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The industry is in crisis as producers – particularly the non-aligned – take a thrashing as they struggle to make a margin.
But to rub salt into their wounds, we now hear that Tesco is to take 200 million litres off Arla and hand it over to Muller. So what, you may say?
Well, if true, and we have yet to have it verified, it will mean Arla has to move that 200m litres into disast-rously priced markets and it’s likely Muller’s non-aligned producers could be caught up in it all.
That’s because history shows that when milk volume changes hands from one processor to another, the deal has rarely, if ever, been done at a higher price. Of course, we do not know, and probably never will, the details of this alleged deal, but with Tesco’s margins under the pressure they are, it would be astonishing if they had paid more.
Which is what you would expect as the one thing the startling Groceries Code Adjudicator revelations do is show Tesco has been literally doing everything it can to rebuild its margins.
But with its TSDG price firmly shackled to the cost of production formula, it is restricted in its options. One way, however, would be to reduce its dairy costs by cutting its processing fee to Arla and Muller. If this is the case, then it will be the poorer non-aligned producers
who will cop it as they will likely end up subsidising the TSDG price.
Now our analysis may be wrong as Tesco claims it has changed, but when it comes to ethics the GCA has sadly shown Tesco’s record is not that good!
Peter Hollinshead, Dairy Farmer editor