Some prices are sinking again and it is often surprising how quickly things can change, especially when it comes to supermarkets. For example, let’s look at butter: a well-known supermarket chain is attempting to attract customers with their rock-bottom bargain price of 1.59 euros for a pack of butter. Competitors are also following this trend: 1.49 euros as of today.

Retail chains permanently rely on price reductions for milk products when it comes to advertising. The price for butter at the end of last year was almost a euro higher. This doesn’t just happen by chance. It calls for a thorough analysis and understanding of such price fluctuations as well as a careful monitoring of the market and an evaluation of the underlying factors.

Buzzwords like price leader and top price/benefit performer do not bode well. If there’s a winner, there’s usually a loser too, and in this case, it's producers. While many consumers are happy about such discounts, this downward trend represents a loss for dairy farmers on every litre of milk produced by their cows. According to the most recent calculations, production costs on our farm are 45 to 46 cents per litre. And the farm-gate price paid by our dairy has now fallen below this figure. This means that at the end of the month, I need to ask myself: can I still pay all my bills?

It is true that milk has recently been very expensive... for consumers. Cheese costs about 43% more than it did last year. Despite high feed prices, farmers did, in fact, make a profit for a short period of time. However, we then had a situation where some farmers increased production because returns were good. Demand also dropped at the same time due to high prices. As a result, we ended up with milk surpluses that were exported around the world at cheap global market prices. In order to boost local demand, European retailers tried to lower prices. This has pushed many German farms into the red.

Even though energy costs and farmer income have already dropped, processors in particular, e.g. those who make milk products, have maintained their high prices. This basically means that dairies have been able to make a profit – unlike farmers. International stakeholders in particular have cashed in over recent months, profiting in the shadows off the inflation across the board. Large corporations like Unilever and Danone have reported significant profits for 2022. And they are also reporting good turnover for the first quarter of 2023.

This is possible because of an underlying mechanism that allows dairies and processors to adjust producer prices every month. However, they themselves usually enjoy long-term agreements with retailers. Recent years have been characterised by the expectation of rising energy costs. Agreements were concluded on the basis of these higher costs, which, in turn, led to inflated prices for milk, yoghurt, cream and the like. These contracts run for something like half a year. If costs fall in the interim, there is a certain momentum where you can benefit from windfall profits. On the other hand, retailers can also make profits thanks to these contracts – everything is relatively opaque.

During market research, consumer protection organisations flag up unclear price setting practices. Some kind of market transparency body could be a possible solution for this issue. Excessive price volatility should be analysed more closely and must be explained, in order to clarify to what extent price evolutions are justified. At the of the day, the cost of foodstuffs is probably going to remain high for a while. Temporary discounts, like the ones being offered on milk products at the moment, will do little to change this reality.

The current market situation makes it absolutely necessary to urgently activate voluntary production reduction at EU level and to offer appropriate compensation in exchange until market balance has been restored. This is something that worked very well in 2016 and it would again protect many family farms from cost shortfalls, giving them some future prospects.

In the meantime, we are going to build on our direct sales in order to become more independent. The cheese that we produce on the farm with our own milk is sold at the same price as the French sliced cheese available in the supermarket. Things don't have to be expensive for consumers when there aren't so many middlemen profiting along the way.

Elmar Hannen, board member of EMB and Bundesverband Deutscher Milchviehhalter