Scottish dairy farmers are calling on supermarkets to end their resistance to rises in the cheese market or run the risk of dairy processors shifting milk into alternative products.

On some value and branded lines of cheddar, figures show that supermarkets are making as much as 49 percent gross margin on shop shelf values.  Despite that margin being made at the retail end, those same supermarkets are believed to be stubbornly preventing wholesale cheese prices from lifting to levels that recognises both the cost of production of milk on farms and the rising world demand for dairy products.

That attitude from retailers is leaving those companies who produce cheddar with stark choices to make.  These include reducing the volume of cheddar being made, manufacturing milk into alternatives such as milk powder and cutting milk prices to producers.

NFU Scotland believes milk price cuts for those supplying cheese contracts would be wholly unwarranted and avoidable were retailers to pay fairer wholesale prices for their cheddar.  That can be achieved by shaving the huge margins they currently make on cheese without pushing consumers to pay more for the product.

NFU Scotland President Nigel Miller said:

“Scottish and British cheddar is truly valued by our consumers.  Its taste, quality and reliability ensure that they buy it in huge volumes every single day.  However, despite retailer pledges made last year about supporting dairy farmers, the stark reality is that the retailer mark-up on cheese is substantial – significantly ahead of the money they make on fresh milk – and the processor and farmgate share of the value left in the cheese supply chain is not viable and unsustainable.

“Despite the considerable cost burden of producing milk being carried by all dairy farmers, the milk price paid to those supplying cheese contracts is under pressure and, in most cases, is below that of those supplying the liquid milk sector.

“Retailer attempts to drive value out of the liquid milk chain were exposed last summer and opposed by both the farming industry and the general public.  Those same retailers are now resisting rises in wholesale cheese prices, pushing cheese processors to consider changes to their business strategy and denying the dairy farmers supplying them a fair return.  That is a high risk approach from supermarkets that could ultimately rob the public of a product that they clearly value should milk processors start to look at alternatives to cheese.

“While there are export markets that must be grown for Scottish and British cheese, the major retailers have the dominant role in sourcing and buying farm assured product for the home market, giving that appropriate shelf space and giving the customer a range of products and prices.

“Our Shelfwatch campaign shows that is happening to a greater or lesser extent in all retailers, although it is disappointing that in some, value and everyday cheddar lines are dominated by non-assured, imported product.

“At the same time, supermarkets have a responsibility to ensure that their buying policy is supportive, balanced and fair – a position that many were keen to reinforce recently on red meat following the horsemeat debacle. While industry is well aware of the current problems in the cheese market, I suspect the general public will be disappointed to hear that, at the moment, the rewards from cheese production are largely filling retailer coffers.   Without that balance of margin in the supply chain, both milk producers and processors are under threat.

“This pressure is focused not just on major milk fields such as South West Scotland but is undermining the viability of milk production in more remote cheese-making areas such as Kintyre and Orkney where milk is a vital pillar of the local economy.  Given that in Scotland 40 percent of our milk is processed into cheese, it is crucial that the current dysfunctional cheese market is resolved for the sake of consumers, milk processors and milk producers.”

Notes to Editors

• Supermarket shelf watches carried out by NFU Scotland staff and members in recent weeks have demonstrated a level of commitment at Sainsbury, Morrisons and Asda in Edinburgh, Lothians and the Borders to sourcing British and Red Tractor assured cheese – much of it under own label branding. There was, however, little shelf space given to branded Scottish mature cheddar at Asda. At Morrisons, there was a limited choice of Scottish product but a significant offer sourced from Ireland.
• Tesco, over the period, was found to have a large core everyday or value offer, described as responsibly sourced, some of which is Irish and does not carry the Red Tractor assurance standard. That own label product is supplemented by branded Irish and Canadian cheddar. Tesco did offer a range of British and Scottish cheddars including Kintyre, Orkney, Lactalis, Galloway and Lockerbie. However, the shelf space for much of these was small despite competitive pricing.  
• DairyCo reports wholesale prices for mature cheddar and mild cheddar at £3200 and £3000 per tonne respectively. Detail at:  http://www.dairyco.org.uk/market-information/milk-prices-contracts/wholesale-prices/uk-wholesale-prices
• DairyCo reports supermarket retail prices for cheese of budget own label mild cheddar at £5.51 per kg (£5510 per tonne), non-budget own label mild cheddar at £7.33 per kg (£7330 per tonne) and branded mature cheddars selling at between £8.99 and £11.36 per kilo (£8990 and £11,360 per tonne).  Detail at: http://www.dairyco.org.uk/market-information/dairy-sales-consumption/uk-retail-prices/uk-retail-prices
• In its most recent Dairy Supply Chain Margins report, DairyCo estimated that the retailer gross margin on mature cheddar was 49 percent.  See detail at: http://www.dairyco.org.uk/market-information/processing-trade/dairy-supply-chain-margins/mature-cheddar-margins  The margin on mild cheddar is 47 percent.  See detail at: http://www.dairyco.org.uk/market-information/processing-trade/dairy-supply-chain-margins/mild-cheddar-margins

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Contact Bob Carruth on 0131 472 4006