Farmgate prices may have increased by 2.9ppl to an average of 20.9ppl in 2007 but, according to figures published in DairyCo’s Dairy supply chain margins, the time lag between the rises in dairy commodity prices and the slower rises in farmgate prices cost British dairy farmers up to £575 million between March and November 2007.

“We would always expect a time lag between the global markets rising and the farmer seeing the gains but in 2007 this appears particularly excessive,” says Huw Thomas, head of market intelligence at DairyCo. “If milk purchasing agreements between farmers and milk buyers were more transparent, and price fixing periods were better aligned with notice periods, it is likely the market would have operated more efficiently and dairy farmers could have seen more of this money in their milk cheques.”

Dairy supply chain margins also reveals that liquid milk and mild cheddar retail prices increased between 2006 and 2007, by 8% and 11% respectively, while the average retail price of mature cheddar fell slightly. Retail gross margins on liquid milk increased in pence per litre terms compared with 2006, but fell for both mild and mature cheddar. During 2007 processors increased their gross margins on liquid milk and both mild and mature cheddar, partly to cover increased operating costs.

Adds Thomas: “Examination of the financial results of the major milk buyers suggests, in general, this increase in gross margin also translated into an increase in processor profitability, with a number of them reporting an increase in profits for the 2007/8 financial year. However, the pressures on dairy farming continue with a sharp increase in farm input costs. In many cases this will have cancelled out the benefit of any higher milk prices, suggesting long term profitability for British dairy farmers is still at risk.”