Beware Producer/ Processor Gap Warns Report

UK - The DairyCo Supply Chain Margins report out this week calls for dairy farmers and the industry to keep a close eye on how long the farmgate price takes to react to improvements in the commodity market.
calendar icon 6 October 2010
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DairyCo senior analyst, Patty Clayton, says: “Our report shows that farmers’ share of the retail price of milk and Cheddar cheese has decreased in the past year. This appears to be due to two main factors; an increase in the retailers’ gross margin and a lower farmgate price. Despite a recovery in commodity markets, the farmgate price remains at a low level.”

“We need to keep an eye on AMPE which is currently above farmgate prices,” says Mrs Clayton.

“As AMPE measures returns to milk processors from turning milk into butter and powders, it gives an indication of the direction of the dairy markets but should, on average, be lower than the UK farmgate price given the importance of the liquid milk sector in the UK,” explains Mrs Clayton.

AMPE remained below the farmgate price for much of the last milk year, but with the recovery of the commodity markets, moved ahead of the farmgate price in April 2010. The gap between AMPE and farmgate price is currently the largest it has been for almost three years although with recent increases in milk prices, this gap has narrowed slightly.

“It takes time for the farmgate price to reflect the ups and downs in the commodity market, but we need to watch the time it takes for the farmgate price to adjust and whether it will attain a level which will provide dairy farmers with a sustainable return.”

DairyCo is now planning to commission a report on price transmission which will investigate how well the markets are working, and how quickly and fully changes in dairy market prices affect farmgate milk prices. The report is expected to be completed by the end of the 2010/11 financial year.

TheCattleSite News Desk

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