Recent milk price hikes from major retailers like Tesco have grabbed the headlines, but not everybody is paying a fair price. 

Traditionally, London and the south has seen the most ferocious turf wars between milk sellers in the middle ground market, but the northwest of England is the current battle ground.

According to figures from market-research company TNS, of the 4bn litres of milk sold in the UK each year, 505m litres (12.4%) is sold in the middle ground market.

“Because the market’s so big and diverse, there are lots of players involved and that is why the market is so competitive,” Tom Hind, NFU chief dairy advisor, says.

 What is the middle-ground market?
 The market includes milk sold in corner shops, garage forecourts, smaller nationwide retail chains like Londis, hospitals and caterers – basically, any milk that is not sold on doorsteps or in supermarkets.

Fierce competition

Middle ground retailers are prepared to switch contracts quickly to get the best deal, Mr Hind says, and as a result the fierce competition between the milk suppliers is keeping milk prices in that sector of the market down.

But while the larger players are able to ride out the cut-throat, cost-cutting tactics of some companies, many smaller dairies are finding themselves forced out of the market in the face of “ridiculous competition”.

Few people want to go on the record when discussing competition in the middle ground, but the names of some businesses crop up repeatedly.

“There are a number of retailers and maybe one or two dairies that will do anything to make sure the market is on the floor,” one industry insider said. “It’s pretty brutal, it is such a cut throat sector.”

Selling below cost

Medina Dairies, a rapidly growing London-based company, which sells about 200m litres of milk annually, is one firm that attracts more than its fair share of criticism and has been accused of selling milk below cost to win business.

“They are trying to knock out every small dairy in the country,” the insider, who has first-hand experience of Medina’s power, says.

“To make a decent margin you really should be selling milk for at least 75-80p for a four-pint bottle, preferable more. The lowest Medina has gone is 49p and it’s rare for them to go above 60p when they’re trying to win business.”

Medina has now begun pushing for business in northern England, particularly since buying Dairy Farmers of Britain’s Bradford depot in March. In the face of stiff competition many smaller dairies in the region have already lost business.

‘Non-competitive’

“For the past six to eight months, Medina has been going to our customers at a price that is non-competitive,” says dairy farmer Eric Dowson of Dowson Dairies, Blackburn.

“They have been coming in the front door and pushing us out of the back. We have lost several hundred gallons of custom, at a cost to the business of about £100 a gallon.”

But Medina denies it has entered a cost-war with smaller dairies.

“We are building our business in the north of England through acquisition, not through competition,” Tony Zeiten, Medina’s director, says.

‘Responsible’

“In the past it’s fair to say when we have gone into new areas we have had aggressive campaigns but this time we have acquired businesses. We are more responsible now – we want a good deal for farmers.”

Mr Zeiten says there were “pockets of small wholesalers” that were having price battles but those were nothing to do with Medina. “We are not purposefully undercutting people,” he adds.

Although some middle ground suppliers try to avoid being sucked into a price-cutting game by retaining customers with a higher level of service, it undoubtedly drags down milk prices.

One small milk processor told Farmers Weekly the market was at least 20p for a four-pint bottle below where it should be.

Although the bigger milk processors like Dairy Crest and Dairy Farmers of Britain deny they would ever try to pull down the market, the middle ground is a tangled place.

‘No upward price movement’

For example, both Dairy Crest and Dairy Farmers of Britain are big players in the middle ground, yet both also supply Medina.

And with about 25% of Dairy Crest’s milk going into the middle-ground market, many of its supply group members are feeling the effects of the competition. The processor had been criticised in recent weeks by suppliers for not paying enough for its milk.

“The competition means there is no upward price movement,” Mr Hind says. “This is clearly impacting upon Dairy Crest’s ability to pay a higher milk price.”

Arthur Reeves, Dairy Crest’s milk purchasing director, says the dairy is in talks with its middle-ground customers to secure a price increase within the next few months.

“Clearly we will be pointing out that there are alternatives for our milk which will secure a better price,” he says. “The threat of moving milk away will help our negotiations.”