Industry ready to stand up to retailers over milk prices
Dairy farmers must be ready to take on the retailers if the latest round of supermarket milk price cuts threatens to damage farm-gate prices and NFU Cymru will be at the forefront of the fight.
An NFU delegation held urgent talks with Tesco last week to express concern at its decision to launch Fresh 'n' Lo at £1.06 for a two-litre carton.
Many of the other major retailers followed Tesco's example and announced price cuts on milk, but the NFU Cymru remains unconvinced by the retailers' strategy and by claims that they, rather than farmers, would absorb the price cuts.
NFU Cymru Clwyd County Chairman, Richard Tomlinson said, "Let's consider the Tesco launch in isolation for a moment. You only have to cast your mind back a few years to see the devastating impact retail price wars have on farmers' margins. Tesco denies that this move will have any impact on the farmers supplying milk through its supply group and in the short term, that may be the case. But more concerning is the impact this move will have on farmers' confidence and the prospects of a price increase this autumn.
"The launch of this tertiary brand of milk, albeit at the expense of Tesco's own margin, sends out the wrong message to farmers who are still adjusting to being in a relationship with a retailer.
"As expected Tesco's competitive advantage lasted all of 24 hours as the other retailers reacted in a tidal wave of ruthless discounting. They are fervently denying that their actions will be felt in any way by farmers, but we are just not convinced. Not only does this create a difficult climate for negotiating autumn milk price increases, in the longer term retailers have a finite ability to take a hit on their margins and the ability of the discounters to sell milk at below the cost of production and absorb these costs will be weaker than that of the big four. We know from bitter experience where they'll come looking for cuts in the long run.
"We will not just lie in wait for the inevitable margin slashing that we still bear the scars of. Farmers have to protect themselves. NFU Cymru has long been calling for better contracts in the dairy industry, which offer greater clarity, transparency and stability for dairy farmers. Having proper contracts that bring certainty to the way milk prices are determined, that require proper negotiation between both parties to agree change and which, ultimately, create a fairer balance of power in the supply chain, will protect farmers from becoming victims once again.
"NFU Cymru's priority is to empower farmers to demand changes to their contract that will reduce their vulnerability. Even in today's industry climate, with milk in short supply, costs going through the roof, a favorable exchange rate and the need for further price increases, retailers have demonstrated their unnerving ability to rock the stability of the industry overnight. In doing so they have demonstrated the desperate need for better contracts in the dairy industry and NFU Cymru is ready to support farmers in this aim."
