There are many pressures on the dairy supply chain, read all about them below.
Strong bulk cream demand and relatively tight supplies have driven prices up, including from the continent. Returns were generally better for cream than butter.
Butter prices followed a similar trend to cream, rising through most of the reporting period. Spot butter availability was particularly short as producers were getting better returns selling cream, or potentially retail butter packets.
Mild Cheddar prices also rose off the back of strong demand and tight supplies, particularly at the start of the reporting period. Reports suggest that stocks are very low, as demand has been strong while milk supplies have been tight both in the UK and the EU.
We have already seen several milk increases in 2021 and Milk prices are increasing further but much of the milk increases are driven by higher fuel and packaging costs and wages are also soaring in the distribution sector as companies try to secure and retain the workforce. Large Dairies such as Muller and Arla are also passing this onto the supermarkets including Sainsbury’s, M & S, Tesco and Waitrose over December and January as reported by various dairy news bulletins.
It is fair to say that the dairy supply chain has not seen inflationary cost pressures of the magnitude being witnessed today for many years, if ever. They are ubiquitous across every aspect of the supply chain, from primary farm inputs, to the price of fuel and labour to take the milk from the farm to the dairy. Through the processing procedures within the factory, to packaging materials, storage and maturation, and the final transport to the end consumer, be it here or abroad.
Cost price rises in the dairy industry are rampant on every front – from primary farm level through to dairy processors. Given the slim margins made by UK processors, these costs cannot be absorbed by processors, and nor can they be passed back down the line to farmers, as they are facing their own inflationary challenges. There is no choice but to pass these costs on to consumers through higher prices, and this will result in “new reset” prices for liquid milk, cheese, and butter.