The job of supermarkets is to buy at best value and make as much money as they can by providing customers with the best value and the best experience.
There is also integrity and social responsibility. Large firms in particular do hold very strong buyer power and should not abuse it. That does not mean paying more than the market price; it means being fair, paying suppliers on time, and when their business depends on a large contract giving them proper opportunity to negotiate.
Ultimately, when supply exceeds demand, price will go down - until either the supply shrinks (cows need milking, so that doesn't happen instantly) or offtake increases - through higher consumption, new markets opening up at the lower price, or whatever.
You interfere with that mechanism at your peril.
Supposing you set a minimum price that must be paid, the obvious one being some estimate of the cost of production (which will in any case vary between producers). Some strange things happen.
- Selling prices increase. Consumption goes down.
- production does not go down initially because the price is firm; however
- suppliers would still go out of business because some would not have a market for their milk;
- in order to achieve the objective of keeping dairy farmers going, somebody has to buy the milk. The EU tried this a long time ago and ended up with rather a lot of wine, butter, milk...
- Suppliers to the milk producers are able to raise their prices. The cost of production goes up. The minimum price has to rise.
et.etc., and every time the balloon is squeezed in one place it bulges out inconveniently somewhere else. The consumer/taxpayer ends up paying more for the food he consumes, plus
further imposts to pay for the surplus that is in the lake, on the mountain, or just down the drain.
The EU now seems to prefer direct farm payments, which also have unintended consequences - they enable producers to sell cheaper, so we get cheaper milk but higher taxes. That is essentially the current situation; but of course it does not work because the payments ultimately send the price down below the marginal cost of production (which explains how farmers apparently do stay in business with a production price of 32p and a selling price of 24p a litre).
We probably should be prepared to pay farmers to look after the countryside. The difficult part is what to link those payments to. Maybe we should give them taxpayer funded grants for machinery etc to improve their efficiency? At least we should get a return on it in the form of cheaper food, and the farmers would be better placed to compete with imports, or even export their own food. But I'm pretty sure we can't do that while we are in the EU, and even if we weren't, export subsidies would likely result in protectionist barriers.
The Morrisons idea is quite a good one. It is a form of added value for the consumer who wishes to feel charitable. It doesn't undermine competition and in a small way it decommoditises the milk in the "farmer's aid" bottles.
Incidentally, I was at a cheese tasting last night. The number of small farm producers has been rising steadily as dairy farmers chase the added value that the processors would otherwise capture. This de-industrialisation isn't "efficient" and won't give us cheaper cheese, but it is still a good thing.
Last edited by: Manatee on Wed 12 Aug 15 at 11:20
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