SUMMARY

5 March 1999




Big milk merger aiming to boost producer power

By Robert Harris

THE biggest milk group merger since deregulation will, subject to membership approval, create a new farmer-owned firm this month handling 850m litres a year.

Further, quick growth is planned to offset increasing power among milk buyers.

Five groups – Camelot, Somerset, Stour Vale, United Milk Producers and Wessex Milk – are asking members to vote later this month to approve the plan, and a favourable majority is expected.

This will create United Milk, a public limited company with 840 members in the southern half of England. Proximity to urban centres will allow it to concentrate on the liquid milk market.

"This is a necessary response to market developments which have resulted in a never-ending spiral of falling farm-gate prices and considerable uncertainty," says United Milk chairman, Richard Ashworth.

Existing milk groups are too small to afford the infrastructure and management needed to match processors, he maintains. "The weakest sector gets the smallest share." But partnership with buyers, rather than confrontation, is the aim, he adds.

Each groups assets will be transferred to the company in exchange for shares, creating £300,000 of resources. A further £900,000 will come from farmers in exchange for one member share of £250 and additional ordinary shares – an average of £1100 from each member.

"This will create a strong financial base, something milk groups have never had before," says finance director Richard Archer. "But it is only a starting point; there is full provision for other groups and individuals to join, and some are keen to join quickly."

Money could be used to fund a quota-holding operation; collecting and selling milk would lift negotiating strength and returns, says Mr Ashworth. A move into joint-venture processing may also be considered. &#42

General welcome from industry

Industry observers have generally welcomed the news. "As a first step United Milk will have a biggish hand in negotiating contracts," says John Sumner, policy adviser of the Royal Association of British Dairy Farmers. Holding quota will increase that power, and this could happen within a year, Mr Sumner believes. A move into processing would then be the next logical step, he says.

Jim Begg, of the Dairy Industry Federation, welcomes Mr Ashworths desire to build partnerships. "The DIF is keen to work with farmers to get the best from the industry. We need to end confrontation, and jointly address key consumer markets and the opportunities ahead."

"It is certainly a step in the right direction for farmers," says independent consultant Mike Bessey. "But we need to keep it in perspective. It is only controlling 6% of UK milk – the top six buyers control 80%." But given growth, United Milk could prove an important price setter alongside Milk Marque, he adds.

UNITEDMILKAIMS

&#8226 An influential marketing force.

&#8226 Countering processor rationalisation.

&#8226 Providing negotiating power.

&#8226 Boosting producer returns.

&#8226 Providing potential capital and share growth.

Welcome revival for oilseed rape price

OILSEED rape prices bounced up this week, recovering some of the earlier big losses.

The rally was welcomed by farmers with full barns – some trade sources say as much as 20% is still to be crushed – with some ex-farm old-crop quotes topping £115/t by Wednesday.

It follows a spell when, in tandem with the palm oil and soya market, rape plummeted to the lowest levels since the 1992/93 season, says Heike Hintze-Gharres of the HGCA.

"A worrying market," she says, with new-season quotes hitting a low of just £105/t. "No one expected them to go down that much."

According to Michael Stubbs of Soufflet, the increase was about £6 or £7/t in the seven days to Wednesday. And farmers with old-crop should now consider selling. "It could be wise to sell on this bounce," he reckons. "The fundamentals have not changed."

Ian Wallis of Cargill advises farmers selling in the season ahead to watch price movements closely. "There will be selling opportunities, perhaps after weather scares and currency-related movements." &#42

Riband wheat leaves C Holmes and Sons Kates Cabin Farm, Chesterton, near Peterborough. This load, part of a 200t lot, was sold into BDRs Jan-Mar grain pool. Malcolm Holmes is thankful for that – the £ was worth over k1.48 as FW went to press, a new high. Ex-farm feed wheat prices slipped by about £1.50/t as a result to average £71/t, cancelling out last weeks small recovery.

SUMMARY

United front… New milk group prepares

Members of five milk groups are being asked to approve a merger at the end of this month to create a company big enough to counter increasingly powerful buyers…………page 19

Weighty problem

Lorries can carry more grain this year. Ironically, some farmers haulage costs may rise due to unexpected penalties, especially on small contracts……..page 20

Seconds out…

Round two of Milk Marques latest attempts to sell milk to the trade, and the co-op has dropped indicative prices to try to stimulate more spirited bidding……………………page 20

French lesson?

Young farmers across the channel are pressing their government to cut interest rates further to encourage much-needed new blood into the industry, a similar call has been made in Wales……page 22

Poor price prospects

World prices for agricultural commodities may never fully recover from current lows; Asian economies may bounce back, but policy changes and better technology will maintain pressure on prices………page 23

Where theres muck…

A new contract to handle sewage cake has raised spirits at our adopted Welsh farm; the material has proved popular and demand is expected to rise……….page 24

Family affair

Ewes with lambs at foot are meeting a cautious trade at the first of this seasons sales..page 31


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