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Mild Cheddar Margins
Published 1 October 13
Mild Cheddar Margins - 2012/13
Average UK farmgate prices rose by 11.6% in 2011/12 but in 2012/13 the average farmgate milk price only rose marginally by 1.2% to 28.4ppl.
Despite some downward pressure on wholesale prices for mild Cheddar, processor margins remained relatively stable at 9% (2.7ppl) in 2012/13.
Retailers were able to increase gross margin levels as they were able to increase prices of mild Cheddar to the consumer while wholesale prices remained stable.
The Dairy Supply Chain Margins 2012/13 report presents evidence on the gross margins¹ made by farmers, processors and retailers on the sale of mild and mature Cheddar. This tenth report identifies who benefitted from changes in prices along the supply chain in the sale of mild and mature Cheddar across the 2012/13 milk year (April 2012 to March 2013).
In 2012/13, farmgate prices averaged 28.4ppl, having fallen then recovered to just marginally higher (1.2%) than 2011/12 levels.
The relative stability of wholesale prices for mild Cheddar reflects a well-balanced market with steady domestic demand, stronger export demand and lower domestic production counteracting increased imports from the Republic of Ireland.
Measured in pence per litre, the average retail price of mild Cheddar was 60.6ppl in 2012/13, 2.9ppl (5.0%) higher than in the previous year. This reflected the substantial price increases introduced by some multiple retailers.
Gross margins for mild Cheddar are summarised below. The increase in average retail price enabled retail gross margins on private label mild Cheddar to increase in relative terms by 3.1ppl to 49% of the total retail value. Despite some downward pressure on wholesale prices for mild Cheddar, processor margins remained relatively stable at 9% (2.7ppl) in 2012/13. It may be that the fall in processors’ gross margins has been balanced against gains in other areas of the business e.g. returns from whey.
|Comparisons of 'Defra farmgate milk price' mild Cheddar gross margins*|
|Farmgate milk price**||16.9||28.1||28.4|
|Processor gross margin||2.3||12%||3.2||10%||2.7||9%|
|Processor selling price||19.2||31.3||31.1|
|Retail gross margin||14.5||43%||26.4||46%||29.5||49%|
*Expressed in percentage terms, the gross margins reflect the proportion of the selling price retained to cover operational and overhead expenses and to provide for a return on investment/profit.
**At the farm level, only the average selling price is reported as this there is no effective 'purchase' price for the milk sold, and consistent data on average costs of production was not publically available at time of publication.
For the purposes of this report, gross margins are calculated as unit gross margins, measuring the unit selling price less the unit cost price (in pence per litre terms). The margins do not account for other sales or production costs and are therefore not indicative of profit levels. However, the gross margins are representative of the value obtained at that level of the supply chain and analysis of how the margins have changed over time provides important insight into how market events have impacted on the distribution of the value within the supply chain.
Please note: Monthly retail prices have been used since April 2007, compared to annual average prices prior to April 2007.
The DEFRA farmgate price is an average of all farmgate prices and will lead to small discrepancies in the absolute level of the margin. However, discrepancies should remain relatively constant year on year therefore the change in margins over the past 10 years should be accurate.
The DEFRA farmgate price is an average of all farmgate prices and will lead to small discrepancies in the absolute level of the margin. However, discrepancies should remain relatively constant year on year therefore the change in margins over the past 10 years should be accurate. Income from whey is ignored in this calculation - in reality this will increase the margin - for further details see Mild Cheddar Value Equivalent (MCVE).
Mild cheddar retailer gross margins* are based on the difference between the retail price and wholesale price of mild cheddar. The retail price is an average weighted price for mild cheddar from Kantar data.