The recent cut in prices for dairy produce on the retail end of the supply chain generated significant concern among Irish dairy farmers, but the phenomenon is not exclusive to Ireland, it appears.
This week, the European Milk Board (EMB) – an umbrella group of EU dairy farmer organisations – also expressed its concern over “rock-bottom” prices for some dairy products among EU retailers.
German dairy farmer Elmar Hannen, and member of the board of the EMB, said: “Some prices are sinking again and it is often surprising how quickly things can change, especially when it comes to supermarkets.
“For example, let’s look at butter. A well-known supermarket chain is attempting to attract customers with their rock-bottom bargain price €1.59 for a pack of butter. Competitors are also following this trend.
“Retail chains permanently rely on price reductions for milk products when it comes to advertising. The price for butter at the end of last year was almost €1 higher,” Hannen added.
The EMB member said that such changes in retail price “don’t just happen by chance” and require thorough analysis of price fluctuations by retailers, and careful monitoring of the market.
“Buzzwords like ‘price leader’ and ‘top price performer’ do not bode well. If there’s a winner, there’s usually a loser too, and in this case, it’s producers,” he commented.
“While many consumers are happy about such discounts, this downward trend represents a loss for dairy farmers on every litre of milk produced by their cows.”
“According to the most recent calculations, production costs on our farms are 45-46c/L. And the farmgate price paid…has now fallen below that figure. This means that, at the end of the month, I need to ask myself can I still pay all my bills,” Hannen added.
He acknowledged that prices for dairy produce have been very high for consumers recently, and that farmers did manage to make a profit for a short period last year, despite the high cost of farm inputs.
“However, we then had a situation where some farmers increased production because returns were good. Demand also dropped at the same time due to high prices. As a result, we ended up with milk surpluses that were exported around the world at cheap global market prices,” he said.
“In order to boost local demand, European retailers tried to lower prices. This has pushed many German farmers into the red.”
He went on to say that dairy processors however, have been able to make a profit through maintaining high prices for the processed product, with large multinational businesses in the sector reporting significant profits for 2022.
“This is possible because of an underlying mechanism that allows dairies and processors to adjust producer prices every month. However, they themselves usually enjoy long-term agreements with retailers,” Hannen said.
He added: “Agreements were concluded on the basis of these higher costs, which, in turn, led to inflated prices for milk, yoghurt, cream and the like. These contracts run for something like half a year.
“During market research, consumer protection organisations flag up unclear price setting practices. Some kind of market transparency body could be a possible solution for this issue.”
Hannen said: “Excessive price volatility should be analysed more closely and must be explained, in order to clarify to what extent price evolutions are justified.”
The EMB representative also said that the current market situation makes it “absolutely necessary” to urgently activate voluntary production reduction at EU level and to offer appropriate compensation in exchange until market balance has been restored.