27 February 1998

Bid shortfall for 3rd MM selling round hits price

By Robert Harris

MILK producers face a price cut of about 1p/litre after reluctance by dairy firms to bid in the third Milk Marque selling round.

Although bids were received for 88% of the milk on offer, slightly higher than earlier rounds, that was still below the 90% figure demanded by the Office of Fair Trading.

That has forced MM into a fourth and final selling round. It has lowered the price to the trade by a further 0.4p/litre bringing the lowest priced contract to 19p/litre, the Intervention Milk Price Equivalent. That means MM will receive at least 0.8p/litre less for milk than current levels, a stark contrast to the 0.6p/litre gain it aimed for in the first round.

The firm is unwilling to say how much farmers stand to lose, since it depends on a board decision in early March once all bids are in.

Independent consultant Mike Bessey believes the price cut may be nearer 1p/litre. Dairy companies are reducing volumes of premium contract milk, preferring to bid for low-priced residual contract milk, reducing the average price.

Milk Marque is unhappy about the result. "The fact that we cannot accept the bids we have received in round three for 88% of our milk raises serious questions about the rules imposed on the selling system, which we will be taking up with the Office of Fair Trading," says chairman, Poul Christensen.

Lower prices will continue to boost processor profit margins. "Farmers are justifiably angry. They want a fair market price for their milk, and they want to know why consumer prices have not dropped when farmers milk prices have already fallen by 20%."

Failing to meet needs

The Dairy Industry Federation accuses MM of failing to meet the needs of both customers and members. "During the course of the bidding process commodity prices have fallen by the equivalent of nearly 1.2p/litre," says DIF president, Gordon Summerfield.

"Since Milk Marque has tried to get dairies to gamble on volatile commodity markets up to nine months ahead, it is inevitable those companies are cautious."

But farmers could benefit from that caution longer term, since the MM system being investigated by the Monopolies and Mergers Commission may be seen in a better light.

"It remains to be seen whether the tactics of milk buyers in taking the selling system and tearing it into shreds has proved to be a wise move," says Mr Bessey. "The past claim that MM had a monopoly in selling milk should raise no more than a hollow laugh, given the tangible results."

lA downward drift in milk prices as companies manoeuvre to keep in line with competitors is reflected in this months Milk Price Review monitoring February milk cheques for January payments.

MD foods has changed its payment structure, with a flat 5.5p/litre fixed price, plus reduced constituent values of 2.2p a % for butterfat and 1.18p a % for protein. Top band hygiene payments have been increased to 0.8p/litre.

Midlands co-op has cut its base price from 21.3p/litre to 20.295p.

But Nestlé at Girvan, Scotland, has increased constituent values for the second month running, taking butterfat to 2.247p a % and protein to 3.619 a % for January deliveries.

January rises were introduced to offset the rise in transport "stop" charges to £8 introduced for December deliveries at Ashbourne, Dalston and Girvan to encourage every-other-day delivery. The stop charge has been capped at 1.5p/litre for daily collection, half that for EODC, to protect smaller producers. &#42