31 March 1995

Bonus in group deals

Milk groups are offering farmers premiums over what they might receive as individuals, as our Milk Price Review explains

WITH few changes to prices paid for February milk supply, other than a 0.3p/litre increase in the premium offered by Golden Vale, this months Milk Price Review presents a good opportunity to examine the complex world of milk groups and their impact on the market.

As we attempt to show what an individual farmer would receive for a standard litre each month, the figures exclude group bonuses. These bonuses can make quite a difference to the actual prices being paid by the dairies. For example, MD Foods sources 98% of its direct milk supply from groups and pays out an extra 0.5-0.8ppl to secure this.

In addition to Milk Marque, Scottish Milk and Aberdeen Milk, a wide variety of milk groups have sprung up in the dairy sector since talk of deregulation began.

By legal definition, there are two types of groups, most of which are limited companies.

&#8226 Quota holding "agencies", which tend to issue their own statements (The Milk Group and Peninsula ),

&#8226 And a non-quota holding "society".

The former actually buy the milk and sell it on, the latter merely broker it on behalf of their members.

However, they fall more conveniently into independent groups set up by farmers, (such as Camelot) and those set up by the dairy companies to secure a milk supply base (Northern Milk Partnership ).

The Milk Group is one of the largest groups with 300 producers supplying 300m litres. The group began in Cheshire 18 months ago, when several local farmers set up together with a view to selling direct to dairies.

It now operates in several counties with three prime areas – the north west, east midlands and the Severn valley. It sells to a variety of companies including Dairy Crest, Muller, Unigate, Millway Foods and Waterford.

There are no joining fees (however, initial members paid £250) and the group does not specifically charge for administration. It does insist that farmers supply all of their milk to The Milk Group and issues its own monthly statements to members.

It has guaranteed a price of 25p/litre for a standard litre (4.1% fat and 3.0% protein). Any overall bonus will come as a thirteenth payment, based on the difference between what the milk group receives for milk sold and the price paid to its members, less administration charges (in much the same way as Milk Marque).

Camelot is another large group based in the south-west of England. It currently consists of around 200 farmers, supplying 140m litres of milk.

Members sign two contracts, one agreeing to Camelot marketing all of their milk and a second with the dairy company involved. For its services, Camelot charges members a minimum of £250/year up to a maximum of £600, depending on volume.

Camelot has a professional negotiator in its team and provides negotiating services for two other groups – East Riding Milk Producers and the Craven Group. It supplies three dairies (MD Foods and the local dairies of Cricket St Thomas and Child Hay Manor Farms), and believes long term strength lies in its flexibility.

M4 consists of 20 members supplying all of their 10m litres a year to MD Foods. Based mainly around Swindon, Bath and Cirencester, M4 was set up with the help of MD Foods and it too is looking to expand.

The group bonus negotiated with MD is based on the volume of supplies. The fees charged for its service are small – £20/year to cover postage. Its members currently get a bonus of 0.5p/litre.

Premier is a milk group operating primarily around the A59 in Lancashire, but going as far north as Kendal in Cumbria and south to Chorley in Lancashire.

It has 165 members supplying about 31m litres annually. Again, all of their milk goes to MD Foods and again, members sign an MD Foods contract and a Premier contract. Fees for the services of this group are currently £200 a year However farmers who signed up pre-vesting day were charged £150. Their bonus of 0.8p/litre is also dependent upon litres supplied.

The Ford Milk Group is a 70-100 strong group of farmers supplying around 42m litres of milk a year. It was set up last summer by farmers and currently sells its milk to Avonmore with each member attracting a group bonus of 0.4p/litre.

Peninsula Milk Producers, as the name suggests, operates in Devon and Cornwall. The group consists of about 40 members supplying 18.5m litres a year.

Peninsula also holds quota and is responsible for administering it within the group and to the Intervention Board. It issues its own milk statements and has a joining fee of £250 along with an obligation to buy at least five shares at £1 each, and one share per 10,000 litres of milk supplied.

United Milk Producers is a very large milk group consisting of 345 farmers supplying 385m litres a year. It is an independent body stretching from the south coast to Staffordshire and sells milk to Unigate and Avonmore. It charges members a one-off joining fee of £200 and a yearly rate of £125, plus £25 for every 0.5m litres they supply. Farmers are paid direct from the companies, but the group promises to ensure "they are at the top end of available prices".

One thing is clear. milk groups, whatever their nature, are seeking to strengthen their hand and build stronger relationships.

As Stephen Bates of Wye College, University of London points out, "the building of relationships has to be beneficial to the industry in the long run. It should help to develop confidence at a time of mutual mistrust and uncertainty.

Better communications should also enable farmers to produce the kind of milk required and help them focus on the way ahead."