Review of 1997 Milk

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.