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Last Updated: Thursday, 20 September 2007, 20:13 GMT 21:13 UK
Supermarkets to fight dairy claim
Milk
Sainsbury's and other stores have denied the allegations
The UK's main supermarkets say they will "vigorously" fight allegations that they colluded with dairies to fix the price of dairy products.

Tesco, Sainsbury's, Morrisons and Asda said they were examining a report from the Office of Fair Trading.

Five dairy processors were also accused of the collusion, which allegedly led to overcharging of an estimated 270m.

The OFT said the figures broke down as 3p extra for a pint of milk and 15p extra per quarter pound of butter.

The overcharging, between 2002 and 2003, also led to customers being allegedly overcharged 15p per half pound of cheese.

Breaches of the Competition Act of 1998, which prohibits agreements, practices and conduct that may have a damaging effect on competition in the UK, could incur hefty fines.

Processors Dairy Crest, Arla, Lactalis McLelland, The Cheese Company - part of Milk Link - and Wiseman were also accused by the watchdog.

UK 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

Morrisons said it was too early to comment fully, but 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 said that they would "vigorously defend" themselves against any claims they had not acted in the best interest of shoppers.

Farmers' help

Sainsbury's added: "The price change was designed to help British dairy farmers who faced considerable financial difficulties.

"At the time there were two issues: first to ensure that the full amount of any increase to processors was returned to dairy farmers and, secondly that our prices remained competitive in the marketplace for our customers."

The supermarket said its price change was always publicly disclosed before its implementation.

"Sainsbury's categorically did not retain the monies from the price increase," it added.

The National Farmers Union said it was yet to see a full copy of the OFT report.

A spokesman added that the period investigated by OFT - 2002 and 2003 - was a difficult time for many dairy farmers faced with falling incomes.

"Since 2003, tremendous progress has been made in the British dairy industry, particularly in the last six months, not only in terms of the price paid for raw milk to farmers but also the relationships that exist between dairy farmers, processors and retailers."

OFT was awaiting responses from the supermarkets and processors. It said it would use its powers to punish such behaviour and take action to "deter other businesses from taking such action".

Any suggestion that the retail price of milk was increased at the time to benefit farmers is nonsense
Peter Ainsworth
Shadow rural affairs secretary

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

"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."

'Good value'

Industry groups moved to insist consumers had not been ripped off.

Trade association Dairy UK director general Jim Begg said: "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."

And the British Retail Consortium (BRC) said prices had been raised at the time to help ease pressure on farmers hit by low milk prices.

"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.

But Shadow Rural Affairs Secretary Peter Ainsworth said: "The fact the OFT believes that the supermarkets have a case to answer will come as no surprise to dairy farmers who have been struggling for years to make any money at all.

"Any suggestion that the retail price of milk was increased at the time to benefit farmers is nonsense. Over the period covered by the inquiry, retail prices increased but farm gate prices fell and supermarket margins rose."



VIDEO AND AUDIO NEWS
The findings of the Office of Fair Trading



SEE ALSO
Supermarkets 'fixed dairy prices'
20 Sep 07 |  Business
Shoppers 'face meat price rises'
28 Aug 07 |  Business
Tesco to pay dairy farmers more
03 Apr 07 |  Business
Price squeeze 'hitting farmers'
26 Feb 07 |  Business
Milk farmers protest over prices
06 Feb 07 |  Business
Grocery probe eyes local markets
23 Jan 07 |  Business
UK grocers face competition probe
22 Jan 07 |  Business

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