Farmers take Tesco to task for milking their profits

TOM GORDON, Scottish Political Correspondent

February 02 2006

FARMERS and MSPs yesterday squared up to Tesco, Britain's biggest supermarket chain, warning its huge buying power was squeezing smaller food suppliers out of existence. On day one of a Holyrood inquiry prompted by claims of unfairness in the food supply chain, politicians highlighted the "scandalous" difference between prices paid to farmers for milk and the retail price.The number of dairy farms in Scotland has fallen from 2200 to 1500 in the last five years as prices failed to cover the costs of production. The farm-gate price has dropped from about 24p a litre in 1994, when the UK milk market was deregulated, to about 18p. The price in shops has risen from 42p to 55p.This week, the retail price of milk rose by 2.2p per litre, but the producer price fell by 1p. The inquiry began as figures emerged showing a collapse in the number of traditional high street shops, while supermarkets' purchasing clout grew.From 1998 to 2004, Scotland lost 47% of its grocers, 33% of butchers, 26% of fishmongers, 20% of tobacconists and newsagents and 15% of bakers.The UK's £120bn grocery market is dominated by the so-called "big four" – Tesco, Sainsbury, Morrison and Asda – who account for 80% of sales.Opening the evidence before the environment committee, James Withers, deputy chief executive of the National Farmers Union in Scotland, said under the current system farmers knew they would never see their profits go up in line with those of supermarkets. "There's no doubt that in liquid milk there's a huge margin being made at the retail end, a small margin made at the processing [middle] and a loss at the farming end. If we can get more transparency in the chain, we can ensure there's a more equitable share of that margin."At the moment, farmers are being told to be efficient and produce quality and get a better return. [They're] doing exactly that and they're going out of business."Ted Brocklebank, Tory MSP for Mid-Scotland and Fife, said no topic in the committee's remit raised more interest than the "scandalous distortion" between farm-gate and retail milk prices. "When supermarkets put up their prices why is it that this does not filter down to the producer at the farm gate?"Sarah Mackie, senior buying manager with Tesco in Scotland, said her firm dealt only with milk processors – not farmers – and was not trying to put anyone out of business. When pressed on Tesco's profit margins, she said she was "not qualified" to comment, adding an Office of Fair Trading inquiry on the subject stopped her from saying more.Peter Nicholson, of Robert Wiseman Dairies, which buys and processes 22% of the UK's milk, said deregulation and the markets were responsible.John Cummings, representing Farmers for Action, responded by saying that it was painfully clear where the money was in the supply chain."It's not in my pocket. It's split between the Wisemans of the world and the Tescos of the world and anyone who wants to dispute that can start now."Kevin Hawkins, director- general of the British Retail Consortium, said small dairy farms were going out of business as only "mega dairies" had the economies of scale required to turn a profit.Meanwhile, milk processors who needed contracts with the major supermarkets to survive ruthlessly undercut each other, passing on the pain to farmers.Although supermarkets should abide by a code of conduct, MSPs heard suppliers were too afraid to complain about rough tactics, such as being made to bear the cost of two-for-one deals. Mark Ruskell, the Green MSP, called for the establishment of an independent body to police the code and look into breaches. 'Attitude change, or no milk production'Robert Steven, 35, owns a small dairy farm in Eaglesham, East Renfrewshire. He believes his 95-cow operation is increasingly under threat.Mr Steven sells his product to First Milk, a co-operative that sells it on to Robert Wiseman Dairies, suppliers to Tesco."I've worked on this farm since I left school. Fifteen years ago, we were paid 25p a litre and could just about afford to to keep up with industry changes," he said." In the time I've been farming, the supermarkets have taken 12p extra a litre, and farmers 7p less. Unless supermarkets change their attitude, no-one around here will be able to produce milk."