The UK's main supermarkets say they will "vigorously" fight allegations that they colluded with dairies to fix the price of dairy products.
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 which concluded there had been price fixing.
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 collusion between 2002 and 2003.
Five dairy processors were also accused of the collusion, which allegedly led to overcharging of an estimated £270m.
The OFT alleged the deal led to consumers overpaying for milk, cheese and butter by 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.
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.
Processors Dairy Crest, Arla, Lactalis McLelland, The Cheese Company - part of Milk Link - and Wiseman were also accused by the watchdog.
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.
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.
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.
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
Farmers' help
Sainsbury's added: "The price change was designed to help British dairy farmers who faced considerable financial difficulties.
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."
"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.
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.
"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.
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.
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."
"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".
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 AinsworthShadow rural affairs secretary
Any suggestion that the retail price of milk was increased at the time to benefit farmers is nonsense Peter AinsworthShadow 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.
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 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."
"This kind of collusion on price is a very serious breach of the law."
'Good value'
'Good value'
Industry groups moved to insist consumers had not been ripped off.
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.
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."
"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.
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.
"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.
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."
"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."
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