29 September 2000

Co-operation is answer to unsustainable prices

ACHIEVING a sustainable milk price in the UK needs processors and producers to work together and stop basing prices on the Intervention Milk Price Equivalent.

Francis Mordaunt of Andersons told an EDFE press briefing that even dairy companies accept the milk price farmers are receiving is not sustainable.

"Prices have dropped by 32% and are down 8p/litre since August 1996. But retail prices havent changed much – liquid price has been fairly stable since 1996, and butter and cheese prices have risen slightly. So, the consumer hasnt benefited."

IMPE has been used by processors to drive down the milk price. But they only took it up when Milk Marque used it to put a floor in the market after deregulation of the market, he explained.

But IMPE was never designed to be used as a pricing tool, it is only used in this way in the UK as a result of weak producer marketing.

It is based on butter and skimmed milk powder, of which little are produced in the UK. Half of UK milk production goes to the liquid market which should attract a premium.

Pricing should only be based on IMPE when manufacturing skimmed milk powder and butter, and when intervention is open. But current prices for these commodity products are the above IMPE price, he added.

This, and the fact that currency has weakened, should have increased prices this summer as it has in Europe. But this would also require more frequent price reviews. Mr Mordaunt suggested a quarterly review would be a better option than current six-monthly negotiations.

He also supports the idea that fewer milk groups are needed to improve milk producer prices. But his colleague, Tony Evans, says that producers should not be joining together to use their power against processors.

Mr Evans believes it would be unwise to go back to the days of Milk Marque and confront processors. However, larger groups could be more professional, improving communication with buyers, and the economy of their operations.