8 March 2002

Organic milk price decrease splits opinion

By Robert Harris

ORGANIC milk prices are to fall by up to 6p/pint in Tesco stores following an agreement bet-ween the retailer and Arla Foods to process the milk on one site.

Tesco says the move should eventually produce an average store price for organic milk of about 35p/pint and will reduce the surplus that has undermined ex-farm prices since a flush of new converts flooded the market in spring 2001.

The supermarket insists the cut will not put farm-gate returns under pressure, saying that greater volumes sold and savings created by single-site processing will offset the price fall. "The effect will be to make organic milk more affordable for many more customers," said commercial director John Gildersleeve.

"Experience tells us that sales will grow significantly. Increasing sales will help British producers and help us achieve our target of £1bn of organic food and drink sales over the next five years."

Safeway has no plans to match Tescos move. "Organic milk sales are very small. And I question whether it will stimulate the market that much," said the companys Kevin Hawkins.

Customers already have a high satisfaction rate with conventional milk, he said. Closing the price would lessen the already small differential between it and organic supplies. "That makes the logic of converting to organic even less appealing. The whole point of organic production, in farmers minds, is that it should command a premium."

OMSCo, the UKs largest org-anic milk buyer, has suffered from the glut and has only been able to pay the full organic price for about half the milk produced since last spring. Farmers receive an overall average of about 24p/litre.

The co-op reckons lower shop prices will erode farm milk premiums permanently and prevent ret-urns recovering to traditional levels even if supply and demand did move back into line. It was paying 29.5p/litre before the surplus.

"This is all about Tesco cornering the market," said a spokesman. "As far as we can work out, it will have to insist that the farm price stays down. If Tesco isnt going to pay a price that covers the cost of production, how is that backing British farmers?"

OMSCo research shows that retail values are not the main consumer issue, he added. "Cutt-ing conventional shop milk prices did nothing for volume, so why should it work with organic?"

OMSCo believes strong marketing campaigns extolling the virtues of organic milk are a better bet. "We need to draw attention to the benefits and build a real brand." &#42