3 May 1996

Status quo for March

In addition to the monthly update, this months milk price review also examines the prices paid to farmers during the year to March 1996

Prices for milk delivered in March show little change on the previous month, with the exception of Nestlé Scotland and Woodgate Farms, whose seasonality schedules have reduced their prices by 1p and 1.5p/litre respectively.

Looking at the full-year picture, half the companies reviewed have already paid farmers for their milk in full (marked p). Others have announced bonuses, but have yet to pay them (e). Milk Marque, Scottish Milk and The Milk Group are to make additional bonus payments as profit distributions to members, but these figures have yet to be announced and are therefore not included (n).

Differential

The final price column in the year-end table reveals a price difference of 1.51p/litre between the highest and lowest. For a farmer supplying 1000 litres of our standard litre every day, this equates with a potential loss of £5500 over the year.

However this 1.51p/litre price range is smaller than it has typically been in each individual month, where the price gap has been as much as 4.08p/litre (September 1995).

This is mainly due to seasonal price adjustments, which can range monthly from +3.5p/litre to -2.5p/litre. Over the year, however, these seasonality adjustments have balanced out.

Several companies made price bonus payments in Nov 1995 or Mar 1996, or both. These payments – either to make up initial price pledges to farmers, or to keep up with competitor prices – mean that the price gaps between many companies have narrowed.

Waterford Dairies is a notable example, where without a substantial price bonus made in 1995, they would be fourth from bottom. Instead they are sixth from top.

This helps to explain why no clear pattern has yet emerged relating relative prices to company product mixes. Manufacturers of liquid milk, butter, cheese and value-added products are dispersed throughout the table and are clearly still very price competitive.

Despite the fact that they are the foot of the table, the presence in the market of Milk Marque and Scottish Milk has raised the level of milk prices paid to all farmers.

Determined

Milk Marques large share of the milk supply, and the increasing prices charged to processors for milk, left companies determined to change the situation.

To reduce the dominance of Milk Marque over milk supplies and to lower the dependence on buying from them, processors have been prepared to pay higher prices to farmers supplying them direct. It is ironic that Milk Marques success has provided the greatest financial benefit to non-members.

Looking ahead to the current milk year:

&#8226 At an industry level, some reduction in herd sizes may result from the BSE scare.

&#8226 Further rationalisation of the processing sector is likely, which may help ease the pressure on milk supplies, ultimately reducing prices.

&#8226 Retail prices for milk have been increased recently, which should ease the pressure on processor margins and on Milk Marque for extracting a high price on the milk they sell.

&#8226 At the company level prices are likely to continue to move away from "Milk Marque-plus" promises towards stand-alone company pricing structures.

&#8226 Moves towards multiple contracts – either on a regional, factory or flat/seasonal basis – are likely to continue, as dairy companies seek to present the most attractive package.

&#8226 Issues of welfare and farm best-practice may also eventually find their way into milk price contracts.

&#8226 Ultimately, to cope with competitive pressures and the need to be market led, greater co-operation between processors and farmers will become increasingly important. &#42