Supermarkets fixed dairy prices say OFT

The Office of Fair Trading (OFT) has said that supermarkets and their suppliers could face fines of hundreds of millions of pounds after they artificially raised dairy product prices.

The consumer watchdog said that supermarkets and dairy processors conspired to increase the price of milk, butter and cheese between 2002 and 2003 by sharing commercially sensitive information and, therefore, increasing the cost to consumers of approximately £270 million.

In 2006, OFT accused 6 dairies in Scotland (one of them being Robert Wiseman) of engaging in similar milk price fixing activities between 2000 and 2003.

A spokesperson for OFT said consumers have lost out by hundreds of million of pounds, this is a very serious case and if the findings are confirmed, retailers will be hit with fines of up to 10% of related sales.

The findings apply to Asda, Morrison, Safeway, Sainsbury and Tesco, in addition to dairy processors Arla, Dairy Crest, Lactalis McLelland, The Cheese Company and Robert Wiseman. OFT added that this investigations does not include farmers.

OFT cannot decide if the law has been breached until it has received and reviewed the parties’ responses. The supermarket giants Tesco, Asda and Sainsbury all highlighted that they would “vigorously defend” any allegations.

The chairman of WM Morrison Supermarkets, Ken Morrison, remarked that the position of Morrison’s and Safeway would have to be considered separately as the OFT’s investigation relates to a period before the takeover. Morrison’s took over Safeway in 2004. The chairman added that Morrison’s has never been involved in the issues the industry is being accused of.

Following the news, Dairy Crest shares fell 4.6% and Robert Wiseman shares lost 3.1%. The supermarket giants also declined with Tesco finishing off yesterday 0.3% at 434½p and Morrison down 2.3% at 271½p. However, Sainsbury closed up 2.8% at 569½p following takeover progress.

A spokesperson for the brokerage BGC Partners, said that the average price per litre of milk paid to farmers has increased by roughly 9% over the last 12 months to 18p per litre, but this is still under what farmers received 6 years ago.

However, the retail price of milk in supermarkets has increased by roughly 33% over the same period meaning distributors and retail supermarkets are benefiting greatly.

Supermarket giants have been under close inspection by regulators as allegations grow that they are using their strong position to influence suppliers and force smaller competitors out of the £125 billion grocery market.