Milk prices go sour – FWi REVIEW OF 1997

FACE=HELVETICA,ARIAL SIZE=”-1″>December, 1997

Compiled by FWi staff

THIS was the year of unprecedented cuts in
milk prices. By December, producers were receiving 5ppl less than they
were paid one year before. In theory, the cost of leasing quota should
have fallen by a similar amount to offset the reduction. But prices
remained high and dairy farmers had to tighten their belts.

JANUARY

• Genus claims UK dairy
  farmers are tied down by high quota costs which are a straight-jacket on
  the industry. “Deregulation was designed to create a more market-led
  environment, but instead it has held back those producers wishing to
  expand,” says product manager, Mark Woodall.

FEBRUARY

• Pressure mounts on
  milk prices after Milk Marque receives bids for just 75% of the daily
  14m litres it offers to the trade. The company is obliged to launch a
  second selling round at lower prices. Milk Marques average price will
  fall from 25.9ppl to just 23.8ppl, warns industry consultant Mike
  Bessey. Prices paid to non-MM members are likely to follow the downward
  drift, he says.

• Brokers claim that clean quota prices will rise
  as producers cover their excess production following a bungled
  announcement by the Intervention Board. IB officials put out the January
  production figures showing the UK was over quota, only to revise them
  two days later showing a continuing deficit.

MARCH

• Dairy companies begin pruning the price for direct supplies,
  after Milk Marque sees its rates to the trade drop by 2ppl in early
  March. Dairy Crest takes almost 3p off its standard litre from 25.68ppl
  to 22.70ppl. Other buyers also announce cuts. Northern Milk Partnership
  reduces prices by 1.9p to 22.80ppl.

• Unigate announces a
  “provisional” cut of 1.75ppl and says it will maintain its “Milk Marque
  Plus” premium of 0.8ppl until November.

• Milk producers claim
  the size of the reduction is way in excess of that justified by recent
  Green Pound reductions.

• Milk super-levy looks increasingly
  likely after figures show February production to be 5% over-quota.
  Cumulative output is now 20m over target.

APRIL

• Milk Marque announces
  a 2.5ppl milk-price cut. Farmers question the need for prices to fall at
  a time when EU butter and skimmed powder markets have been improving.
  But Sterlings strength has prevented UK traders from cashing in on the
  EU commodity market, counters a Milk Marque spokesman.

• Quota
  leasing prices kick off the new season in April at 9.5ppl. But as more
  cows are moved under the cull and milk price cuts begin to bite, 9ppl
  will become the norm, say agents.

MAY

• Estimates of the UK
  super-levy for 1996/7 are raised. Revisions to the Intervention Boards
  milk production estimate for March give an extra 7.8m litres after
  adjusting for butterfat. As such, the provisional super-levy increases
  from £16.5m to £18.6m.

JUNE

• EU farm commissioner,
  Franz Fischler, boosts the prospects for milk quotas when he rejects the
  need for “radical reform” in the dairy sector.

• Severe
  seasonality penalties start hitting milk producers, and prices fall into
  the “high teens.” Five companies, headed by Milk Marque, take 3ppl off
  their June milk cheques in an attempt to achieve a more level supply
  profile. Milk Marque members receive just 18ppl for a standard litre of
  milk.

JULY

• Milk Marque announces
  its prices to the trade for supplies from 1 October, with quotes between
  1.7 and 2.3ppl lower than those currently being paid. The falls will
  almost certainly lead to smaller milk cheques in the autumn as the co-op
  passes on lower returns to its members.

• Milk Marques market
  share slips to 46% as members turn to other buyers or go bust. Lastest
  figures show the companys milk sales were 6% down in 1996.

AUGUST

• MD Foods becomes the
  first major dairy company to tell its suppliers to expect a 1.5ppl
  price-cut in the autumn.

SEPTEMBER

• Milk Marque
  confirms it is knocking another 2p off milk prices this autumn, taking
  its standard price to just 20ppl. The drop takes the total fall during
  the year to 4.5ppl. The company blames the strength of Sterling which
  has forced down support prices by 20%. Other milk buyers are thought
  likely to follow the 2p price reduction.

• Dairy producers face a
  significant downturn in profits as milk price reductions begin to bite.
  Tom Kelly, director of consultants Axient, says profits on many farms
  could fall by as much as 65%. Nestle joins other companies in announcing
  a 2ppl milk-price cut.

OCTOBER

• The collapse in
  dairy farmer incomes continues, with three of the countrys largest
  processors announcing price drops. Unigate issues a new standard litre
  price of 20.3ppl with effect from November 1.

• Octobers milk
  cheques for September are the last before severe cuts begin to bite.
  Lower prices will inevitably lead to lower profits, warn consultants.

NOVEMBER/DECEMBER

• Quotas
  should be scrapped and support prices cut by 30% so farmers can compete
  on the world market, claims Peter Nash, MAFFs head of milk.

• 
  Dairy farmers should not expect to see any improvements in milk prices
  during 1998, warns Alan Wiseman, chairman of Robert Wiseman Dairies.

  
  

• Milk cheques arrive showing year-on-year deductions of 5ppl.