30 May 1997

Widest payment spread yet for top and bottom

THIS months Milk Price Review shows the widest spread of payments since we first started producing the table two-and-a-half years ago.

At that time about 3p/litre separated the top and bottom payers as dairy companies offered substantial premiums over the Milk Marque "base" price in an attempt to sign up more farmers direct.

This differential has gradually narrowed as the main operators achieved that objective, though even in the last milk year, over 2p/litre separated the top (Waterford) from the bottom (Milk Marque – Every Day Collection).

But a glance at this months table shows a staggering 6p/litre spread between the "high" and "low" payers, as lower constituent values from Apr 1 and tougher seasonality penalties kick in.

Companies operating primarily in the liquid milk end of the business, such as Midlands Co-op, Lancashire Dairies and Waterford, continue to pay on a flat rate basis with prices well over the 25p/litre mark.

These companies have been more divorced from the ravages of the international currency markets, which have weighed heavily on commodity values.

Stronger sterling has led to more competitive imports, particularly of butter and cheese, while the subsequent green £ revaluations have led to substantial cuts in intervention support for butter and skimmed milk powder.

These factors hit Milk Marques returns in its selling rounds earlier this year, leading to cuts in its producer prices of about 2.5p/litre from Apr 1.

Most other buyers have followed Milk Marque down, and some have also introduced more stringent seasonality charges as they try to discourage spring milk.

The Milk Group, for example, took 3p/litre off April deliveries, bringing payment for our standard litre down to 19.81p. This penalty is being increased to 3.5p/litre for May, but will be countered by summer bonuses of 3.5p and 3p/litre in July and August, respectively.

This approach is likely to draw a wider following in the future. One of the consequences of lower milk prices is that farmers respond by trying to get more milk from forage. As this trend continues, so the milk profile is likely to get more extreme, with higher peaks and deeper troughs.

This creates all manner of problems, and targeted action will be needed to bring about a more level delivery pattern. &#42