Retail prices for dairy products are starting to reflect the recent upsurge in production costs after years of relative stability, analysis by the AHDB shows.
The recent inflation in consumer prices for milk, butter and cheese follows the large step change in milk prices paid by dairy processors needed to secure the required milk supplies.
While processors have seen input costs rising through most of 2021, AHDB analyst Patty Clayton says dairy did not see any real change in consumer prices until the final quarter of 2021.
Until this time, the retail price index for milk, butter and cheese had been relatively flat, she explains, despite general inflation rising slowly.
Since October 21 however, there has been a notable shift in the rate which consumer prices for dairy products have risen, making up for the lack of any upward movement in the previous few years.
Ms Clayton says: "The shortage in milk production which emerged as an issue last autumn, combined with the sustained upward move in farmgate milk prices since the beginning of 2022, will have created enough pressure to push the higher production costs through to retailers, and subsequently consumers.
"The ability to cover the rising tide of costs is critical for farmers to maintain milk production, or at least minimise any further deterioration."
For processors, the challenge will be to continue to secure the necessary price increases from their retail customers at a time when consumers are facing a cost-of-living crisis, she says.
