Why milk is so cheap and what if you doubled its price?

What if you doubled the price of milk?

Waitrose essential semi-skimmed milk: 118p for 2 litres.

If you doubled the price of this milk, for an average household consuming, say, 3 litres per week, that would mean an additional cost of 177p for the price of their milk.

Is this an unreasonable price for a staple product? We would say not.

Milk is fundamentally underpriced, as supermarkets have adopted a pricing strategy of dropping the price on core lines of staple products so as to appear incredibly good value to customers, whilst maintaining big margins on other product lines. Incredible indeed, and unsustainable.

Over the last 150 years, food prices have steadily fallen. 150 years ago, food was 13 times more expensive than it is now! 50 years ago, we were spending 1/3 of our income on food, last year it was just 7.7%. Against this backdrop of steadily falling prices, it is no surprise that the customer expects and wants to spend less on food and more on other products, and that we have (and retailers encourage) a "why pay more?" mentality.

And our priorities have shifted. What are the most successful new consumer companies of the last 10 years? Apple, Amazon, Starbucks, Sky to name but four. People think nothing of upgrading to the new iphone, or a getting that "must have ipad", or treating themselves to a £2.95 coffee each morning, but generally will adopt a "why pay more?" attitude when it comes to staple products.

It is perverse thinking, and though we at Farm Direct are believers in capitalism and the free market, we feel that this is a clear example both of market failure, of bullying oligopolistic pricing policies within the food industry and a misguided and overexpectant consumer. Dairy farms in desperate straits is the outcome.

Surely it is simply a case that the pendulum has just swung too far?The price of milk is plainly not going to double. As we see farmers trying to renegotiate the price for their product, it is worth bearing in mind that virtually all such negotations use the existing price as the marker from which the tug-of-war then starts.

We don't think this is right, as we believe milk is fundamentally undervalued and has been for a long time.

Growing produce in the rain - what is it like?

From Martin Mackey, of Ripple Farm Organics, who has a a small horticultural farm of 14 acres situated in the Stour Valley, Kent.

We have never seen such consistent wet damp summer weather here in 20 years farming in East Kent, so much so that we are unable to get onto the fields with tractors and machinery. This is especially surprising given that we are farming on free draining light chalky soils that can normally handle any rainfall with ease!
 
There are several knock-on effects of this::

1, Our planting and sowing schedules are disrupted as we cannot prepare ground and travel on it.

2, Weeds are growing like mad, and weed control cannot be assisted by the inter-row tractor mounted implements and therefore has to be all done by hand, and of course we have not got enough hands!

3, Fungal disease is worse in wet, low sunlight conditions and is causing crop damage and losses, (epecially blight in potatoes)

4, All harvesting has to be done by hand and carried out of fields by hand!


And after this tale of woe we find that people dont get out shopping normally in the wet and so we are all affected!

The wet reminds me of my childhood growing up in county cork.

Martin Mackey
Ripple Farm Organics.

In response to The Grocer's announcment that "David Cameron announces £5m fund to help dairy farmers improve competitiveness with 'game-changing' innovation.

Dear Grocer,

If we may be so bold: a very big thumbs down to you for publishing this. 

Why? Two reasons:

1, Because this has all the hallmarks of a classic hot-air, knee-jerk "let's look speedy & pro-active in the face of a crisis" initiative from a PR driven government.

There is no game changing innovation contained in the announcement- just a tiny uncommitted sum put forward for great ideas from farmers - a Dragons Den style shiny bauble of a reward dangling in front of suffering dairy farmers.

2, because game-changing innovations are not what is needed, and frankly reading such piffle, I dont know whether to laugh of cry.

Milk is fundamentally undervalued, and this is for two main reasons:  a, due to a ruthless discounting culture amongst retailers (especially on staple lines: for heaven's sake, it is cheaper than bottled water and most beers), and partly due to a now deeply seated "why pay more?" culture for which both retailers and consumers are responsible.

The game changing idea that is needed is therefore threefold:

a, for one of the main grocery retailers to respond to this crisis by to raise the price of their milk, and i would suggest that they do it under a "WHY WE pay more" strapline - a doubling of the price of milk would cost families on average (assuming a consumption of 3 litres per week) approximately 170p - is this so bad?

b, that retailers have a new price structure for payments to dairy farmers that involves them receiving a share of the retail price of a carton of milk, POST the direct production costs of the product.

c, that consumers are educated to understand that buying milk for 60p per litre is just too low for what is a highly nutritious product and that if they want to keep their farmers in business, then they should pay more for this great product.

For The Grocer to take such a passive line on this announcement will only serve to propagate the myth that you are but a figleaf to the supermarkets.

Yours sincerely,

The Farm Direct Team.

The price and cost of milk - how to help the dairy farmers?

Over 2,500 dairy farmers descended on Westminster yesterday to protest against a drop in the wholesale price of milk whereby they will receive upto 2p per litre less for their milk, effective from August 1st.

Many farmers will now be receiving less than 25p per litre, which given that the estimated production is 30p per litre, - making it a loss-making business - hence the crisis and the protest.

Who is to blame and what can be done? As ever the answers to either of these questions are not straightforward, but here are some humble observations from us at Farm Direct.



The bar chart below illustrates an estimate of what the cost of producing milk is, and how the rest of the money that you pay is split between farmers, processors and supermarkets.

This chart does need to come with some significant caveats: 1, they are our own estimated numbers (but based on circulated & accessible data), 2, different farmers get paid different sums depending on who they supply to.

But plainly with farmers hardly getting enough to cover the cost of production, it is clear that the vast majority of the available margin is not going to the farmers.

In our view, retailers are greedy for margin as the bar-chart above ilustrates - and we think that they take a unfairly high proportion of the price that consumers pay for their food, relative to the amount of value that they add in providing us with it.

But tempting as it is to lay the blame at their door, we think it is just as much the consumers' fault. For we sought, created and now enjoy a world of enormous consumer choice, where we make decisions about what food we want to consume at the drop of a hat, and we can choose any number of outlets that can provide us with what we want at - we expect food to be widely available at all times, and generally choose the shops that provide it at the best possible price - especially a product like milk that we treat as very much a commodity.

Food as a commodity is a cliché, but in the case of milk it is particularly and depressingly true - we even demand that it is homogenised, so that it all looks the same! Oh, and we expect it to be as cheap as water or beer.

It shouldn't surprise us therefore that this choice, accessibility and superlative value comes at a price - and that in a demand led world, it is the party furthest from the end consumer that gets the toughest deal.

It seems to us that a "fair price for farmers" should focus around an agreement that gives them a percentage of the margin POST direct production costs. The bar chart above demonstrates that they currently receive very very little of that, and that the retailer keeps it all for themselves. This would at least provide an incentive for retailers to push up the price of a product that it entirely undervalued!

As consumers, all we can do is start trying to choose differently.


Advantages of buying our Ivy House Farm Dairy milk

1, It is single herd dairy - meaning it comes from the same farm and herd each week - the Bowles family who produce it are entirely contactable (01373 830 957) and you can therefore get great knowledge and comfort about exactly how their products are produced.

2, It is unhomogenised, and so hasnt been mucked around with for cosmetic purposes, and is therefore easier to digest

3, Ivy House process their own milk and we buy it directly off them. they get over 71% your money, we get 29%.

4, it is a delicious product.

Disadvantages of buying our Ivy House Farm Dairy Milk?

1, it is approximately twice the price of basic supermarket milk - which if you consumer 2 litres per week, means that it will cost you around at extra 110p per week.

Now is that so bad?