7 February 1997


Alan Lane (Frank R Marshall)Chelford, Cheshire

GAZUMPING and gazundering are terms which, to many, are associated only with the housing market.

But such practices can also be a problem in private treaty milk quota deals, according to Alan Lane.

And this, he says, is one of the main advantages of leasing quota by auction.

"On the fall of the hammer, the deal is done. The lessee signs the cheque, the transfer forms are completed and the paperwork is sent to the Intervention Board.

"With a private treaty transaction, it can take two weeks after the initial agreement for the money to be exchanged. So if prices rise in this period, there is the temptation for a prospective lessor to pull out and find a better offer (gazumping).

"And the opposite (gazundering) can be a possibility when, in the face of rapidly falling prices, the lessee decides not to go ahead."

The temptation is most evident when quota values are volatile. "There have been times when they have been changing a penny a day," says Mr Lane.

"There is little that can be done by the aggrieved party. Legally, it is a complex issue. And lawyers are expensive."

While the deal is done at the fall of the hammer, auctioning quota differs slightly from selling farm animals or property because the Intervention Board has to ratify the transaction. It is, therefore, a "conditional" contract that is initially made.

"Although it is very rare, a problem could arise if someone tries – either deliberately or inadvertently – to auction quota they do not possess.

"Lessors may register quota with a number of agents and, at any one time, not be exactly aware of exact amounts and the progress of transactions.

"In such cases, the Interven-tion Board acts as a safety net, although the lessee is protected, because the auctioneer holds the money on his behalf until the Intervention Board confirms the transaction has taken place.

"Another advantage to the auction method of leasing is the large amount catalogued, allowing people to pick and choose lot size and butterfats."

During 1996, the largest sale at Chelford was at the beginning of the milk year in April, when 3.5m litres was entered. In fact, over 90% of the leasing the company does is by auction.

"The key to any successful auction is having more demand than supply. With Cheshire a strong dairying area, theres never any shortage of interested faces ringside.

"And farmers, accustomed to trading livestock by auction, are comfortable with the idea of sourcing quota by the same method.

Telephone bidding

"There is telephone bidding, too, popular among those located outside an 80-mile radius. Over one-quarter of the volume leased at Chelford heads outside the area, including some to Northern Ireland.

"Commission bids are also accepted, when a member of our staff – acting as the farmers agent – bids on behalf of someone who has told us in advance what they want and the maximum price they are prepared to pay for it.

"As the auctioneer, however, I never execute the commission bid myself."

It is unlikely, says Mr Lane, that farmers will get carried away by the atmosphere of the auction and pay more than they otherwise might have done.

"Most have a prior indication of price trends from previous sales or by phoning agents before they come to the market.

"After the event, many other agents phone us, checking on price trends. They see the auctions as a good benchmark, just as deadweight buyers view liveweight markets."

Auctions, however, are not the favoured method for selling or buying quota. Such transactions, linked to land, are far more complicated than leasing.

Mr Lane plans to hold his next offering at Chelford in April. "Even if the selected cull gets under way in the current milk year before the end of March, and leasing is allowed for those losing cattle, it is unlikely that enough will be traded to justify an auction," he concludes.n


&#8226 Large volume on offer.

&#8226 Range of butterfats/lot sizes.

&#8226 No gazumping/gazundering.

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