Buying disaster to cut 2p/litre off April milk?

13 March 1998

Buying disaster to cut 2p/litre off April milk?

MILK producers face heavier price cuts than predicted, as the buying pattern in the last Milk Marque selling round becomes clear.

Bids were received for 91% of the milk on offer for supplies from April onwards, mainly on six- month contracts. Most of the bids – 80% – were for the cheaper "residual" and "fluctuating" bands, which are worth between 19 and 21.2p/litre.

The remaining 9% of total supplies will be sold for contract processing or on the open market, neither promising top returns.

As a result, the price for a standard litre of milk will fall from 20p/litre now to 18-18.5p/litre from Apr 1, less collection charges, says Milk Marque chief executive David Yeomans.

To tackle the problem, Milk Marque is even more determined to process 15% of its own supplies, currently 16m litres a day, by 2000. That amounts to 2.5m litres a day, five times current capacity.

"Dreadful. Prices are now back to those last encountered in the early 1980s," says Hugh Richards, outgoing chairman of the NFU milk committee. "At least then we had decent calf and cull cow prices. This news is going to put a lot of people under severe pressure."

A farmer with 100 average yielding cows stands to lose £7500-10,000 profit, he adds. "It is getting harder to cut costs. Our only hope is that sterling collapses.

"Buyers have cracked the system. We need to do away with the 90% minimum bid figure for a round to be successful. If companies bid for 60%, then lets say its sold."

Milk Marque would be better to sell milk more frequently, or make contracts market-related so they could track price trends, says Dairy Industry Federation director general John Price.

"The current system is driving buyers out of the market. Milk Marque is fixing the price in February and asking buyers if they want to purchase from April onwards. The system is failing everybody, especially dairy companies. It is not transparent or competitive enough."

Whether, or by how much, other dairy companies will reduce the price they pay to farmers remains to be seen.

"The situation remains unchanged for now," says Unigates Brain Pocock. "It is too early to say – a lot depends on the final outcome, our competitors, and what we can afford to do."

Nestlés John Bavistock reckons all companies will be considering their positions carefully. "The implication is that the selling round puts a floor in the market.

"We are very aware of the problems dairy farmers are facing. But the dairy product market is very weak, and very competitive."

&#8226 Milk Marque is changing its seasonality adjustments to bring them more in line with lower milk prices and ease cash flow.

The April deduction will now be 1.5p/litre (as opposed to 2p). May will be 2.2p, down from 3p, and June 1.1p compared with 1.5p previously.

July, August and September premiums are all lower to balance the books, at 2.6p, 2.2p and 0.4p respectively. &#42

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