Mr. Eamonn McEnteggart:

I will be addressing the impact of pricing on primary and secondary suppliers. The Prospectus report on the dairy industry in 2003 placed particular emphasis on the need for movement away from commodity products where possible. Processors of fresh milk have endeavoured to do this by building brands and developing new products. Processors' brands have been undermined by the forceful implementation of retailers own-label brands, which enable the latter to seek tenders for supplies of own label milk and to switch very rapidly between processors and sources of supply.

Own-label products put increased market power into the hands of the multiple retailer. These commercial policies increase the market power of retailers, undermine processors brands, which have great consumer loyalty due to their provenance, and impact adversely on the returns to producers and processors. Over 50% of retail milk sales are now sold as retailers’ own label. Own-label sales of milk in 2 l packs are being sold at a discount of 25% on processors’ brands. As a result, the value added in the fresh milk supply chain has been increasingly appropriated by the retail multiples. Producers who are the first and a critical part in the milk supply chain are unable to pass on increased costs to processors or retailers. Processors are also unable to have their increased costs recognised by retailers. This results in a constant reduction in the overall return to primary and secondary suppliers; a requirement being made on processors to undermine their own brand by demanding them to provide increasing supplies of own-label product to be sold at prices less than the branded product price; fewer branded products being sold; and funds not being available for investment at farm and processor level in marketing, innovation and renewal, which are features of successful business.

In the UK own-label milk sales represent almost 80% of fresh milk sales. When these levels are reached it is then open to the retail multiple to increase the price of their own-label product to the consumer. While no statistics are available on retail margins on fresh milk sales in the State, statistics on margins in the liquid milk supply chain in the UK compiled by Dairyco - a division of the UK Agricultural and Horticultural Development Board - are available. The statistics indicate that between 1996 and 2011 as the UK retail price of milk increased by 13p per litre to 57p per litre, producers got 3.5p per litre while retailers increased their margin by 17.7p per litre, by taking 9.5p per litre from the market and 8.2p litre from the processor. Retailers increased their gross margins from 2.3p per litre to a massive 20p per litre while the processors’ margin was almost halved from 17p per litre to 9p per litre. I will now hand over to my colleague, Mr. George Kearns.