The big four supermarket chains have been involved in a cartel with dairy companies to fix the prices of milk, butter and cheese, according to the Office of Fair Trading.

The watchdog claims to have evidence of collusion over two years when the chains passed future milk prices to dairy companies, which then exchanged the details among themselves to reach a fixed price.

A 3p increase in the price of a pint of milk is said to have cost consumers an estimated £270 million, an average of £11.25 per household.

The allegations will be fiercely contested, but if the charge is proved, retailers and dairy companies can expect swingeing fines running into millions of pounds. The OFT has the power to fine up to 10 per cent of annual turnover. Such an outcome would also pave the way for consumers and farmers to take legal action for compensation.

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Militant dairy farmers may launch a legal claim against supermarkets

Valerie Elliott

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The provisional findings from the OFT have come too late for the 14,000 farmers who have quit the dairy industry in the past 10 years. Only 14,000 now operate in Britain and these are still quitting at the rate of three a day.

Asda, Safeway (now owned by Morrisons), Sainsbury’s and Tesco and the dairy companies Arla, Dairy Crest, Lactalis McLelland, the Cheese Company and Wiseman were each sent 600-page dossiers yesterday setting out the provisonal case against them.

The main charge is that they breached the Competition Act by engaging in fixing retail prices for milk, cheese and butter. This pushed up prices, was harmful to consumers and restricted the competitive process.

The watchdog alleges that the parties understood their actions might be anticompetitive and said that it had previously given warnings to retailers.

The supermarkets and dairies now have until mid-December to respond to the findings. A ruling by the OFT is not expected until after next summer.

David Handley, chairman of Farmers For Action, the grassroots group of militant farmers which has led protests about low milk prices since 2000, said he was “very pleased” with the OFT findings.

“This has come too late for a lot of people’s livelihoods and if anything comes out of this, it is that something like this must never happen again,” he said. “I have already told the OFT they should be extending their inquiries beyond those years.”

He confirmed that if the allegations were found proven he would seek, along with the National Farmers’ Union, legal action for compensation.

The NFU declined to comment until the full report had been scrutinised in detail. The timing is sensitive because the union wants backing from supermarkets to support prices for beef and lamb given the difficulties of trading in the foot and mouth outbreak.

The union is also trying to persuade retailers and meat processors to pay higher prices for pork, ham, bacon and chicken to help to cover higher production costs pushed up by the rise in world grain prices.

The allegations are extremely serious for the supermarkets and dairies and experts belive that the OFT would not have gone public without a very strong case.

Andrew Groves, associate director at the OFT, said there was no evidence that supermarkets had been directly in contact with each other but that information had been exchanged through processors. “Collusion between retailers on prices is an incredibly serious infringement of competition law,” he said. “There is nothing at all to prevent supermarkets unilaterally raising prices to help farmers, but dairy farmers did not benefit from these price increases. We are focusing on disturbing collusion between retailers and dairies but we are at a provisional stage.”

Tesco, Asda and Sainsbury are to fight the allegations “vigorously”, while Morrisons is to make strong representations that it should play no part in the inquiry as it was related to a period when it did not own Safeway.

Kevin Hawkins, director-general of the British Retail Consortium, denied any collusion and said: “At no time were retailers acting against the best interests of customers.”

Jim Begg, director-general of Dairy UK, said each company was studying the report and would respond to the OFT. “This report refers to events five years ago and any price rises then reflected the major cost and income difficulties being faced by dairy farmers.”

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