21 February 1997

Move into processing on cards for Milk Marque

By Tim Relf

RESTRUCTURING plans unveiled by Milk Marque this week could signal the companys first steps towards the processing sector.

Members will be given the chance to transfer certificates of entitlement for preference shares, if a majority agree to the proposal at the agm in August.

Milk Marque says having the share value locked into the company will help secure its capital base, currently just under £40m, with a annual turnover of £2bn.

Industry observers suggest this points to a future plan to raise money – possibly for a processing venture.

Corporate director Andrew Dare, speaking to journalists this week, said this countrys processing facilities were outdated. With deregulation of the quota regime looming, insufficient capacity would become a problem.

"Efficient dairy farmers should not be forced to subsidise an inefficient processing sector," said Mr Dare, refusing to rule out the possibility of a foray into this area.

Any such venture would most likely be geared toward high milk-usage products, such as liquid milk, cheese or butters and spreads, he hinted. "It would not be as a buyer of last resort."

The news came as no surprise to independent consultant Mike Bessey. He sees a processing venture by Milk Marque as "virtually inevitable".

It will give the company bargaining power, he says. "Buyers at present have got Milk Marque over a barrel. If they could send some milk into their own processing operations, it puts pressure on the buyers to put in more realistic bids."

According to John Price, director general of the Dairy Industry Federation, however, such steps would be opposed by the competition authorities.

The Office of Fair Trading is taking a "wait and see" approach. But a merger or acquisition would come under close scrutiny were it to have either over 25% of the market or if the company involved had assets of over £70m, a spokesman said.

Reaction to the share plan, meanwhile, has been mixed. Hugh Richards, chairman of the NFU milk committee, welcomes the flexibility that the ability to trade shares will give farmers. But share prices fluctuate, he says.

Milk Marque stresses the shares will carry a "competitive" rate of interest and says as they will not carry voting rights, the co-operative principle of one member, one vote, will remain.