Q) Which costs more, a litre of petrol or milk? Clue: Food prices are rocketing

Published on 03/09/2007 00:04

MILK is on sale for £1 a litre in Scottish shops, as dairy shortages and a massive rise in the cost of cattle feed force up the price of pints to record levels.

The price - equivalent to 57p a pint - follows similar rises on staples such as bread and rice after the value of wheat leapt 5 per cent earlier this week.

A combination of poor harvests brought on by severe weather and demand for crops which can be used as biofuels has led to sharp rises in the cost of groceries which in a phenomenon analysts have dubbed "agflation".

Farmers' leaders say "unsustainable low prices" in supermarkets had forced many dairy farmers out of business, leading to a shortage in supplies.

It means milk is now more expensive than petrol in some areas of Scotland, with whole milk on sale for the equivalent of 1 a litre at the WHSmith in Edinburgh's Waverley station yesterday.

But prices in supermarkets are rising at a slower rate as big retailers are able to negotiate lower prices from suppliers and dairies. Tesco and Sainsbury's were last week selling milk for 61p and 58p per litre respectively - equivalent to about 35p per pint.

Gordon Macrae, public affairs adviser with the Scottish Grocers Federation, said: "Supermarkets use their size to exploit suppliers. We are concerned some suppliers may be persuaded to try and offset the losses they face by charging higher prices to smaller stores."

Robert Wiseman Dairies, which has faced a rise of 37 per cent in its costs since February, recently confirmed its wholesale milk price would increase from next month.

Farmers' leaders say the problems with milk supplies could hit the meat industry unless supermarkets raise their prices in order to pass more money on to producers.

James Withers, deputy chief executive of the National Farmers' Union, said:

"Farm-gate prices need to rise, or we will see the same shortage for milk on beef, lamb and pork. We have a concern that the shelf price will be hiked without a share coming to farmers. There is enough money in the shelf price for farmers to be paid a fair price."

He added: "We will lose our processing infrastructure. Supply and demand doesn't work in food as it does in other industries. It is not a tap you can turn on or off. It takes generations to build up pedigrees in animals. If we lose them, supermarkets won't be able to turn the tap back on.

"It is a crisis. We are facing potential meltdown in the pigs and poultry sector. This is going to have a knock-on effect for the lamb and beef sectors, which are the jewel in the crown of Scottish food."

But Fiona Moriarty, director of the Scottish Retail Consortium, said milk price rises were isolated: "I don't think you can take the argument about price increases and transfer it to other commodities.

"On a case-by-case basis, some staple-product prices have increased, but there is always a very good reason for it. In many cases, supermarkets have been shielding customers from some of the vagaries of commodity pricing."