Mature Cheddar Margins

Published 1 October 13

Mature Cheddar Margins - 2012/13

Key findings:

  • Average UK farmgate prices rose by 11.6% in 2011/12 but in 2012/13 the average farmgate milk price only rose marginally by 1.2% to 28.4ppl.

  • Processor gross margins for mature Cheddar were reduced slightly from 18% to 17% for 2012/13 as increased selling prices to retailers were insufficient to cover the increase in the cost of raw milk.

  • Retailers managed to retain a margin of 48%, despite sales remaining intensively competitive in 2012/13.

The Cheddar Supply Chain Margins 2012/13 report presents evidence on the gross margins¹ made by farmers, processors and retailers on the sale of mild and mature Cheddar. This tenth report identifies who benefitted from changes in prices along the supply chain in the sale of mild and mature Cheddar across the 2012/13 milk year (April 2012 to March 2013).

Prices for mature Cheddar at retail level reached an average of 65.6ppl in 2012/13. This is a decrease of 0.5ppl (0.8%) compared with the previous year. Meanwhile, prices for branded mature Cheddar at retail level averaged 71.4ppl over the same period, which represents an increase of 2.0ppl (2.9%).

According to Kantar Worldpanel data, due to a continued squeeze on household incomes, consumers bought marginally lower quantities of mature Cheddar.  They also bought a greater proportion of budget private label mature Cheddar compared to branded mature Cheddar.

Wholesale markets for mature Cheddar in the UK have remained static at 34.0ppl for two years, with prices in 2012/13 remaining unchanged from 2011/12. As with mild Cheddar markets, the lack of any significant growth in production or trade meant the market remained well-balanced and no adjustments to prices were needed.

Gross margins for mature Cheddar are summarised below. Retail gross margins have remained relatively stable over the last three years. The retail gross margin for mature Cheddar in percentage terms was 48% for 2012/13, compared to 49% in 2010/11 and 2011/12. Processor gross margins for mature Cheddar were reduced slightly from 18% to 17% for 2012/13.  It may be that the fall in processors’ gross margins has been balanced against gains in other areas of the business e.g. returns from whey.

Comparisons of 'Defra farmgate milk price' mature Cheddar gross margins*
- 2002/03 2011/12 2012/13
- ppl margin ppl margin ppl margin
Farmgate milk price** 16.9   28.1   28.4  
Processor gross margin 5.8 25% 6.0 18% 5.7 17%
Processor selling price 22.7   34.0   34.0  
Retail gross margin 30.6 57% 32.1 49% 31.6 48%
Retail price 53.3   66.1   65.6  

*Expressed in percentage terms, the gross margins reflect the proportion of the selling price retained to cover operational and overhead expenses and to provide for a return on investment/profit.

**At the farm level, only the average selling price is reported as this there is no effective 'purchase' price for the milk sold, and consistent data on average costs of production was not publically available at time of publication.

For more details on mature Cheddar margins click here, or see Cheddar Supply Chain Margins 2012/13.

For the purposes of this report, gross margins are calculated as unit gross margins, measuring the unit selling price less the unit cost price (in pence per litre terms). The margins do not account for other sales or production costs and are therefore not indicative of profit levels. However, the gross margins are representative of the value obtained at that level of the supply chain and analysis of how the margins have changed over time provides important insight into how market events have impacted on the distribution of the value within the supply chain.

Please note: Monthly retail prices have been used since April 2007, compared to annual average prices prior to April 2007.

The DEFRA farmgate price is an average of all farmgate prices and will lead to small discrepancies in the absolute level of the margin.  However, discrepancies should remain relatively constant year on year therefore the change in margins over the past 10 years should be accurate. Branded or niche mature cheddars will achieve higher wholesale prices and hence gross margins will be higher. Income from whey is ignored in this calculation - in reality this will increase the margin.

Mature Cheddar retailer gross margins are based on the difference between the wholesale price of standard mature cheddar and the weighted average retail price of supermarket label mature cheddar (Kantar data). Branded or niche mature cheddars will achieve higher wholesale prices and retail prices.