Average price falls 7% Milk Price Review
By Stephen Bates
CHEQUES paid for March milk deliveries over the Easter period mark the final payment for the 1999/2000 milk quota year.
As well as showing how much farm-gate milk was worth in March 2000, this months milk price table also shows the average amount paid by different companies during the year, and is ranked on this basis.
The simple average annual milk price for 1999/2000 is 18.5ppl, compared with 19.8ppl the previous year, a 7% fall.
This highlights the very difficult conditions producers face – values since the first full year of market de-regulation in 1995/96 have declined by 27%.
All prices have declined significantly in the past 12 months, though some remain quite close.
For example, the table shows very similar levels for Unigate, Express and MD Foods. Indeed, 17 of the 23 annual values fall within a 0.6ppl band around the average price of 18.5ppl.
However, a wider look shows some prices have fallen much more than others, leaving a substantial price range between the best and worst payers.
Farm-gate milk values vary by 3.8ppl, with top-of-the-table Southern Co-op averaging 19.84ppl compared with Milk Marques 16.03ppl at the bottom.
Even allowing for every-other-day collection and a “thirteenth” payment by Milk Marque, the range remains at about 3ppl.
How can such a price differential exist? Part of it can be explained by the simplifications of using a standard litre as means of relative price comparison.
For example, top band hygiene payments can be as much as +1.4ppl for some processing companies (in this case, Express Dairies), whereas Milk Marque pays only +0.6ppl.
Therefore, producers failing to reach often tighter top-band hygiene levels on processors contracts will receive prices much closer to those paid by Milk Marque.
The size of the cheque a farmer receives also arguably reflects the value of the dairy products into which milk is processed.
Dairy companies paying the highest annual prices in our table are largely those processing liquid milk. By contrast, those at the bottom are largely milk brokering businesses.
Under the old Milk Marketing Board, prices from the range of wholesale end-uses were pooled.
In the de-regulated milk market, some dairy farmers receive 19.5ppl whilst others receive 16.5ppl.
Producers may therefore be relegated to the bottom of the milk price table because their milk is sold, either directly or indirectly, to make commodity products.
Under such circumstances, increasing the retail price of liquid milk in order to help all dairy farmers, as has been suggested, may not work.
This raises the question of how producers who supply milk which goes to make the lowest value products can increase their share of value-added markets?
This is the real challenge facing the three Milk Marque-successor co-operatives.
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Axis, Milk Link and Zenith have announced prices for April 2000 slightly up on those of Milk Marque, while several other contracts are set to decline significantly.
For example, Midlands Co-op reduces its base price by 1.2p to 16.125ppl; Wiseman by 0.85p to 14.57ppl.
Scottish Milk has cut its constituent prices by 8%, Golden Vale by a similar amount. Wyke Farms has cut them by 3.5%, South Caernarfon Creameries by slightly less.
With other companies following suit, the wide price range shown in this months table will narrow.
However, a key issue over the coming year is whether the new Milk Marque successor co-ops can capture more value from the market and lift their members milk price from the foot of the current milk price range.