Dont wait, convert now

27 August 1999




Dont wait, convert now

By Philip Clarke

WHOLESALE milk producers who also own direct sales quota, but do not produce against it, are being urged to convert it permanently, rather than wait for temporary conversions after the year end.

Intervention Board figures, show there are over 2000 direct sales quota holders in the UK; less than half sell to consumers.

"The rest tend to keep their direct sales quota as an insurance," says agent Tony Carver of Carver Knowles. "Each year they send in the temporary conversion forms. But only if they go over their wholesale quota does the IB actually process the application."

If the quota is not needed, it stays as direct sales and will be used to offset the super-levy liability of active direct sellers.

The problem is, such last minute adjustments make predicting the national super-levy in the closing stages of each milk year impossible.

This year, for example, as much as 134m litres were temporarily converted between Apr 1 and May 15 – 76m litres from wholesale to direct sale and 58m litres from direct sale to wholesale.

The net effect was an 18m litre inflow of quota to the direct sales pool – enough to cover all surplus output and eliminate any super-levy for direct sellers.

But as a direct consequence, there was also less available in the wholesale pool, contributing to the upward revision in the super-levy bill from £4m to £9m for wholesale producers, as announced at the beginning of August.

"The great difficulty is predicting these movements," says Mr Carver. "Analysis shows that the volume converted to direct sales is relatively consistent. It is the volume converted back into wholesale that is the lottery.

"It would be so much easier for all if those non-active direct sales quota holders permanently converted their quota by the end of December, rather than create all this confusion after the year end."

But dairy farmer/consultant, Gordon Throup, believes the whole notion of temporary transfers should be reviewed. "Whats so special about direct sellers?" he asks. "Why should they have the ability after the quota year has ended to make a temporary transfer and jeopardise all the planning that has taken place between wholesale producers and their purchasers."

He is particularly irked that, in a year such as this, movement of quota from wholesale to direct sale has the effect of freeing direct sellers from super-levy, while at the same time lowering the thresholds for wholesale producers.

But deputy group manager at the IB, Delphine Dudding, is quick to point out that the temporary transfer system works both ways and, in both 1994/95 and 1997/98, it was wholesalers who were the net beneficiaries. &#42

WHOLESALESUPER-LEVY

&#8226 Only if the UK as a whole is over its wholesale quota, (after allowing for permanent conversions, temporary transfers and butterfat adjustments), is super-levy charged.

&#8226 Super-levy liability is then allocated to each quota holding group, (milk buyer), in proportion to their overproduction.

&#8226 Spare quota from under-quota purchaser groups is reallocated to over-quota buying groups, as is the small volume of national reserve.

&#8226 Each over-quota buying group then works out its % threshold, by reallocating spare litres from under-quota farmers to those who produced too much.

&#8226 Super-levy is paid at 115% of the milk target price, (about 24p/litre), on every litre above this threshold.

DIRECTSALESSUPER-LEVY

&#8226 Only if the UK as a whole is over its direct sales quota is super-levy charged.

&#8226 Direct sellers pay super-levy on all their over-quota litres – there is no system of thresholds.

&#8226 The base super-levy is 115% of the target price, but this is watered down by drawing on "spare quota" from under-quota direct sellers.


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