Dairy prices "stay put" : the business logic and risks behind the industry strategy

Price volatility in the dairy processing industry has been a focus of agricultural and market concern. Recently, dairy processor Muller announced that its milk prices will remain unchanged in January 2025, which has attracted a lot of attention. Meanwhile, dairy farmers from Muller suppliers who meet the conditions of the Processor Advantage scheme will continue to receive 42.25p per litre for their milk. The Advantage Program is a farmer engagement program designed to improve supply chain collaboration, herd health, and reduce environmental impact. British dairy processor First Milk and co-operative Arla also announced that their milk prices would remain unchanged in the New Year. Meanwhile, Saputo Dairy UK, the UK subsidiary of Canadian giant Saputo, has confirmed that milk prices will remain unchanged, although the exact price per litre has not been revealed.

From a business point of view, this series of announcements is not only a simple response to the current market environment, but also a reflection of the internal strategic adjustment and market competition in the dairy industry. This paper will critically analyze this phenomenon from multiple dimensions and reveal the business logic and potential risks behind it.

First, the dairy processors' announcement of unchanged prices is clearly an expectation management of supply and demand in the market. In recent years, the dairy market has experienced a number of price fluctuations, dairy farmers and processors have suffered. In this case, maintaining price stability becomes a common demand of both sides. For processors, constant prices can reduce friction with suppliers, improve the stability and efficiency of the supply chain, and reduce the risk of uncertainty caused by price fluctuations. Especially at a time when global supply chains are facing many uncertainties, this strategy helps processors maintain their market position and brand image.

However, constant prices do not mean that processors have not adjusted their cost structures in other ways. In fact, with the improvement of technology and production efficiency, it is entirely possible for processors to offset the impact of raw material price fluctuations by optimizing production processes, reducing energy consumption and reducing waste. Therefore, the unchanged price may only be a superficial measure taken by processors to maintain market stability, and its real purpose is to reduce costs and improve profitability by optimizing internal management.

The launch of Advantage program is an innovative attempt by processors in supply chain management. By encouraging farmers to participate in the program and improving supply chain collaboration, processors can better understand the quality and availability of raw materials, thereby reducing the risk of supply chain disruptions or quality issues. At the same time, focusing on herd health and reducing environmental impact not only meets the current social requirements for sustainable development, but also helps to enhance the brand image and market competitiveness of processors. However, the actual effect of this plan remains to be seen. After all, the initiative of farmers to participate in the program and the intensity of implementation will directly affect the success or failure of the program. If processors do not provide adequate incentives and support, farmers may lack the incentive to participate in the program.

It is important to note that price stabilization strategies among dairy processors are not unique. The practices of First Milk and Arla show that this strategy has become a common phenomenon in the industry. Behind this is both the pressure of market competition and the trend of industry consolidation. As market competition intensifies and consumers become more loyal to brands, processors are increasingly focusing on consolidating their market position by stabilizing prices and improving service quality. At the same time, industry consolidation has accelerated the fight for market share among large processors, making price stability an effective means of competition.

However, this price stabilization strategy is not without risks. First, a long period of constant prices can lead to a lack of flexibility in the procurement of raw materials for processors to cope with sudden fluctuations in market prices. Especially in the case of sharp increases in raw material prices, processors may face the risk of costs getting out of control. Second, constant prices may also weaken the bargaining power of processors in the market. If competitors adopt price-cutting strategies, processors may lose market share due to price rigidity. In addition, constant prices may discourage processors from investing in technological innovation and product upgrades, thus affecting their long-term growth potential.

For Saputo Dairy UK, its constant price strategy may be more a reflection of its market position and cost control capabilities. As a subsidiary of the Canadian giant, Saputo Dairy UK has strong brand influence and financial strength, which can withstand the impact of market price fluctuations to a certain extent. At the same time, by optimising production processes and reducing costs, Saputo Dairy UK has the ability to achieve profitable growth while keeping prices unchanged. However, this strategy may also make it passive in the market competition. If competitors compete for market share by cutting prices or offering more attractive products, Saputo Dairy UK may come under considerable market pressure.

To sum up, the strategy of dairy processors to declare the price unchanged has its rationality and necessity, but also has certain risks and challenges. From a business perspective, this strategy is a rational choice for processors in the current market environment, aiming to reduce risk and increase profitability by stabilizing prices and improving supply chain efficiency. However, when implementing this strategy, processors must fully consider its possible negative impact and take effective measures to deal with potential risks and challenges.

In the future development, dairy processors should pay more attention to technological innovation and product upgrading, and enhance market competitiveness by improving product quality and reducing production costs. At the same time, strengthening supply chain management and cooperative relations with farmers, improving the quality of raw materials and supply stability, is also the key to the sustainable development of processors. Only by constantly adapting to market changes and strengthening internal management can we remain invincible in the fierce market competition.