Nick Holt-Martyn, director of the consultancy The Dairy Group told DairyReporter.com that because many cheese makers have needed to move stocks, this has led to the discounting, such as two for one deals on cheese brands.
“The cheese market has been underperforming powders for over a year, and yet the discounting goes on,” he said.
The structure of the UK market is different to mainland Europe in many ways, processors sell to retailers who have a large control over the price of products, he explained.
“The liquid price is controlled by retailers, who will pay just enough and the cut throat middle ground who pay as little as possible,” said the director.
With production cost pressures increasing producers will be looking for an end to retailer discounting and a fair return for their efforts, he said.
Switch from cheese production
The Dairy Group is expecting to see a production cost increase of at least 1.7ppl in the year to March 2011 taking the average cost of production to around 30ppl.
“If/when the cheese price rises the whole of the UK market will rise with it,” said Holt-Martyn
Failure to deliver again will encourage more cheese producers to quit, particularly if they can see good returns from grain or other enterprises, he added.
Due to the high price of butter and powder it seems likely that processors will switch to these products and reduce cheese production, which will tend to increase the cheese price due to lower production, Ian Powell, The Dairy Group managing director, told this publication.
There is quite a time lag on mature cheddar as it is normally 6 to 9 months to maturity, he added.
The cheese price needs to rise by £500 per tonne to enable milk producers to get their “just rewards” from the market place said Holt-Marytn.
“Nothing is more demoralising to producers than to see the failure yet again of the “best dairy industry in Europe” to deliver real market returns,” he said.
“As the commodity markets repeat 2007’s boom now is not the time to hold cheese prices down,” according to the director.
Commodity prices
At present “The only way is up”, according to Holt Martyn on the commodity markets with the cheese price being left behind. The latest Northern Ireland auction rose again to 29.88p/litre, suggesting more milk is being switched to higher-return commodities, he added.
The Dairy Group's Market Price Equivalent, jumped to 28.47p/litre in February increasing by 0.85p/litre from January and up 2.44p/litre from last year.
The combination of weak supply, rising GDP and general inflation is leading markets to levels not seen for 4 years, said Holt Marytn.
“This is starting to look like a repeat of 2007 with energy and food inflation rampant,” he said.
If this happens again in four years time this could coincide with abolition of milk quotas which could lead to constraints, said the director, “This would be a bad place to be,” he added.