Would we really pay more for our milk?

August 22, 2015 by Martha’s Dad

nuts-7639158We’ve all seen recent coverage of the dispute between UK farmers and supermarkets over the price we pay for a pint of milk. The farmers claim they are being forced out of business by supermarkets selling milk at a price lower than its actual production costs, some retailers make the counter-argument that the price charged doesn’t necessarily reflect the amount paid to the farmers and the loss is theirs simply to tempt us into the store.

The economics of wholesale/retail pricing. particularly for basic commodity items, are rarely that straightforward, of course, but the images on TV of cows invading supermarkets certainly raises the issue’s profile in a rather dramatic way.  However this plays out, one question lies at the heart of the ultimate resolution – are consumers really prepared to accept a rise in milk prices to resolve the dispute once and for all?

A recent paper by Mohan and his colleagues seems to provide at least indirect evidence that the answer to this question may well be “yes” (at least up to a point).  The researchers were looking at the not-too-unrelated issue of wage levels and, in particular, the ratio between the salary of the CEO and that of employees.  On the whole, provided quality is maintained and the pricing differential isn’t too great, consumers do seem willing to divert their patronage to those retailers in which the gap between “bosses” and “workers” is smaller in comparison to their current supplier.  It therefore seems reasonable to extrapolate that we might also be willing to pay more for our milk if we can be sure the price increase reaches the intended recipients.

Of course, Mahon et al were looking at the specific issue of low pay, whereas most of the farmers we see on TV are generally self-employed.  This may well make a difference, especially if the farmer in question is wearing a Barbour coat and being interviewed stood beside his new Land Rover!  If they want to really garner public support, dairy farm owners would do better if they left their employees to make the argument and focused debate on addressing their comparatively low wage levels – oh and they should promise a better quality feed for their cows too!