’ Milk for Farmers brand will have on the market and whether other retailers will follow the same approach.”

The NFU will hold events across the country on Friday to mark the day in the year when Britain would run out of food if it relied solely on domestic farms. Back British Farming Day is designed to draw attention to the importance of the country’s farms.