MMvolume down 8.5%

18 June 1999

EU dairy pressures may hasten reform

EU DAIRY markets are inherently unstable and pressures from a number of sources could lead to reform of the sector well before the 2005 start date set by heads of state at their Berlin summit last March.

Of immediate concern to UK producers was the additional milk quota allocated to Ireland under Agenda 2000, which kicks in next year, NFU president Ben Gill told this weeks Agra Europe dairy conference in London.

Given that Ireland is already 1000% self-sufficient in butter and 300% self-sufficient in cheese, and considering the strength of sterling, it was likely that the bulk of this extra production would end up in the UK.

EU-wide, the allocation of an extra 1.35bn litres of quota to certain states by 2002 could only add to the EUs supply problems.

Other pressures arose from the continued application of the last GATT agreement, which limited the EUs ability to use export subsidies to dispose of surplus dairy products, such as cheese (see graph).

The Russian crisis had also increased the amount of product looking for a home. "In 1997 around 30% of EU cheese exports and 38% of butter exports were sent to Russia. These have dropped dramatically," said Mr Gill.

Even before Agenda 2000 the commission had predicted rapidly expanding dairy stocks, he added.

Looking ahead, the next round of WTO talks were due to get under way in Seattle in November, with real pressure to increase market access and reduce export subsidies further, and have the whole thing wrapped up by 2003.

The last GATT round was largely a bilateral affair between the EU and US, said Mr Gill. "This time the Cairns Group of countries intends to play a bigger role."

EU enlargement could also raise the stakes for the dairy industry. Recent events in Serbia had increased the case for neighbouring Balkan states such as Croatia, Slovenia and Macedonia to join the EU, which in turn could accelerate the accession of Poland, Hungary and the Czech Republic. Poland alone would add 5m cows and 1m producers to the EU.

"All the signs are that there will be another reform of the CAP as early as 2002/03," said Mr Gill. Until then, the pressures on UK dairy producers would continue. &#42

Wensleydale expansion

WENSLEYDALE Creamery, the Yorkshire Dales dairy company specialising in traditional hand-made cheeses, is preparing for a £2m expansion.

The creamery, which was closed by former owners Dairy Crest in 1992 but subsequently saved by a management buyout, has submitted plans to the Yorkshire Dales National Park authority to triple capacity at its Gale Lane base.

The expansion would also allow the company, which currently employs over 100 people, to buy more milk from local farmers. &#42

Milk producers await report on deregulation

UK dairying is coming to the end of its "transition period", and publication of the Competition Commissions report in the next few weeks will mark a new beginning for the deregulated market.

Speaking at this weeks Agra Europe dairy conference in London, Milk Marque managing director, Paul Beswick, said that, unlike other industries, the dairy industry had gone from regulation to deregulation overnight.

"When we look back on the past five years we will look at it as the transition phase," he said. "The real change is in front of us now."

Trying to predict the outcome of the commissions inquiry was impossible, Mr Beswick added. "The report is leak proof."

But of the four options spelt out last October, changing the selling system was the most viable. A Northern Ireland-style monthly auction was not ideal, given that Milk Marque sold most of its milk on longer term contracts and faced more complex haulage logistics. One to one negotiations with customers, as occurred last January, would be better.

Breaking Milk Marque up into smaller groups was unnecessary, said Mr Beswick. Milk Marques share of GB supplies had slipped from 59% at Vesting day to just 39% now.

"From Jan 1 next year, the new Competition Act will bring us into line with Europe where a 40% market share is considered dominant," said Mr Beswick.

He stressed several times the need for Milk Marque to become even more customer focused and to throw away the politics of the past.

But farmers had to be allowed to work together and to process their milk, to make sure there was always a home for it.

This last point was contested by Jim Begg, director general of the Dairy Industry Federation. "We have no problems with a normal, Continental co-op situation, where farmers process their own milk. But its a very different thing when dairies have to buy their milk from a supplier which is also doing its own processing." &#42

MMvolume down 8.5%

MILK Marque has suffered an 8.5% fall in the number of litres marketed, as more members have either retired or been tempted away by other buyers.

According to managing director Paul Beswick volume fell from 6.37bn litres to just over 5.83bn litres in the year ending Mar 31. At the same time turnover also fell by 17% to £1.2bn, mainly as a result of lower milk prices.

Despite this, post-tax profits have improved and £17 million in total is being distributed between members. On top of the 0.25p/litre bonus paid this month, an extra 0.04p/litre will be distributed later, bringing the total bonus to 0.29p/litre. The average members price for 1998/99 was 18.33p/litre after adjustments.

During trading, £7million was shaven off distribution costs and a further £2million will follow.

To help boost prospects, Milk Marque will continue to pursue processing opportunities such as its investment in Aeron Valley Cheese and North Brandon Farm. This has put it in the top five cheese-makers in the country with a turnover of £18m.

&#8226 J Sainsbury this week dropped MD Foods as a milk provider. MD supplied 8% of its needs.

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