21 April 1995

Peace offering move from DIFin pricing war

By Shelley Wright

THE Dairy Industry Federation has offered Milk Marque an olive branch in an attempt to end their conflict over milk pricing.

This week, DIF president Neil Davidson launched proposals to change the milk selling system.

Under current arrangement, Milk Marque sets the prices for eight different levels of service and invites dairies to bid for the volume they want in each category.

The DIF wants this to be replaced by an auction that would return a single market price. "This would offer a simple, fair and transparent way of delivering the genuine market-price for milk," said Mr Davidson.

And MMs existing built-in transport costs should also be removed, says the DIF. Mr Davidson said that individual farms should be allocated to processing plants, and the decision on how to haul the milk left up to the dairy companies.

The DIFs proposal would see MM auction 50% of its milk on 12 month rolling contracts on an ex-farm supply profile. Six month rolling contracts would account for another 40%, and the remaining 10% would be sold on a spot market operated with no floor price.

Monthly auctions would keep the milk price in line with market conditions, said Mr Davidson. And rolling contracts would remove the "cliff edge" the dairy companies had to face in the present system where they had to buy a years supply at once.

Mr Davidson said the DIF had opted for a "second price" auction method. That would involve each buyer indicating the volume of milk they would be prepared to take at a set price. Repeating this over a broad range of prices would provide a "demand curve". And whatever volume MM had on offer would be sold at the price where demand met the supply.

Protection offered

The system would protect small and medium sized buyers said Mr Davidson. And he added that, with the appointment of an independent administrator, the scheme would be free from abuse by either MM or the buyers.

MMs initial reaction to the proposals was cool. Chief executive Andrew Dare said in a free market it was up to MM, as the seller, to decide how to market its product. "And contrary to what the DIF says, our selling system worked well last year. We shall look at the proposals as one part of our customer consultation process to see if there are any new ideas," he said.

Bidding for next years prices under the current system is due to start soon, although the DIF is hopeful the Office of Fair Trading may step in before then

process gets under way.