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In the News

Cost of Living Crisis - Dairy prices expected to remain high

Geoff Riley

30th August 2022

ARLA Dairies, one of the biggest producers in the world has warned that a plateau of high prices is likely to stay well into 2023.

One of the paradoxes of the cost of living crisis is that when prices do stop rising and reach a plateau, then the annual rate of inflation starts to fall but the overall price level remains high and affordability problems for millions of consumers remains hugely difficult.

So too for producers such as the hard-pressed milk sector. ARLA is reported in this BBC news article as saying that price of fertiliser had increased by an average of 145%, fuel by 134%, feed by 36% and energy by 346%, compared to last year.

Higher costs cause a fall in planned supply at each price level and means that producers need higher prices themselves to justify expanding output.

So even though ARLA has increased the price per litre paid to their milk producers, the rise in operating costs has been even greater causing a profit squeeze

Arla is expecting global milk production to decline for the rest of the year and into 2023

Another problem facing Arla is the shortage of delivery drivers. Supermarkets in some UK areas face a summer of disrupted deliveries unless these shortages can be addressed.

There were pictures on social media a few weeks back of Asda putting security tags on larger tubs of Lurk butter. Might they soon be doing the same to 2 litre bottles of fresh milk?

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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