August 15, 2008

The UK dairy industry is facing a crisis as price wars broke out among major retailers, pushing prices to tumble in Britain's supermarkets.

On Monday (August 11), Tesco sold a value line of milk, which prompted Asda to cut prices on Cravendale milk, threatening to undermine milk prices across the country.

While all the retailers have said farmgate prices will not be affected, the cuts may compromise the industry as it now faces a return to the unsustainably low prices of the 1990s.

Hayley Campbell-Gibbons, the NFU's chief dairy adviser, said the main concern is the devaluing of milk when we should be getting more money from the retailers.

Gibbons pointed out that these moves undermine the good work the industry has done to tell consumers that the era of cheap food is over, and that the price of milk has to reflect the cost of production.

The moves are also likely to throw the upcoming autumn milk price negotiations into crisis, with retailers now pushing for lower prices to win customers from their main rivals.

With retailers taking a hit on their own margins to offer the milk at discount prices, farmers will not yet feel the pinch, but as consumers switch to buying cheaper milk, the supermarkets' own producers are likely to suffer from lower sales volumes.

The situation could get worse as Asda is set to drop the price of Wiseman Dairies' Fresh n Lo milk in its Scottish stores.

The UK dairy industry is now anxious to see how heavy discounters Lidl and Aldi respond to the price war, with many fearing further cuts there could trigger more from the big four and escalate the crisis further.