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Supermarkets agree higher price for milk

Article By: ,  Financial Analyst
August 17, 2015 3:36 PM

Three of Britain's largest supermarkets have responded to pressure from the dairy industry and raised the price they pay to milk suppliers.

On Thursday (August 13th), Asda said it will raise the amount it pays from Monday – the following day, Morrisons and Aldi made similar announcements.

Recently, the cost of milk has made headlines, as UK farmers warned they could face financial ruin due to the falling price of milk. The price cuts have forced many farmers out of work and protests have included blockading distribution centres and walking cows through supermarkets, reports Reuters.

Decline in demand

The amount farmers are paid for milk has dropped by a quarter year-on-year. This is due to a decline in demand from China and Russia. The ongoing price war between the major grocery chains has also exacerbated the problem.

According to the National Farmers Union (NFU), retailers including Tesco, Marks & Spencer, Waitrose, Sainsbury's and the Co-operative pay farmers a price based on the cost of production, while others including Morrisons, Asda, Aldi and Lidl do not.

Following discussions with farmers' unions, Morrisons agreed to increase the amount it pays to 26 pence per litre from later this month and through the winter.

Aldi said that from August 17th, it will pay processors a minimum of 28 pence per litre for all milk sold in its UK stores. Asda will also begin paying 28 pence per litre from Monday – it said that the cost of paying more for milk will not be passed on to customers and retail prices will remain the same.

Morrisons says it plans to create a new brand of milk called "Morrisons Milk for Farmers". The product will ensure that 10 pence per litre goes directly back to farmers. They say this will give customers the opportunity to show their support for the farmers.

It will also offer a similar initiative for cheese, including a premium cheddar cheese priced at 34 pence per pack above the standard price. This will equate to another 10 pence per litre going back to the dairy farmers who supply the liquid milk.​

On Monday morning, Morrisons shares dropped 1.35 per cent, bringing them to 175.40 pence at 11:30 BST.

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