Aldi and Lidl's price war is killing off Britain's milk industry

German grocers Aldi and Lidl are causing a long and painful price war amongst Britain’s biggest supermarkets.

The battle gives consumers staple and high-end food products at significantly lower prices. Supermarkets, such as Asda and Morrisons, are trying to reclaim market share and bring back shoppers by slashing prices to keep up.

However, the price war is not just hurting incumbent supermarkets’ bottom lines, it’s also starting to destroy Britain’s milk industry.

The National Farmers Union (NFU) is meeting Morrisons today, as part of its round of talks with individual supermarkets, because it says that some grocers are now paying so little for milk that farmers are not able to cover their costs. If the price war continues, farmers will not be able to make ends meet.

The NFU said it costs farmers 62 pence to produce 2.4 litres (4 pints) of milk. However, at the lowest price, some farmers are paid just 48 pence for the same amount of milk. This means that farmers actually lose money by producing and selling milk. On average, British supermarkets sell a bottle of milk at this size for 94 pence.

British dairy organisation AHDB Dairy also confirmed that milk prices per litre fell by over a quarter over the last 12 months. The price per litre fell to 24.06 pence in May. However, farmers say it costs around 30-32 pence to produce one litre of milk.

Aldi, Lidl, Morrisons, and Asda were all targeted by campaign farming campaign groups because they are the supermarkets that give some of the lowest prices.

Morrisons have since said it will not lower milk prices any more.

Researchers at Kantar Worldpanel confirmed that offering low prices for grocery, and in turn sparking a price war, is helping some of these supermarkets to significantly grow.

“Competition is increasingly intense within the grocery market with price reductions and money-off vouchers becoming the norm,” said David Berry, director at Kantar Worldpanel, this month.

“The strongest performer has been Lidl, with impressive sales growth lifting its share of the market to an all-time high of 9.0%. The discounter has recruited a record number of customers this quarter, with 66% of all Irish householders visiting Lidl at least once during this time.”

Supermarkets, such as Sainsbury’s, have all revealed that they are suffering amid the intense price war.

“Trading conditions are still being impacted by strong levels of food deflation and a highly competitive pricing backdrop,” said Sainsbury’s CEO Mike Coupe last month. “These pressures, including the effect of our own targeted price investment, have led to a fall in like-for-like sales for the quarter.

Sainsbury’s reported a 2.1% drop in like-for-like sales, excluding fuel, for the 12 weeks to June 6, in July.

NOW WATCH: These are the side effects of sleeping on your back, side, and stomach

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.