28 April 1995

Levy picture uncertain

The end of March marked the end of the milk year as far as quota was concerned. But the calculations and repercussions are far from settled, as our Milk Price Review explains

WITH super-levy dues standing at 30.44p/litre, individual threshold levels are a major concern to dairy farmers.

Latest Intervention Board estimates put the UK 200m litres over quota. But how this breaks down to individual companies and farmers remains uncertain as a backlog of work at the IB, and a flurry of late quota trading, have delayed the final results.

This is not helped by further delays in calculating the volume of temporary quota conversions, the allocation of an extra 0.5% of quota from the national reserve and levy dues for producer retailers. Taken together, these ensure that the picture remains unclear.

Some dairy companies in this months Review have provided farmers with provisional quota thresholds on their April milk cheques. This has been used to calculate initial super-levy charges which are being collected in various ways.

Most companies have made straight deductions. For example, Milk Marque has estimated a figure of 3% as its threshold for the five months since vesting day, and has withheld payments for the full amount from members whose adjusted year-end quota positions exceed this level.

Some companies (for example, Northern Foods and The Milk Group) have not delayed payment, but have sought a bankers guarantee to cover an individuals potential levy. Others (for example, Wiseman Dairies) are waiting for more precise details before levying any charge.

Spreading the charge

Others still, such as Waterford, are spreading the charge over a number of months, enabling them to make adjustments as more details emerge.

Clearly circumstances vary. But some farmers have had considerable amounts of money withheld by their buyers purely on the basis of provisional estimates of quota thresholds from IB figures which are far from finalised.

What is clear is that, when final figures do emerge (not before June), adjustments will have to be made. Some companies could end up repaying excess levy.

In terms of actual price movements for March milk, there was little change. The one exception was Avonmore, which has moved up the Review table as a result of higher payments for fat and protein. The April statements also confirm Avonmores promise to pay 0.5p/litre over Milk Marques price, with year-end adjustments for November to March deliveries included in its milk cheques.

Scottish figure lower

This months Review also separates out Nestlés price to farmers in England and Scotland. Despite paying the same constituent values, the Scottish figure is lower due to a 1p/litre seasonality deduction, compared with 0.5p off English suppliers in April.

Seasonality is just one factor which has an impact on rankings. Another is the issue of share bonuses – of particular interest to Northern Milk Partnership members. They will soon be receiving an additional 0.5p/litre in the form of Northern Foods shares.

Such a bonus is not recorded in the Review, as it is not actually paid each month. But it has been accruing monthly and will be paid out as a lump sum this summer. Over the full 12 months, Northerns price will effectively be 0.5p/litre higher.

Other dairies have loyalty bonuses, which may not show up on a monthly basis. For example, the Southern Co-operative Dairy offers farmers an extra 0.25p/litre top-up, which accrues monthly, but is not actually paid until the year end. (Original members are also in line for an extra 0.25p/litre.)

The other main bonus in the pipeline is the so-called 13th payment. Milk Marque, for example, has been receiving almost 25p/litre for the milk it sells (expressed as a weighted average). Its current rolling average price to members is 23.72p/litre (based on our standard litre). There is thus about 1.25p to spare between its raw material cost and its revenue. From this will have to be deducted administration costs, with any surplus available for the 13th payment.

The big unknown is what this administration cost will be and dairy companies, especially those promising to better Milk Marques price, will be keeping a close eye on this one.

"With all dairy companies offering some form of additional payment, there is clearly more to milk pricing than simple headline figures," says Stephen Bates of Wye College, University of London. "The complexities of threshold calculations, together with group bonuses, loyalty bonuses, share options and 13th payments all ensure there are a range of deals on offer for milk. Farmers should look closely behind the headlines before coming to any long-term decisions.

Yardstick required

"However, a yardstick is required by the industry, and the standard litre approach of the farmers weekly/Wye College Review, backed up by a database of 250 farmers supplying regular information from their milk statements, is a sure way of making consistent comparisons.

"Dairy companies are not benevolent institutions and farmers need objective information upon which to make decisions." &#42