16 October 1998

Consultation forms fresh part of milk marketing inquiry

By Philip Clarke

IN a surprise spirit of openness, the Monopolies and Mergers Commission this week launched an industry-wide consultation on the future of milk marketing, as part of its inquiry into the sector.

Contained in the four-page document is a range of options for reform, dealing principally with the future of Milk Marque and its controversial selling system.

The MMC is at pains to point out that it has yet to reach any conclusions and that its suggestions are entirely hypothetical. A spokeswoman added that it was only going public as part of a government initiative to make its inquiries more transparent.

But observers believe the paper is at least indicative of the way the inquiry panel is thinking.

In its section on the Milk Marque selling system, the MMC sets out three options:

&#8226 Replace the current volume-based bid system with a Dutch auction, as used in Northern Ireland;

&#8226 Subject the reformed selling system to a regular, independent audit;

&#8226 Employ a neutral third party to operate the reformed system.

Whatever is decided, milk selling should be transparent, predictable and stable. It should achieve full market clearance, have no capped or floor prices and should offer full traceability, suggests the MMC.

As for the future structure of the dairy industry, splitting Milk Marque into three or four smaller regional bodies is mooted. "The purpose of this would be to ensure that no single supplier had a dominant position in the market," explains the MMC. It would also pave the way for co-ops to own their own processing capacity.

The MMC is also seeking industry views on the future of Milk Marque Developments and the suggestion that Aeron Valley Holdings be hived off.

Milk Marque chief executive Paul Beswick said he welcomed the consultation, but described some of its components as "extreme". "It provides an opportunity to bring the debate into the public domain and to prevent any shocks or surprises when the MMC publishes its full report early next year."

Many of the points raised by the MMC were already part of an on-going dialogue between Milk Marque and the dairy trade, he added. Change in the selling system was inevitable, but it would be better if it was achieved through mutual agreement.

But dividing Milk Marque into regional co-ops, or forcing it to give up all processing activities was out of the question, added Mr Beswick. "Any recommendation by the MMC must be proportional to the mischief they think they have found. On any analysis our problems are not extreme, so extreme solutions are not appropriate."

The consultation closes on Oct 31, though Milk Marque has said it wants an extension. &#42