Supermarkets main culprits

DAIRY products now share the spotlight in Europe with the Lisbon Treaty, the Iran election, and climate change.

Well done to farmers for making their voices heard to the extent that the collapsed dairy products market was discussed last week by EU leaders alongside the most pressing global issues.

The leaders asked the EU civil servants in Brussels to prepare an in-depth analysis within the next two months, including possible options for stabilising the dairy market.

It was a rare foray by the European heads of state into farming matters. Their intervention is good news for farmers, but could spell trouble for the supermarkets. In fact, it may have been concern for shoppers rather than for farmers that alerted Sarkozy, Merkel, Berlusconi, Brown and their colleagues to the milk market crisis.

Because it is the supermarkets that more and more look like culprits in the unending market slump.

In Britain, they earn more from milk every year, while farmers and milk processors go broke.

Across Europe wholesale prices of butter have plunged from €2,670 per tonne to €1,300 in the past year.

But on British supermarket shelves, the price of butter to shoppers is up 8% on a year ago, the price of milk is up 10%, and cheddar cheese is unchanged.

Supermarkets’ profit margins from selling milk in Britain are estimated to have risen in the past decade from 7p per litre in 1999 to about 19p per litre today. For the food retailer, the gross margin on cheddar cheese is now as high as 50%.

EU leaders could do the ordinary people in their 27 member states a big favour by forcing supermarkets – and any processors found to be profiteering – to pass back the rock-bottom price which farmers get for milk to consumers.

One processor who would go along fully with that is Ireland’s Glanbia. They say shop prices have not declined by anywhere near the same slump in their side of the business – and this is limiting a demand response from the market, according to Glanbia. Effectively, retailers are lining their pockets at the expense of farmers and consumers, taking windfall profits from a historical low point in prices for dairy commodities.

The EU could also save taxpayers a fortune, having spent €650 million of their money this year to rescue farmers from the collapse in dairy product prices, by buying up 80,000 tonnes of butter and 180,000 tonnes of milk powder and storing it, or by subsidising it so it can be sold on the lower priced world market.

Germany says it will spend €1.1bn to keep their dairy farmers’ heads above water.

It is high time the EU tackled the root of the problem, rather than throw taxpayers’ money at it. In April, Agriculture Commissioner Mariann Fischer Boel said a typical Belgian farmer was getting 25 cent per litre of milk, but when it reached a Belgian supermarket, the price tag was five times higher. The picture was the same in many other European countries, she said, calling for the entire food chain to be scrutinised to find who was profiting from the growing gap between farm and consumer prices.

But all the Commission of which she is a member did was to set up a price monitoring system for bread, milk and meat products. She hoped this would ensure no one is tempted to abuse their market position at the expense of farmers and consumers.

Two months later, it seems that retailers have ignored her – and her failure will not have gone unnoticed by leaders at last week’s EU summit.

According to Irish farmers’ leader Padraig Walshe, with over 90% of the milk produced in Europe also sold in Europe, much of it through the shops, the European Commission has to find out why farmers are going broke and consumers are not benefiting. The EU may have to fundamentally rethink its regulation and support of food production, he said.

It’s a glaring example of how Brussels can make itself meaningful to ordinary citizens of Europe. Dairy product prices should be halved in the shops. The resulting higher demand would lift farmers and processors.

So far the EU has taken the easy option of throwing money at the dairy problem – expanding private storage, buying more and more butter and skimmed milk powder into public intervention, and subsidising exports. That has kept the EU dairy industry ticking over, but has taken Europe to the brink of trade war with the US, Australia and New Zealand. And the overhang of hundreds of thousands of tonnes of dairy produce going into cold storage could keep dairy markets depressed for years.

Intervening in the real market would be helpful to consumers and farmers.

Even if Europe can prove that it really has some power to help ordinary farms and consumers, the snail’s pace at which it gets anything down means that hundreds more farmers could go bankrupt. And the EU still wonders why its citizens don’t appreciate its efforts, and vote No in treaty referenda?