New dairy co-ops sound warning over milk price
By Robert Harris
TALKS between the three new regional dairy co-ops and processors gathered pace this week, with both sides hoping to lay fresh foundations for trading milk.
The new boards of Zenith, Central Milk and Meadow Fresh, the independent bodies replacing Milk Marque, face a tight timetable. Each has to sell about 1.6bn litres of milk a year, supplied by 4000 members, starting in January.
All want to better MMs standard litre price of 17p/litre. But all agree, in the short-term at least, that it will be difficult.
The intervention milk price equivalent, used as a base in recent MM selling rounds, has fallen from about 18p/litre during the last selling round to 17.3p now.
If that remains the case in January, Ian Watson, northern co-op Zenith Milks chairman, admits it will be a struggle to maintain prices, let alone increase them. "The IMPE will be the starting point for dairies," he says. "We have got to try and encourage them to pay more."
One-to-one discussions are the most likely selling vehicle. But while improved service may help secure a better price, processors must also appreciate farmers problems, he adds.
"Companies must realise we need a sustainable industry to move forward. We could reach the situation where more people are leaving than the remainder can compensate for, leaving the UK short of milk."
Poul Christensen, chairman of Central Milk, also favours face-to-face talks when selling milk. "But we have got to be realistic. It will be tough. Although customers will still try to drive prices down, we expect to establish new standards of service to meet their demands."
Dairy Crest chief executive John Houliston says an immediate improvement in milk prices is unlikely. "But I think we now have an excellent chance to work together in a co-operative way to build up our businesses."
Express chief executive Neil Davidson believes the end of the MM selling rounds should eliminate uncertainty for the companys ingredients business and enhance its prospects.
Given that ingredients equals commodities, this suggests a bleak outlook. Indeed, Mr Davidson has said that, with no sign of the £ coming down, milk prices are unlikely to rise in the next three years.
Longer term, the co-ops favour adding value through processing. But it is too early for details, says Mr Christensen.
"Ever since I became chairman of Milk Marque, I believed the way forward was through joint ventures. It wasnt to be. But all the impediments are now out of the way."
And there could be significant sums to come from MM. It expects to clear its debts and pay out the full value of members preference shares, worth £28m, and a further £2.9m of certificates of entitlement.
Add on deferred year end payments of £6.3m, and each co-op could receive over £12m, if members pass on the money.