Higher Prices put Pressure on Processors
UK - Farmgate prices increased on average by 3.4 per cent in the first six months of the 2011/12 milk year, although year-on-year they are up by 11.6 per cent as commodity markets remained strong throughout the period.
10 January 2012
2 minute read
The average retail price for liquid milk in multiple retailers increased to 56.6 pence per litre (ppl) in the first half of the 2011/12 milk year (Apr to Sep 11), up from an average 56.0ppl in the preceding six month period. The increase was largely due to the reduction in multi-buy promotions, resulting in a rise in the average unit milk price.
Nevertheless, the average retail price for liquid milk prices remains low compared to averages over the last four years as a result of ‘price wars’ among top retailers that started in the second half of the 2010/11 milk year. Compared with the corresponding period last year, the average retail milk price over the six month period of Apr to Sep 11 was down by more than eight per cent.
Average processor selling prices also fell over the six month period, from an average 37.3ppl in the second half of 2010/11 to 37.1ppl for the first half of 2011/12. Average processor selling prices have fallen steadily since peaking at 47.0ppl in the second half of 2008/09.
Processor gross margins were heavily impacted during the first half of the 2011/12 milk year as a result of the reduction in average selling prices to customers and upward pressure on farmgate prices paid for milk supplies. At 27.0ppl, the average Defra farmgate price was approximately four per cent higher compared to the second half of 2010/11, and 12 per cent higher year on year.
The dual impact of higher farmgate milk prices and reduced selling prices resulted in a fall in processor gross margins, from an average of 30 per cent in the second half of 2010/11 to 27 per cent in the first six months of 2011/12. The change is more significant year on year. In the first half of 2010/11, average wholesale gross margins were at 40 per cent.
The recent fall in processor gross margins reflects in part the inability of processors to pass on higher input costs to retailers, who are faced with maintaining their competitiveness during the economic downturn. Also impacting on processor gross margins was the upward pressure on raw milk prices arising from strong commodity markets.
Retail gross margins recorded a slight increase in the first half of the 2011/12 milk year, up two percentage points on the second half of 2010/11 to 35 per cent, benefitting from the reduced processor selling price and the small increase in the average retail price.
TheCattleSite News Desk
