Price-fixing scam alleged
It’s a conundrum for consumers and farmers too but some answers may emerge next year, courtesy of the Office of Fair Trading in Britain.
Their provisional findings are that five big British retailers and four dairies shared commercially sensitive information, and colluded on price-fixing for milk and dairy products. The OFT estimates this cost consumers about €400 million.
The companies have until mid-December to respond, but it will be late 2008 at the earliest before the OFT will decide whether or not to proceed with their case. If the companies are found guilty, they will be punished by fines of hundreds of millions of pounds, up to 10% of their turnovers.
The supermarkets and processors claim any increase in price was a result of persistent lobbying from dairy farmers, keen to increase the retail price of milk because of soaring production costs on their farms.
But while consumers were charged more for milk, farmers were paid less for it. In 2001, before the alleged price-fixing, the average British farm gate price of milk was 19.3p per litre. By 2003, after the price-fixing, average farm gate prices were down 5.8%, to 18.02ppl.
Meanwhile, the average retail price of milk went from 42.7ppl to 47.5ppl in 2003 — a rise of 11.2%.
Thankfully, this is less likely to happen in Ireland, because Irish dairy farmers control their milk processing through their co-ops.
Three of the four milk processors in Britain suspected of collusion in price-fixing are private companies.
The fourth, Arla Foods UK, is a subsidiary of the Arla co-op owned by about 9,400 Danish and Swedish milk producers.
But it’s not comforting for Irish farmers to realise that some of the world’s most powerful companies have no qualms about putting them out of business, and permanently damaging their business, just to make a few more pennies from every gallon of milk they sell.
The industry will lose billions of pounds during the current global milk price boom because supermarkets and dairies squeezed so many farmers out of existence.
In 2005, British milk production plunged to a seven-year low, as 17 dairy farmers per week gave up producing milk for a profit of only 1.5c per litre, or 7c per gallon. As a result, Britain undershot its permitted EU milk quota in the year to last April by 479,000 unused tonnes. One in four Scottish dairy farmers have gone out of business in the past six years, leaving only 1,400.
And it is happening once more; pig and poultry producers are now being put out of business.
Everyone knows that higher feed costs are squeezing the profit margins of pig and poultry farmers. They have been through this before, and seem to have become resigned to enduring periods of survival until the market recovers, after enough of their neighbours go out of business.
Once pigmeat supplies fall, perhaps by as little as 5%, retail prices will soar, according to Teagasc. Poultry farmers similarly depend on the merciless effects of supply and demand, transmitted back to them by the supermarkets.
But how many producers will have their confidence destroyed to the point that the industry shrinks and more pig and poultry meat must be imported, and the processing profits and jobs lost to Ireland?
