Milk Price 'Set By Suppliers'

A supermarket has denied profiteering'' over the falling price of milk under questioning from MSPs investigating a crisis in the dairy industry.

Holyrood's Rural Affairs, Climate Change and Environment Committee launched an urgent inquiry after some farmers complained the price they are paid is now less than their production costs.

A two-litre carton of milk is now £1 in many supermarkets and dairy co-operative First Milk last month announced it was to delay paying milk producers by two weeks due to financial difficulties.

The committee took evidence from Asda's sustainable business director Chris Brown and Morrisons' Scottish affairs adviser Ewan MacDonald-Russell and agriculture manager Andrew Loftus.

MSPs heard that both Asda and Morrisons are supplied by dairy co-operative Arla Foods UK, which currently pays farmers 24.87p for a standard litre of milk.

Mr Brown said: I would emphasise that that's the price that Arla pay and Arla decide.''

Mr Loftus said: We negotiate a price with those companies for pasteurised, standardised bottled milk delivered to our depots around the country and it's up to them to set the price, the farm gate price, that the farmer receives.''

Asked about supermarkets' profit margins on milk, Mr MacDonald-Russell said: We have reduced milk price to a degree, that milk price reduction has come from our own profit margin, it certainly has had no impact whatsoever on the farm gate price.

Retail and farm gate prices on this are decoupled at the moment and hopefully will remain so.''

Mr Loftus added: I went round all of our teams yesterday in terms of liquid milk, cheese, dairy and butter and had a discussion around the gross margins they are able to achieve.

I can categorically assure this committee they are slightly under the average gross margins for Morrisons retail as a group.

So the question of us profiteering or making more - the trend is downwards, we're making less than we were.''

Michael Russell, MSP for Argyll and Bute, pressed the supermarkets to accept they had an influence on the price paid by suppliers for milk.

He said: Both of you have said it's the processor's price, not the price you set. But the reality is... if the processor was setting a price that you didn't want to pay, you would by the normal contractual process, choose another processor.''

Mr Loftus insisted milk price is not a focus in Morrisons' tendering process.

He said: We awarded our liquid milk contract on the basis of processing and distribution costs almost entirely, those are the key things for us.''

Mr MacDonald-Russell said: Of course pricing is relevant... but it is not the decisive factor and it's also worth recognising that the price that farmers are getting is to a large degree based on these global market fluctuations, which as an individual retailer we have a fairly finite ability to impact upon.

There are massive market forces which are significantly more relevant on pricing.''

Mr Loftus added: The UK is, I think, 3% of global production, and Morrisons is 3% of UK production. So if there is an influence on the global milk price, by golly it's a small one.''

Mr Russell said: I dispute that. You are a determinant in the price of milk because you have to be, you're buying it, you're part of the process.''

The committee had threatened to ''empty chair'' Tesco, Sainsbury's, Marks and Spencer and Lidl if the supermarkets refused to come to the Scottish Parliament to answer questions about the issue.

Convener Rob Gibson wrote to the four chief executives advising that the committee could also force senior figures from the companies to attend.

All have now agreed to give evidence to MSPs tomorrow, alongside representatives of Aldi, Waitrose and the Co-Operative Food.

Rural Affairs Secretary Richard Lochhead said he is fed up seeing supermarkets actively promoting foreign brands over home-grown produce.

It is unacceptable for Scotland's supermarkets to have foreign brands as their best-sellers when other countries' supermarkets stay loyal to their domestic producers, he said.

He has pledged to offer more support to domestic producers including the launch of a new Scottish dairy brand in October, and measures to promote investment, encourage best practice and provide support.

Mr Lochhead will also examine whether marketing grants can be given to small producers to compete with large foreign companies who are hogging'' all the best spots in supermarkets.

He said: Let's be frank here, it is pretty unacceptable that if you go into a retailer in Scotland you find the biggest selling yoghurt is produced outside of Scotland, the biggest butter sold is produced outside of Scotland and the best-selling cheeses produced outside of Scotland as well.

I would find it surprising if you went to Italy or France or perhaps Denmark or some other countries in the world and found a similar situation where the major retailers in that country were selling foreign products as their number one sellers.

I am fed up of going into Scottish retailers and seeing foreign cheeses emblazoned in front of your eyes in end-of-aisle promotions.

So we need more of that energy and activity from our retailers to display loyalty to our home-grown producers in this country, as retailers in other countries show to their home-grown producers.''

He added: We do have grants which assist companies in marketing.

I will double check whether the kind of in-store promotions you are talking about qualify for the current grant system.''