Milk Marques new pricing system is good news for some

10 January 1997

Milk Marques new pricing system is good news for some

Getting to grips with volume-related pricing has given some cause for optimism at Dowrich.Philip Clarke reports

VOLUME-related pricing – Milk Marques new system for paying its members from Jan 1 – should help reverse the downturn in milk margins seen in recent months at Dowrich.

Genus costings for October showed the first fall in margin over concentrate since market deregulation two years ago, as lower prices combined with rising feed costs.

This was repeated in November. Average milk price that month came to 26.4p/litre, compared with 26.6p/litre a year ago, despite higher levels of butterfat and protein. And average feed costs were significantly higher at £151/t, compared with £113/t in Nov 1995.

As a consequence, margin over concentrate fell more than 2p to 20.42p/litre in November and is expected to have dropped again in December.

At least, on a rolling basis, margins continue to improve, with November producing a 12-month average of £1284 a cow, £66 more than a year ago. But this rate of improvement is slowing down, observes Anthony Lee, as pressures in world dairy markets start to impact at farm level.

One cause for optimism, however, is Milk Marques introduction of volume-related pricing for deliveries from Jan 1.

In the past, most of Milk Marques costs have been "pooled" and collected as a "litreage" charge. In this way, larger producers, and those on every other day collection, have cross-subsidised smaller producers whose milk is more costly to collect.

But under the new system, Milk Marque will charge its members a flat £13.50/day marketing fee, offset by a £5.50/day bonus for those on every other day collection. It is also raising its standard litre price.

Dowrich, which produces over 3000 litres/day, is set to benefit from the change.

As table 1 shows, Milk Marques last statement paid the Lees a gross 26.58p/litre for November milk, reflecting good quality butterfat and protein. This fell to 26.44p/litre after transport charges.

But under volume-related pricing, (table 2), the gross price rises to 27.13p/litre, reflecting the higher constituent payments. To work out the net price, the average daily collection is calculated, which in November came to 3159 litres/day. This gives a daily payment of £857, from which the £13.50 standard adjustment is deducted.

Dowrich is on every other day collection and, as such, earns a £5.50 bonus. This is added back to give a net daily payment of £849, equivalent to 26.88p/litre, worth about 0.44p/litre extra.

Anthony acknowledges that smaller producers will not fare so well under the new system, as their charges start to reflect the higher costs involved in fetching their milk. "But they will be able to do a lot to help themselves by switching to every other day collection," he says.

Milk Marque members should also benefit in the long term by retaining more of the larger producers, he adds, giving the co-op more clout in its dealings with the dairy trade. "This whole thing has been brought about because other dairy companies have been offering better deals to the bigger milk producers as they seek to cherry pick the best pick-ups. It is more important than ever that we stick together."

While Dowrich, with its 215 black-and-white milkers, is undeniably one of the "big boys", yields have been slipping over the winter months.

The general policy is one of "low inputs, low outputs", with the herd split between high and low yielders. But even the best performing group of cows has been struggling to average 18 litres/ day, with the low yielders doing more like 12 litres/day.

The recent cold snap has not helped, not least because it has not been possible to lift any fodder beet. This has had to be replaced in the ration with 6kg a cow a day of stock feed potatoes – sifted from the clamp of Estima just before Christmas. Anthony has also just taken delivery of 18t of citrus pulp, pre-booked last August at £102/t. "These will be dropped as soon as the weather allows us to start lifting beet again," he says.

At least with falling milk yields the Lees are closer to hitting their 1.3m litre milk quota. Back in September the herd was running 5% ahead of target and giving cause for concern. Now it is a more manageable 2% over quota.

Father Michael Lee believes that nationally, the UK will end this milk year almost spot on quota, while Milk Marque, with its "more cautious" producers, could be slightly under.

As such, he believes this may be the year to pull out the stops in the last three months. "Even if Milk Marque has a super-levy to pay, there should also be a threshold."

But Anthony is more circumspect. "The only way to really turn the taps on is to go for three-times- a-day milking," he says. "But this is disruptive to the cows and to the staff. It is only something we would do if we had the co-operation of our cowmen or had extra help from outside."

The Lees last did three-times- a-day milking in 1995, but gave it up when the cost of leasing in the extra milk quota became prohibitive.

The more likely scenario is to go for extra output by increasing feed. "We will be keeping a close eye on the national quota picture and will do what we can with what weve got," says Anthony.

Just keeping the livestock watered at Dowrich is a major operation for stockman Martin Friendship as pipes freeze solid in the biting easterly winds.

The cold snap has hit milk yields, putting the herd closer to quota.

Table 1: December milk statement

(for November deliveries)p/litre

Butterfat 4.63%at 2.49p a % =11.53

Protein 3.60%at 4.18p a % =15.05

Gross price =26.58

Call adjustment (-£67.50)-0.07

Volume adjustment(-£67.50)-0.07

Net price =26.44

NB No bonuses or penalties for Bactoscan, somatic cell count or seasonality.

Table 2: Volume-related pricing

(based on November deliveries)p/litre

Butterfat 4.63%at 2.54p a % =11.76

Protein 3.60%at 4.27p a % =15.37

Gross price =27.13

Average collection(litres/day) =3159

Average daily payment(3159 x 27.13p) =£857.00

Standard adjustment-£13.50

Every other daycollection bonus+£5.50


Net price (£849/dailylitres) =26.88

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