Milk Marque to renege on 90% rule?

10 June 1998

Milk Marque to renege on 90% rule?

By Boyd Champness

MILK Marque will consider reneging on the 90% selling rule if processors dont offer farmers a fair price for their milk in the July selling round, the farmer-owned co-operative said today.

Releasing MMs annual results, Paul Beswick, managing director, said prices were so poor that the co-op was prepared to lower the 90% rule on its own undertaking if the July selling round shapes up to be as disastrous as this years January round.

Under the rule, 90% of the co-ops milk must be bought within the first selling round – otherwise the price is lowered until the 90% benchmark is reached. In January this year, MM was forced to offer an unprecedented four rounds – slashing farmers returns.

Mr Beswick said MM gave the Office of Fair Trading an assurance that it would stick to the 90% rule when the diary industry was deregulated in 1996. However, the agreement was not legally binding.

He said he had been talking to the relevant people within the industry about MMs line of attack if prices dont improve in the next round. He said dropping the 90% rule was just one of the co-ops options.

The Monopolies and Mergers Commission is currently investigating all aspects of the supply of raw milk – in which the 90% rule will come under scrutiny. The MMC is expected to hand down its findings in October.

Poul Christensen, chairman, said the current situation cannot continue. He said £900 million “had gone missing out of farmers pockets” over the past two years because of the woeful prices.

Mr Christensen said this was money which would normally be spent in rural economies throughout Britain. He said shopkeepers, feed manufacturers, machinery dealers and other related industries were all feeling the pinch.

“This is real crisis, and we shouldnt underestimate just how serious it is,” he said.

MM members will this year receive a 0.48ppl bonus for milk produced to the end of March. This takes the final price to 21.02p per standard litre compared with 24.26ppl last year – down 13%.

However, producers will have to wait some time for much of that money. The distribution will be in three forms:

• Payment of the £9.8m trading surplus (0.15ppl) in July;
• Preference shares worth £15m (0.23ppl) to be released in October;
• Tax refunds of £6.3m (almost 0.1ppl) paid no later than July 2000.

In 1997, the company marketed almost 6.4 billion litres of milk, 400m litres less than in 1996. That, coupled with a lower milk price, pushed turnover down 20% to £1.44bn. Operating profit fell 17% to £10.1m.

The sizeable payout will undoubtedly reinforce MMs message to milk producers that they are not losing out by supplying the company, according to analysts. But even after the bonus, the milk price fell 13% compared with last year, leaving most other buyers well ahead in the payment stakes.

Milk Marque Developments, whose role is to venture into processing, made a net profit of £245,000 on turnover of £6.7m since establishing in October last year. The only processing plant MM Developments has to date is Aeron Valley Cheese, whose capacity has doubled to 8000 tonnes a year since MM took over.

MM directors said the co-op was looking into other possible acquisitions and joint ventures, including a possible greenfield site in south-west England.