4 April 1997

IB moves to foil the quota manipulators over butterfat %

By Philip Clarke

TRADING in milk quota now has to be done quoting butterfat to six decimal places, following new rules introduced by the Intervention Board this week.

In the past, butterfats were rounded off to two decimal places. But brokers soon discovered it was possible to manipulate a farmers base upwards by trading in several small lots rather than one big one.

Last summer the IB banned this multiple lotting. And now it is going a step further, processing all deals to six decimal places.

"We will be writing to all producers confirming their six-figure butterfats for 1997/98 once we have processed last seasons quota trades – probably in June," says IB quota manager, Hillary Carruthers.

Under the new arrangement, a producer holding 500,000 litres of 3.980000% quota who buys in 50,000 litres of 3.950000% will generate a new base of 3.977273%.

"The onus is going to fall more strongly than ever on the quota agent to get it right," says Tony Carver of Bruton Knowles National Quota Exchange. "If we get it wrong even by one decimal place there could be a case for breach of contract, giving either purchaser or vendor an excuse to get out of a deal.

"In future, auctions will have to be done quoting six decimal places, and agents may be a lot more insistent in seeing evidence of farmers butterfat bases," he adds.

Despite the move to six decimal places for sales and leases, the IB will still use two decimal places to calculate super-levy liability at the year end. In the above example, the new quota would be rounded off to 3.98% for levy purposes.

"There will still be some scope for influencing the year-end butterfat base by the last transfer made in the year," says ADAS consultant Mark Perry. "It could be worth buying or leasing a small volume of high fat quota to nudge up the butterfat base by one point for the calculation of levy."

&#8226 Quota prices have continued to slip due to a combination of lower milk prices, uncertainty over the quota regime and increasing supply from farmers giving up, according to quota broker Andrew Body of Lodge and Thomas. New season lots are valued at about 9-10p/litre to lease and 40-42p/litre to buy.