Price war danger as milk shelf price falls

Picture: Lorne Campbell / Guzelian
Picture: Lorne Campbell / Guzelian
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Supermarkets are being urged not to devalue food by entering into price wars which have the potential to undermine British farmers and growers’ businesses.

The National Farmers’ Union (NFU) is leading the calls at the end of a week which saw Tesco, the UK’s largest supermarket chain, slash the shelf price of four pints of milk to just £1.

The farming industry is concerned that the discount could be the start of a trend which leads to longer-term impacts on British farmers, with the major retailers competing to undercut competitors’ prices.

Newly elected NFU president Meurig Raymond said: “We recognise that it is an incredibly competitive retail environment and that many retailers, including discounters, had already lowered the cost of staple items, such as milk, before this week’s announcement by Tesco. What’s important is that these price wars do not undermine the value of the products which farmers and growers work tirelessly to produce and meet world class standards.

“What we want to see is decisions on pricing that ensures the longer term sustainability of food production - enabling continual growth and investment in the raw material production so that we are able to grow, innovate and provide choice to meet future consumer demand.”

The NFU will be monitoring the situation closely, Mr Raymond said.

“While Tesco has been quick to point out that this latest price promotion will not impact on farm-gate prices, we are nevertheless concerned about the impact of a price war having an undermining effect on farm gate prices and so we will be monitoring all retailers, to ensure that these price promotions do not get passed back to the farmer.”

Tesco cut the cost of a four pint bottle of milk from £1.39 to £1, a week after its reduced prices on tomatoes, onions, peppers and cucumbers.

Customers want to see more stable pricing from supermarkets, Tesco said, with the prices that have come down due to stay down but the new lower price for milk will not impact on the price Tesco pays to the milk farmers in its Tesco Sustainable Dairy Group (TSDG), the retailer added in a statement.

Around 650 farmers supply milk to Tesco, and the price the retailer pays for milk is set independently twice a year. The price is always above the cost of production, the retailer insisted, ensuring that their suppliers’ businesses turn a profit.

John Scouler, Tesco’s commercial director, said: “We care about our milk and where it comes from, which is why we set up the TSDG.

“We promise that our farmers will always be paid a fair and independently agreed price for their milk, so they can invest in the future of their farms and provide higher welfare standards for their cows.

“When our customers buy their milk at Tesco, they can be confident that it’s responsibly sourced and at a fair price for all.”

The pressure is on retailers, according to analysts Kantar Worldpanel, with figures out last month showing the overall weakest growth in the grocery sector since 2005.