Dairy Processor Margins Falling

UK - Processor margins are falling according to some key findings from thelatest Dairy Supply Chain Margins report for 2011/12 that DairyCo has release in advance of the full report being published, because of the state of the industry at present.
calendar icon 6 July 2012
clock icon 2 minute read

Data limitations have prevented a breakdown of the liquid milk gross margins between the processor and retailer for the 2011/12 milk year although the long-run trend points to falling processor margins.

AHDB/DairyCo senior analyst, Patty Clayton, explains: "It seems unlikely that processor gross margins would have increased given the continued high levels of competition in the retail market, pressure from retailers to keep processor selling prices down and the increase in average farmgate prices."

UK farmgate prices increased for the second year in a row in 2011/12 on the back of continued strength in world dairy commodity markets and increased competition for raw milk supplies by domestic processors.

"In a reversal to a 10-year trend, the average retail price for liquid milk in multiple retailers has fallen sharply over the past three years. Given the strategic importance that retailers have placed on milk and its use to help bring consumers into stores, retailers have resisted any increases in processor selling prices," adds Ms Clayton.

In the absence of any significant change in the structure of the liquid milk market which would change the balance of power, it would be expected that gross margins at the processor level will remain under pressure.

DairyCo will publish the full Dairy Supply Chain Margins 2011/12 report later in July, providing a detailed analysis of how events in the dairy markets have impacted on liquid milk and Cheddar margins along the supply chain.

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