21 June 2002

Milk price gains under threat

By Olivia Cooper

MILK prices could come under further pressure after the EC introduced selective tendering in place of open intervention for skimmed milk powder.

Market managers met in Brussels last Thursday after intervention offers reached the ceiling of 109,000t. Faced with closing stores altogether or raising the cap on offers, they opted for the middle ground of introducing a tender system, with the first offers to be taken on June 25.

Farmers unions expressed disappointment at this decision, as it effectively means the cheapest offers of SMP will be accepted.

Industry experts anticipate a 5-10% cut against the current intervention price of £1300/t. Independent consultant Mike Bessey says butter is purchased on a similar scheme and experienced a 10% drop in value compared with the full intervention price. It is likely that SMP values will react in a similar way, he adds.

A 10% drop in value would translate into a 1p/litre cut in raw milk prices, calculates Mr Bessey. "That doesnt mean all milk prices will automatically fall by that amount, but if dairies want to sell the product they may have no choice."

Positive moves

Jenny Searle, assistant dairy adviser at the NFU, says: "It is a disappointing and worrying change. We were beginning to see some positive moves with the strengthening of the k. This could wipe out many of those gains."

However, on a more positive note, export refunds were increased again last week, to compensate for the stronger k against the $, which had made EU exports less competitive. Refunds for SMP were increased by 10% to k715/t (£460/t), with wholemilk powder up by 5% to k1078 (£690/t) and casein aid up by 14% to k485/t (£310/t).

The Irish Farmers Association and the NFU both welcomed the move and called for recent milk price cuts to be the last. "These increases give a positive signal to the market place, and co-ops around the country must respond by holding their milk price for the month of May," said IFA president John Dillon. &#42