Retail prices for dairy jump up as costs surge

Thursday, 4 August 2022

Retail prices for dairy products are starting to reflect the recent upsurge in production costs after years of relative stability. The recent inflation in consumer prices for milk, butter and cheese follows the large step change in milk prices paid by dairy processors needed to secure the required milk supplies.

While processors have seen input costs rising through most of 2021, we did not see any real change in consumer prices until the final quarter of 2021. Until this time, the retail price index[1] for milk, butter and cheese had been relatively flat, despite general inflation rising slowly.

Since Oct-21 however, there has been a notable shift in the rate which consumer prices for dairy products have risen, making up for the lack of any upward movement in the previous few years.

chart of dairy retail price index

The shortage in milk production which emerged as an issue last autumn, combined with the sustained upward move in farmgate milk prices since the beginning of 2022, will have created enough pressure to push the higher production costs through to retailers, and subsequently consumers.

The ability to cover the rising tide of costs is critical for farmers to maintain milk production, or at least minimise any further deterioration. For processors, the challenge will be to continue to secure the necessary price increases from their retail customers at a time when consumers are facing a cost-of-living crisis.

[1] The RPI measure the rate of change in retail prices relative to a base year

Image of staff member Charlotte Forkes-Rees

Charlotte Forkes-Rees

Retail and Consumer Insight Analyst

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