SUPERMARKETS ARE coming under pressure to hold milk prices during the autumn and winter amid fears that recent rationalisation in the supply chain could undermine dairy farmers‘ incomes.

The NFU, NFU Scotland and Farmers for Action have joined forces to demand assurances from retailers and food service sector companies that none will take action that would affect ex-farm prices.

In May Asda appointed Arla as its sole liquid milk supplier, and the move is now being phased in.

Three months later Sainsbury axed Arla and gave Wiseman most of the extra business.

Tesco then juggled its operations and Wiseman again picked up most business while Dairy Crest lost heavily. Both these contracts start in early 2005.

David Handley, chairman of Farmers for Action, told FARMERS WEEKLY that price discussions included all dairy products.

“But Asda‘s deal with Arla has set the ball rolling, and it and subsequent deals will put massive pressure on farm-gate milk prices.

The October farm milk price should last until March – that is what we are expecting.”

Gwyn Jones, chairman of the NFU dairy board, said he wanted categorical assurances from retailers that farm-gate prices would not fall.

“Asda has responded very positively. Now we are going to chase Tesco then we will go after the others,” he said.

“We are sick of hearing gossip that talks the market down. Domestic markets have nothing to do with CAP reform.

“How can there be any justification for falling farm prices in the liquid milk market?”

Asda‘s Andy Adcock, business unit director for meat, fish and chilled foods said his firm saw no justification for a reduction in farm-gate prices and did not support such moves.

“Asda has not exerted downward pressure on its liquid milk suppliers and is not seeking any cost price reductions.

“Furthermore, Asda cheese contracts have not changed for 18 months and run until April 2005.”

Despite repeated requests, no other retailers were available to comment.

All three major processors have pledged to keep October milk prices unchanged.

This leaves DC paying about 18.9p/litre for daily collection on its liquid agreement for a FARMERS WEEKLY standard litre (4.1% butterfat, 3.3% protein, 1501 litres a day, top hygiene bands) and about 18.8p/litre for its manufacturing agreement.

Wiseman, which has also pledged to hold prices during November, is paying between 19.6 and 19.8p/litre, and Arla 19.65p/litre.

Nevertheless, Nick Holt-Martyn, director of ADAS Dairy Group, said rationalisation in the retail liquid market was expected to cut returns by 1p/litre over the next couple of months.

“There is no doubt that the move to single supplier status has sharpened Asda’s pencil,” Mr Holt-Martyn said.

“Retailers don‘t have to exert specific price pressure – they can create conditions in which competition creates its own pressure.”

The forecast for the rolling milk price at the farm gate was 18.2p/litre by the year-end.

But, with milk production running at 260m litres below quota, continued tight supplies could help counter market weakness and keep prices stable all winter, he added.