DairyCo

Dairy Supply Chain Margins report published

Published 22 July 11

The DairyCo Supply Chain Margins report, published on Friday 22 July, looks at the events of 2010/11 within the liquid and cheese markets and how these have affected gross margins along the supply chain for the year.

The liquid milk market was a year of two distinct halves, with the first half of the year seeing prices and margins remain essentially unchanged from 2009/10.  In the second half of the year the retail price war led to events which dramatically reduced wholesale selling prices, leaving processors squeezed when farmgate prices also increased.

In Cheddar markets, processors were able to increase gross margins as a result of the combination of strong commodity markets and strong demand for Cheddar, while retailer margins fell.

With the market indicator AMPE, which reflects returns from butter and powder commodity markets, showing a 31% rise over the year compared to the 5% increase in the average farmgate price, the report highlights that there was some short term disconnection between price movements on commodity markets and at the farmgate in 2010/11.

This apparent disconnection, combined with the expectation that farm input costs will continue to rise in the short to medium term, has caused great concern in the industry.

For a sustainable dairy farming industry to exist, it is vital that conditions within the supply chain do not disadvantage farmers in the long term, which requires an understanding of how prices adjust along the supply chain.  This issue has been examined in more detail in DairyCo's Price Transmission report, due to be published at the end of the month.

The DairyCo Supply Chain Margins report can be downloaded from here.