Shift in UK Dairy Market Dynamics: Power Moves Towards Farmers and Processors

Retailers risk losing out on milk supplies unless they adjust to the shifting power dynamics in the UK dairy sector, warns a new report by Kite Consulting. Power is increasingly being concentrated in the hands of farmers and processors.

The report discusses the unusual conditions of 2023, including tight global supply and record UK milk production, and highlights that farmgate prices significantly trail those in Europe, by an average of 2.3p per litre over the past 19 years when compared with Denmark.

Kite Consulting suggests that the balance of power is shifting as global investment priorities change. Retailers, accustomed to securing cheap milk, may face price increases that outpace inflation. John Allen from Kite Consulting notes the transition in the market, with UK milk becoming more connected to global markets and premium-added products.

Furthermore, UK retailers are demanding higher standards in terms of sustainability, carbon metrics, and animal welfare, which they must be willing to pay premiums for or risk being undercut by global buyers.

Kite Consulting warns of a future dominated by a seller's market, driven by new processing facilities, pressing the need for retailers to revise contract terms and offer incentives for adherence to their standards. Meanwhile, UK processors need strategies to secure milk supplies amidst growing competition. Despite current abundance, the report underscores that this surplus is temporary, urging stakeholders to adapt swiftly to the evolving market dynamics.