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Last Updated: Thursday, 20 September 2007, 13:56 GMT 14:56 UK
Supermarkets 'fixed dairy prices'
The OFT alleges that dairy prices were fixed over a two-year period
The UK's big four supermarkets and dairies colluded to keep the price of dairy goods artificially high, the Office of Fair Trading has claimed.

The alleged deal led to consumers overpaying for milk, cheese and butter by an estimated 270m, the OFT said.

It accused Asda, Tesco, Morrisons, Sainsbury's and processors including Dairy Crest and Arla of involvement. The supermarkets denied the claims.

If found guilty of price fixing, the firms could face heavy fines.

Last month, British Airways was fined almost 121.5m by the OFT after it admitted collusion in fixing the prices of fuel surcharges.

"This is a very serious case," said OFT executive director Sean Williams. "This kind of collusion on price is a very serious breach of the law."

According to the OFT, stores and processors had already been warned the practice would limit competition and raise prices.


Mr Williams added that the watchdog would ensure it used its powers to punish such behaviour and "deter other businesses from taking such actions".

The Competition Act of 1998 prohibits agreements, practices and conduct that may have a damaging effect on competition in the UK.

What we were trying to do was to ensure that at least we could get the farm gate price up a bit to help preserve the supply line
Kevin Hawkins, BRC

The OFT has written to the big four supermarkets as well as processors Arla, Dairy Crest, Lactalis McLelland, The Cheese Company - part of Milk Link - and Wiseman setting out its findings.

It is now awaiting their responses to the claims - covering 2002 and 2003 - and any objections.

Morrisons said it was too early to comment fully, but added the group had never been involved with any of the actions mentioned by the OFT.

It also said that any Safeway involvement was another issue, as it would have come before the chain's acquisition by the group.

Tesco, Asda and Sainsbury's added that they would "vigorously defend" themselves against any claims they had not acted in the best interest of shoppers.

Meanwhile, trade association Dairy UK added that price rises during the period in question reflected the major costs and income problems being experienced by dairy farmers.

Director general Jim Begg said: "Dairy prices for consumers in the UK over the last 10 years have been extremely competitive and remain so.

"The competition between the main supermarkets is well-known to consumers. Price rises have generally been below the rate of inflation and dairy products continue to be very good value."

'No rip-off'

The British Retail Consortium (BRC) also insisted there had been no attempt to "rip off the public" adding prices had been raised at the time to help ease pressure on farmers hit by low milk prices.


(Prices in pence per litre)

  Farmgate Retail
2001 18.47 42.7
2002 15.31 44.3
2003 16.51 46.6
2004 17.27 47.5
2005 17.3 50.9
2006 16.83 55.3
2007 18.08 56.3

"What we were trying to do was to ensure that at least we could get the farm gate price up a bit to help preserve the supply line," BRC director general Kevin Hawkins told the BBC.

However, Sean Rickard, a consultant to the dairy industry and former chief economist at the National Farmers' Union, questioned whether farmers had actually seen the benefit of the price increases.

"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, no lasting benefit from any such move," Mr Rickard added.

The OFT said it was "committed to sorting out the case as soon as possible," and hoped to issue a final decision by late 2008.

The findings of the Office of Fair Trading

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