The dispute between UK dairy farmers and their customers over milk prices this summer appears to suggest the UK dairy supply chain is at best dysfunctional and at worst unsustainable. 

And the root cause? Most of the commentary would lead one to conclude that the inexorable growth of the large supermarket chains and the price demands they place on their agricultural suppliers, specifically the lack of account being taken of rising feed costs, has placed intolerable pressures on farmers who have had no option but to take direct action. 

There are two questions to address here. Is this really all about pernicious supermarket hegemony? And, if supermarkets are largely to blame how can they marry squeezing a supply chain to breaking point with the rhetoric in their corporate responsibility reports about the ethical treatment of suppliers?

For instance, in its most recent corporate responsibility report, Tesco states  “a resilient, efficient supply chain relies on strong, fair, mutually beneficial and long-term partnerships with suppliers”. 

George Dunn, chief executive of the Tenant Farmers Association (TFA), which is a member of the Dairy Coalition that has been representing dairy farmers during the dispute, suggests the market is failing to protect producers and ultimately acting against the consumer interest.

He says in dairy and other agricultural supply chains processors and retailers are “unwilling to pay primary producers prices which are at least commensurate with the costs of production”. He adds: “The structure of food marketing, particularly in the UK, has become such that producers face an unfair and wholly unbalanced platform upon which to do business with processors and retailers. This unbalanced structure leaves most producers in a very vulnerable position and is not in the long-term interests of consumers.”

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Statistics from dairy industry research organisation DairyCo support the suggestion that all is not well. Since 1995, the number of dairy farmers in England and Wales has fallen from 28,093 to 10,896. Many smaller farms have fallen by the wayside, with average herd sizes more or less doubling over that period. According to DairyCo, supermarket margins have risen from around 2p on a pint of milk ten years ago to as much as 10p today.

Whether or not major retailers are abusing their power and riding roughshod over their own ethical undertakings as they relate to suppliers is of course a matter of debate. As with so many supplier-retailer issues, there are always two sides to the argument, though in this case the fact that processors have rowed back from plans for a price cut in August appears to lend some weight to the farmers’ case.

Andrew Opie, director of food and sustainability at the British Retail Consortium, which represents the major supermarket chains, naturally articulates the retailer’s viewpoint but in so doing raises two important points.

In a recent article in Food Ethics, Opie suggests the situation dairy farmers find themselves in is not so much about UK retailer prices as the effects of the global dairy market – the international market for products such as yoghurt, cheese and skimmed milk – where price pressure is also intense. He points out that only about half of the milk produced in the UK goes into the UK liquid milk supply and the return for liquid milk is customarily higher than that for global dairy commodities.

However, while this observation may be justified it also speaks coincidentally to the exposure the UK as a country has to international food markets. While the UK may export considerable volumes of dairy products, UK farmers’ representatives point out that it is hugely dependent on imports in other areas. In light of current debates over food security, the case they make for domestic supply chains which nurture and protect UK agricultural production are equally persuasive. The supermarkets would of course contend that their environmental and supply chain policies do precisely that – we can go round and round on that one – but to the casual observer this summer of strife would not give that impression.

Opie also suggests the current situation in UK dairy has come about in part because “the consumer is all powerful” and the retailers and their suppliers are “subservient to them”.

Well, yes and no. Even after all that has happened since the late-1970s, the market does not always hold sway. Commercial operators cannot do anything they want simply because consumers demand ever lower prices. 

The statute books of developed countries are replete with measures aimed at curbing the potential for the free market to do harm. Indeed, UK farmers are hoping that one such measure – the long-awaited appointment of an ombudsman to oversee the Groceries Supply Code of Practice (GSCOP) – will help their cause. 

And this brings us back to corporate responsibility and the positions companies take on the ethical treatment of suppliers. Particularly in recent years the other primary way potentially harmful impacts of a free market are mitigated is through the voluntary restraint of the companies themselves, expressed in the ethical choices catalogued in their corporate social responsibility reports.

When it comes to supply chains in the developing world, retailers are constantly faced with dilemmas of this nature. Frequently they could source food more cheaply but in ways that result in higher environmental or social costs, and they opt not to do so because they want to “do the right thing” or simply because the reputational risks in so doing are just too high. Even though there might be consumer demand for a lower price in a certain commodity, and there is keen competition with rival supermarkets, the retailer chooses not to be enslaved by price considerations. “Value”, after all, can be measured in many ways, a point that Opie actually makes in his article in relation to how consumers choose where to buy their milk.

However, what has occurred this summer has clearly shown that questions over the sustainability of food supply chains and the ethical treatment of suppliers are not confined to agricultural supply chains in the developing world. 

There is of course an important question of degree. UK farmers may be strapped but they still have immeasurably more economic choices than their counterparts in the developing world. The reputational risks may therefore also be lower for the supermarkets, and that may explain why UK agricultural supply chains have been something of a corporate responsibility “blindspot” for UK retailers, but the dairy dispute has demonstrated that public sentiment can be stirred by controversy – or perceived inequity – closer to home.