UK supermarkets and dairies fined £116m

Supermarkets Asda and Sainsbury’s were today fined over their roles in a dairy price-fixing scandal thought to have cost consumers around £270m (€374m).

Supermarkets Asda and Sainsbury’s were today fined over their roles in a dairy price-fixing scandal thought to have cost consumers around £270m (€374m).

The retail giants and a number of major diaries have agreed to pay combined fines of more than £116m (€160m) after admitting fixing the price of milk, cheese and butter following a probe by the Office of Fair Trading.

But the UK’s biggest supermarket Tesco, which was also found provisionally guilty by the OFT in September, said it would continue to defend itself “vigorously”.

Morrisons and dairy group Lactalis McLelland have also not admitted involvement in the claims relating to price fixing during 2002 and 2003.

Sainsbury’s said it had agreed to pay the consumer watchdog a settlement of £26m (€36m), but denied it was seeking to rip-off consumers.

The group claimed its actions were designed to help dairy farmers at a time when they were under financial strain, following the devastating foot and mouth outbreak in 2001.

Justin King, Sainsbury’s chief executive, said: “We are disappointed that we have been penalised for actions that were intended to help British farmers, but recognise the benefit of a speedy settlement.

“The price initiatives in 2002 and 2003, which were widely and publicly reported at the time, were designed to help British dairy farmers at a time of considerable economic pressure and public debate about whether farmers were getting a fair price for their products.”

Fellow supermarket Safeway, prior to its takeover by Morrisons, and dairies Robert Wiseman, Dairy Crest and The Cheese Company also admitted colluding over dairy prices.

Dairy Crest is expected to pay a fine of £9.4m (€13m) after its price-fixing admission, while fellow dairy Robert Wiseman agreed to pay £6.1m (€8.4m), with all fines going to the Treasury.

The settlements are yet to be finalised, but the OFT said those that have made admissions will receive “a significant reduction in the financial penalty that would otherwise have been imposed”.

It added it had taken into account the pressures supermarkets were under to support dairy farmers at the time of the price fixing.

Supermarket depots were being blockaded by dairy farmers during 2002, with calls for retailers to raise milk prices to help alleviate stress in the farming industry.

Asda, which has not revealed the amount of its settlement, said today its intention was to “provide more money for dairy farmers, who were under severe financial pressure at the time”.

“These issues concern all the major supermarkets but we’ve chosen to settle this matter quickly because we believe it’s the right thing to do for our customers,” it added.

However, Tesco claimed its position was different from its competitors.

Lucy Neville-Rolfe, executive director at Tesco, said: “As we have always said, we acted independently and we did not collude with anyone.

“Our position is different from our competitors and we are defending our own case vigorously.”

Dairy Crest saw shares leap 7% after news of its settlement with the OFT as investors reacted with relief that an agreement to the inquiry had been reached.

Consumer body Which? Said it was pleased the firms had held their hands up, but called for retailers to restore consumer confidence.

It said: “It is shocking that consumers have been ripped off by the businesses they trust. Consumers will be asking, if it is milk, what next?

“If the supermarkets want to restore consumer confidence that will no doubt be damaged by their admissions, they should publicly commit never doing this again and find creative ways to proactively reimburse their customers.”

Dairy UK, the industry’s trade body, sought to defend dairy producers, saying “dairy products continue to be very good value”.

“The OFT investigation refers to events five years ago and any price rises then reflected the major cost and income difficulties being encountered by dairy farmers,” it said.

The UK’s major supermarkets have since formed segregated supply chain schemes to help ensure dairy farmers are paid a premium and to provide greater efficiencies by working more closely with dairies.

Asda launched its in 2004 and claims to have paid more than £12m (€16.6m) in milk premiums, while Sainsbury’s said it pays 1.5p per litre more than standard prices to members of its 320-strong dedicated producer pool.

Prime Minister Gordon Brown’s spokesman declined to comment specifically on the milk price-fixing case.

But he pointed out that it was Mr Brown, as Chancellor, who brought forward “very significant” reforms to the competition regime, granting independence to the Competition Commission.

“That happened in 2001 and as a result of that I think we have seen competition policy with more edge, with benefits to consumers.

“This is a good example of the new framework operating in practice.”

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