A sizeable proportion of this cost has been incurred during 2015 due to the slump in dairy prices resulting in the gap between aligned and non-aligned milk prices widening to nearly 8.5p per litre.
My brother is an Irish dairy farmer and I have seen first hand the impact on farm profitability as a result of the slump in prices. My brother Paddy, the Irishman, do not joke, is a very efficient farmer producing high quality milk at a low cost of production but is getting very near to the point of not making any profit. A substantial number of farmers will not be as efficient and will be losing money.
It is estimated that the extra cost of segregating the milk in these aligned pools from the unaligned pools also adds an extra 1 ppl to the production cost.
This is not a recipe for a sustainable supply chain.
In the UK the average price of milk paid to dairy farmers who are not in the aligned pools is 23ppl compared to about 30ppl for farmers in the aligned pools. To a typical small farmer producing 400,000 liters per annum this equates to £28,000 per annum which is a large sum of money.
The major retailers who have the dedicated pools are Tesco, Sainsburys, The Co-Op, Waitrose, Marks & Spencer & Booths do not appear to be realising tangible benefits in the form of higher milk sales. A recent Harris survey of consumers for the Grocer did not indicate consumer awareness that the retailers with the aligned pools were paying their farmers a substantially higher price.
As a shopper I know that these retailers are advertising this using various mechanics but this advertising does not seem to be cutting through into consumers consciousness.
It is not surprising therefore that some retailers may start to question and review the benefits of these aligned groups. This is a logical step to take but one which I personally think will further undermine the sustainability of our UK farming industry.
With all our recent government focus on the food supply chain and the need to reduce supply chain risk it would appear to me that the retailers who are doing the right thing by their supply chains, at large financial cost, should receive recognition and support.
It seems that the retailers are damned when they do and damned when the don’t.