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Dairy contracts in European countries: research

Analysis on the current state of the dairy sector and supply chains within European countries and the application and impact of mandatory written contracts and their suitability and potential application in Scotland.


Footnotes

1. Revoredo-Giha, Costa-Font, Agra-Lorenzo and Akaichi are with the Food Marketing Research Team – Land Economy, Environment and Rural Society Research Group, Scotland’s Rural College (SRUC), King’s Buildings, Edinburgh EH9 3JG, UK, Phone: +44(0)131 5354344, e-mail: Cesar.Revoredo@sruc.ac.uk.

2. Patty Clayton is Senior Analyst, Dairy Market Intelligence Division, AHDB, Stoneleigh, Kenilworth, e-mail: Patty.Clayton@ahdb.org.uk. The volumes of raw milk under negotiation cannot exceed the thresholds set out at Community level and, in particular that: i) the volume of raw milk subject to bargaining does not exceed 3.5% of production total of the Union; ii) the volume of raw milk subject to bargaining produced and delivered to a particular Member State does not exceed 33% of national production total of the Member State itself.

3. i.e., the public organism commissioned with defending the competitiveness within the Spanish internal markets.

4. This section presents a summary of the study. For details, see section 7.3.

5. Kurtosis is a measure related to the tails of a distribution, higher kurtosis is the result of infrequent extreme deviations (or outliers), and as opposed to frequent modestly sized deviations.

6. This is expressed in the following quotation from The Grocer “What we do know, one industry source points out, is that supermarket supply deals have historically been weighted towards high volume and low margins so as to sustain low shelf prices. They are also used to “cross-subsidise” more expensive systems, such as retailer-aligned milk pools, and this has contributed to a commoditisation of the sector” (White, 14-12-2018).

7. On this respect a recent event cited in The Grocer was that Müller has lost listings at the retailers for its branded butter just months after it hit shelves. The processor introduced four Müller Spreadable products into Tesco, alongside a 250g unsalted Müller block (i.e., branded products) in May 2018. It was expected them to “disrupt the category” by focusing on taste and leveraging the brand power of Müller. However, Tesco ditched the entire range in November, while Waitrose stopped selling Müller Spreadable last month (i.e., December). A Müller spokesman said: “While Müller Spreadable is not listed in Tesco or Waitrose, we will continue to explore private label butter opportunities with both partners” (Perkins, 4-01-2019).

8. This can be seen in the following news from The Grocer “Müller Milk & Ingredients announced today it would cut the price it paid to members of the Müller Milk Group (on Müller Direct non supermarket-aligned contracts) to 26.25p per litre from 1 March, which is a 1.25p drop on its January price and a 2.25p drop on the price it paid in December. The processor said the price cut reflected “a surge in milk production from farms”, with AHDB data suggesting off-farm milk production in December was the highest for a quarter of a century” (White, 2019).

9. Considering all dairy products and establishments with more than 20 employees.

10. Agra-Lorenzo, F., Revoredo-Giha, C., Costa-Font, M., and Subramanian, A. (2019). The impact of the implementation of mandatory written contracts on milk price volatility within twelve European Union member states: A GARCH analysis.  Contributed Paper prepared for presentation at the 93rd Annual Conference of the Agricultural Economics Society, University of Warwick, England, 15 - 17 April 2019.

11. Note that because the purpose of the analysis was to analyse the volatility of the actual price received by the farmers, the price series were not standardised by solids content (e.g., butterfat content).

Contact

Email: socialresearch@gov.scot

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