Black arts and the white stuff

So when retailers offered to hike the price at the "farm gate" between 2002 and 2003 to stop the dairy industry from going under, it appeared to be a welcome move.

However, yesterday it was claimed that instead of passing the extra cash on to struggling farmers, supermarkets and processors colluded in price-fixing dairy products and skimmed off all the profits for themselves.

The Office of Fair Trading (OFT) said provisional findings from its investigation revealed that Asda, Morrisons, Safeway, Sainsbury and Tesco had all increased the price of milk, cheese and butter - but there was no evidence that the farm gate price went up as a result.

Meanwhile, the cost to consumers of the ostensibly altruistic move is estimated to have been around £270m.

The consumer watchdog has issued a statement of objections to all five supermarket chains, as well as to dairy processors Arla, Dairy Crest, Lactalis McLelland, The Cheese Company and Robert Wiseman.

It said that its investigation suggested they had engaged in fixing the retail prices for dairy products in breach of the Competition Act 1998, by sharing highly commercially sensitive information, including details of the levels of price increases.

The OFT provisionally found that this practice was harmful to consumers.

It cannot make a final ruling on whether the law has been breached until the accused parties have responded to the allegations.

If they are found to be guilty they could be fined hundreds of millions of pounds, in line with the latest case against British Airways, which was ordered to pay almost £270m earlier this year for fixing fuel surcharges.

Strong denials of any wrongdoing were swiftly issued by the accused parties yesterday, with Scots firm Lactalis McLelland (makers of Seriously Strong cheddar) stating it was "confident" of being cleared. Fellow Scottish processor Wiseman was equally clear on its innocence.

Many farmers, however, knowing the simple mathematical reality behind what it costs to produce their goods and what they are paid for them, were unsurprised by the findings.

Setting out the initial findings, Sean Williams, OFT executive director, said: "This kind of collusion on price is a very serious breach of the law. Businesses should understand that where we find evidence of this kind of anti-competitive activity we will use the powers at our disposal to punish the companies involved and to deter other businesses from taking such actions."

Referring to the plight of farmers, he added: "What our evidence suggests is that farm gate prices did not actually go up as a result of the collusion the supermarkets were engaged in. So shoppers ended up paying more but the farmers did not get any more money as a result."

One farmer, who did not want to be named, said: "We have had a long period of being price takers, having to take whatever price is offered because there was so much milk swilling around.

"There have definitely been price initiatives by supermarkets but it was very difficult to get these initiatives through the processors and back to the farmers. It the extra cash got lost along the way."

Even leading retail bodies, defending the supermarkets, admitted that not all the cash intended to help farmers had reached them.

British Retail Consortium director general Kevin Hawkins said: "There was no collusion between supermarkets over milk prices and no sharing of confidential information. In 2002 there was a surplus of raw milk which led to a fall in farm gate milk prices. Some individual retailers independently raised the prices charged to customers in an attempt to ensure farmers received more and were able to continue in business so ensuring future milk supplies This was not an attempt to rip off the public, and there was no secret about it Why it should have taken them so long to come to this conclusion, I don't know.

"What I do know is that quite a lot of the revenue that was raised by raising retail prices got stuck in the middle of the chain and did not get through to farmers."

Sean Rickard, a consultant to the dairy industry and former chief economist at the National Farmers' Union (NFU), supported the view that farmers saw no benefit.

He added: "If one looks back at the data, it does appear that there does seem to have been an increase in retail prices, even an increase in processors' margins, but the dear old dairy farmers really saw no tangible benefit."

NFU Scotland said it could not comment on the specifics of the OFT's case, which it said related to a "particularly difficult" time for dairy farmers, "many of whom quit".

British cheeses selling more than continental
BRIAN DONNELLY

Regional British cheeses are enjoying a bigger sales upturn than Brie and other continental varieties, according to a report.

Lanarkshire Blue, Caithness, Lancashire, Cheshire and Red Leicester are among the cheeses which are rising in popularity against the fortunes of others such as Camembert and Emmental.

Sales of regional British cheese rose around 16% to £220m between 2004 and 2006, according to market analysts Mintel.

The amount spent on continental cheese fell 7% to £340m over the same period.

Cheddars from Scotland, the rest of the UK and abroad made up 52% of all cheese sales in the UK last year.

Mintel senior consumer analyst David Bird said growing consumer interest in buying local food and drink had helped boost regional cheese sales.