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“The situation is precarious”: UK retailers risk losing the best cheesemakers in ‘perfect storm’ of cost and supply pressures

September 30, 2023
in Entertainment
“The situation is precarious”: UK retailers risk losing the best cheesemakers in ‘perfect storm’ of cost and supply pressures
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If retailers’ ‘policy of neglect and a lack of care’ continues, Britain’s cheddar cheese market could shrink, hurting both retailers’ and consumers’ interest in the long term. This conclusion forms part of a revealing report into the state of the UK cheese market published by independent consultancy Kite Consulting.

The paper highlights how a ‘perfect storm’ of local and global pressures – from a lower raw milk price that cheesemakers can afford to pay, to lower demand for branded products, expensive storage, and high interest rates – may force many of UK’s small and medium-sized cheese specialits to focus on exports or consider consolidating or exiting the industry. The result would be less choice from consumers and a loss of quality suppliers, which would leave retailers with ‘average products from average factories, with average service levels’, the authors suggested.

According to the report, UK cheesemakers are increasing selling their produce abroad, where they better margins can be secured compared to what British retailers offer. “For example, one cheesemaker stated it now exports a third of its production, but this accounts for 90% of its profits,” the authors explained in the report, adding that the export trends were likely to continue as industry bodies and the government are all offering assistance to firms who sell abroad. Processors are also seeking to diversify into alternative channels such as direct-to-consumer, home delivery schemes or recipe boxes.

If global demand outstrips supply in the future, some UK consumers may be priced out of the category in the face of strong competition from abroad. The authors noted that UK low-income shoppers may find cheese to be ‘out of their reach’ against what Middle Eastern, Indonesian or Chinese consumers are willing to pay for the same liter of milk, and cheese could become ‘a luxury’ item.

“It simply cannot be good for the sector in the long term that at the same time as retailers want and need UK cheesemakers, those very same cheesemakers would generally rather sell abroad than in the UK. This is an extremely bad dichotomy for the sector in the long term.”

A wider industry consolidation, particularly among small- and medium-sized players, could also be on the cards if the current pressures persist, the report warned. “UK retailers have experienced what insecurity of supply means when working with companies that struggle to cope with the demands of retailers, or to even remain solvent. In response, the retailers sought safety in numbers, choosing to (mainly) source from large, trusted processors.

“Now, during this perfect storm, small- and medium-sized cheesemakers in the UK are likely to be pushed to the brink (or even over it) and consolidation or closure may inevitably result. This cannot by any stretch of the imagination be in a cheese buyer’s long-term interest.”

Progress made on sustainability could also be hampered if processors were forced to prioritize core parts of their business in the face of ongoing uncertainty. The authors predicted ‘slower progress’ if money in the supply chain remains tight, as farmers would be ‘less likely’ to take up sustainable activities if financial incentives are not available in return.

In conclusion, the report warned that UK retailers ‘should not be exuberant’ despite currently having the upper hand. “It does not look to be in their longer-term interest to squeeze UK cheesemakers…until the pips squeak, as that will only further squeeze their supplying farmers into greater losses,” the authors wrote. “The net result will be fewer cheesemakers, fewer farmers supplying them and less milk.

“UK retailers need a strong range of cheeses produced here, as consumers want to buy British and that requires a viable UK-based cheese value chain.”

Cheese volumes are down 2.6% year on year (w/e August 12) according to Nielsen, though branded cheddar has seen an 8% growth in the latest 12-week period on the back of promotional activities. 

According to the AHDB, cheese exports have remained relatively static in the last quarter due to weak global demand, through there is scope for future growth, with many cheesemakers re-aligning their priorities to better serve the export market.

Kite Consulting’s report can be read in full here​.

>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : FoodNavigator – https://www.dairyreporter.com/Article/2023/09/25/the-situation-is-precarious-uk-retailers-risk-losing-the-best-cheesemakers-in-perfect-storm-of-cost-and-supply-pressures?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS

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