1 November 1996

Were willing to collect milk from anyone

By Shelley Wright

MILK MARQUEs new sliding-scale pricing system, to be introduced at the turn of the year, does not signal the organisations departure from co-operative principles, insists chairman Poul Christensen.

In fact, the new payment formula, which offers a higher unit price the more milk you produce, is vital because no organisation can survive if it has elements of cross-subsidy, he says. "The volume related system will mean that every member is paying his own way within the organisation – and thats how it should be. Co-operatives are about mutual benefit, not cross-subsidisation."

From Jan 1, producers will receive a net price for their milk, calculated to incorporate haulage charges. With economies of scale, transport costs reduce as the volumes collected increase, hence the new system offering higher unit prices to larger producers.

Volume-related move

Mr Christensen says there were two factors behind the move away from a pool system, where large and small all received the same standard litre price regardless of how much milk they produced. In April this year, armed with the first full years accounts, the MM board studied the businesss cost structure. "We realised that we werent accurately reflecting the costs that individual producers impose on the business. So the move to volume-related payments addresses that."

The second reason, and probably the most important, was the need to ensure that MM did not start losing its large-scale producers, because that would make transport costs on a unit basis even higher. "Clearly our smaller suppliers will be disadvantaged to a degree over the larger ones by the new system, but with transport our biggest cost its only fair that each individual pays his own share," Mr Christensen insists.

And he stresses that with each member paying his own way, it means that MM can carry on collecting milk from everyone, regardless of their herd size.

The reaction from members has been mixed, but Mr Christensen believes that the majority of smaller producers recognise the need to retain as much milk as possible within MM. They realise that if the larger producers leave then the milk price for those remaining will fall, he says.

The trend towards fewer, but bigger, dairy farms continues. But Mr Christensen is adamant that the new pricing system is not an attempt to hasten that process. "We are still prepared to collect milk from anyone because now we can afford to do it," he says.

Looking to the future, he refuses to join the bandwagon who say it is inevitable that milk prices will fall. "I will not talk prices down. There are just too many uncertainties in the market for anyone to give accurate predictions on what might happen." But he concedes that the GATT deal, which is already starting to bite, will have a negative effect on the industry.

The impact of other issues, like EU enlargement and CAP reform, on prices is impossible to predict. All Mr Christensen will say is that they will inevitably lead to a much more volatile marketplace than producers have seen before.

On future milk quota reforms he insists that nothing must be done to limit EU producers abilities to compete in what will be a more liberal world trading environment.

MMs preferred option would be for a gradual rise in milk quotas, with a concomitant reduction in support prices. "But we must ensure that any change is at a rate that producers and processors can adapt to," he adds.

Retain flexibility

Producers must retain as much flexibility as possible, so that they can adapt to changing markets. Herd breeding policy will be the key to that rather than so-called designer milk which he says is certainly not the route to go down.

"We need to make sure that we are breeding animals that are capable of producing high levels of both fat and protein. Feeding developments will then allow manipulation of those traits, but youve got to have the potential in the cow in the first place. There is a great danger that if you have a customer at the moment who wants designer milk with low constituent values, as is happening, and you breed for that, then you could be stuck if the customer suddenly changes his requirements."n

Poul Christensen does not believe milk price falls are inevitable.