Milk Market Failures

Is it me?  To quote a Terry Wogan/TOG catchphrase, but there is something weird going on in the European milk market and it seems farcical to me.

Today the French papers are reporting that milk product prices are due to rise between now and the end of the year, not because of the weather (perhaps the only part of the farming market not to be complaining about the weather at the moment) but due to a huge shortfall in production of milk in Europe.  It appears there is a Europe wide shortfall of a billion litres of milk, but in France, they are not using all the quota allocated for production.  In France the farmers are apparently turning away from milk production to cereal production which has a better profit margin.

This is not far off the situation in the UK where milk producers are going out of business as the price paid for milk at the farm gate is I gather a penny per litre below the cost of production.  Britain now imports milk from Ireland and Poland, where the costs of production are less or at least the farmers get paid the money owed to them by the relevant Department with responsibility for agriculture.

So now the relentless consumer race for the cheapest possible food from the supermarkets is going to turn round and bite the consumer on the bum.  By not being willing to pay a fair price for milk (and the culprit are: consumers, supermarkets, food producers), milk is now in short supply and the price will go up.

The list of culprits there is an interesting one, and to a certain extent is being investigated in the UK by the Office of Fair Trading.  The supermarkets are those with the overwhelming buying power that determines to a greater extent what is paid for products - while a litre of milk is about 50p in the supermarket, they only pay 17p to the farmer.  Those lovely buy one get one free offers, when applied to apples, mean that actually the farmer gets paid for only half of what he or she supplies, but has the cost of production of the total, so don't thank Tesco for your BOGOF offer, go out and thank a farmer directly.

Supermarket profits are going up, numbers of farmers are going down.  In the end the consumer pays, so make sure that you put the money you save on your supermarket bill now in a high interest savings account so that you can pay the extra for your milk products come Christmas.  Personally, I will keep buying my milk, cream and yoghurts directly from the farmer - it's about the same price, but the quality is better, the products are fresher and I know where they came from.

Comments

[Bob]

Is there a bubble forming here? The supermarkets are creating more and more jobs by opening more and more stores because they are forcing prices down, so more and more people shop there. This drives the smaller shops out of business so more people have to shop at supermarkets, which then open more stores and employ more people. The even more powerful supermarkets are then able to negotiate even harder deals with suppliers, driving costs down and the driving opposition into oblivion. Round and round. More megamarkets, more jobs in megamarkets, more power ya di ya di ya ad infinitum.
Until. The suppliers can't cope with the downward spiral in price so they stop supplying. A shortage . Prices start to rise. People shop less at megamarkets, because their money doesn't go so far. Jobs in Megamarket are lost to maintain profits. But there are no 'proper' jobs left in UK PLC because everything has been out-sourced. So less people can afford to shop and spend less while they do it. So stores close. So the economy falters. But megastores has lots of assets it can dispose of to maintain profits until things turn around. But oil and other goods rise in price and things don't turn round. The downward spiral is as unstoppable as the upward spiral seemed to be. Megastores eventually has nothing left to give and folds. Pension funds and savings are caught out by a total lack of confidence. People are left with nothing. No savings, no hope for the future, no jobs, no food, no social services to help support them. And then things will really start to get bad.
But, what the heck. We have cheap milk now so why worry about tomorrow?