30 May 1997

Milk Marque takes a step into processing

By Philip Clarke

MILK Marque is dipping its toe into the processing sector for the first time, inviting dairy companies to make butter/skimmed milk powder for it on a contract basis.

The trade is being asked to tender a fee for doing the work, producing product of intervention standard which Milk Marque will own and sell.

About 1m litres a day is up for grabs during June, July and August, in a move designed to soak up the co-ops surplus milk instead of clearing it on the fickle short-term market.

It is also hoped that, by stating their rates for processing, this will end the ongoing dispute over the so-called Intervention Milk Price Equivalent (IMPE). This is the minimum price below which Milk Marque does not have to sell, as agreed with the Office of Fair Trading following last years investigation. It currently stands at 21.13p/litre.

"The trade has two main complaints," says Milk Marque chief executive, David Yoemans. "The exchange rate risk and the level of the IMPE. Contract processing takes both concerns away. Putting it crudely, we are saying to the trade, put up or shut up."

There is no obligation for Milk Marque to accept the tenders if they come in too high. But, with some highly efficient plants out there – including the continental ones – Mr Yeomans believes there is a margin for both sides.

If some companies find the IMPE too high, that is down to their inefficiency, he adds. And if they are not prepared to invest to improve efficiency, then Milk Marque has the balance sheet to do so.

The move has been welcomed by the NFU which hopes it will take some of the pressure off prices. But milk chairman, Hugh Richards, says he is wary of any further steps into processing. "If contract processing works, then fine. But in the past we have spent money on owning capacity, only later to have to pay to shut it down."

Whether the idea appeals to the trade remains to be seen. The closing date for tenders is next Tuesday (Jun 3). Dairy Crest and Unigate both say they are giving it "serious consideration", but will not decide until next week.

The Dairy Industry Federation is more dismissive. "The whole issue has only arisen because the Milk Marque selling system does not allow the market to clear at the true market price," says director general, John Price.

Industry consultant, Roger Metcalfe, says he doubts if there is the spare capacity out there to do the job anyway. &#42