Super-levy on cards as milk production still exceeds quota

13 March 1998

Super-levy on cards as milk production still exceeds quota

By Robert Harris

MILK super-levy now looks a certainty as production continues to exceed quota, and it could be at least double last years £13m bill.

February butterfat-adjusted production was 10.2m litres (0.96%) over quota, according to latest figures from the Interven-tion Board.

Cumulative butterfat-adjusted deliveries for the quota year are now running over quota by the same percentage, the equivalent of 122.5m litres.

However, provisional IB figures show that producers have converted 15.5m litres of their allowance from direct to wholesale quota. That would pull down the surplus to 107m litres.

Temporary conversion could more than cancel that out. Although actual figures wont be known until July, the IBs Ruth Tompkins reckons the recent trend for a move from wholesale to direct quota is likely.

"We could be looking at being 130m litres over quota," says Mrs Tompkins. With levy at 25.53p/ litre, that would mean a super-levy bill of £33m.

However milk producers are likely to stem the flow somewhat.

"Some producers have been trying hard to cut back, but the mild weather has not helped," says Tony Knowles of broker Carver Knowles.

Sharp cutbacks have been seen in previous years during the last month. "Even so a figure of about 100m litres over quota is a likely outcome this year."

Those looking to fine-tune quota will find prices falling due to a likely 1.5-2p/litre cut in milk price following the Milk Marques latest selling round. Base (used) quota price has eased to 35p/litre, making clean quota worth about 54p/litre, says Mr Knowles.

That price is likely to drop further. "The differential between unused and used quota will have to be reduced by about 5p/litre before it is sensible to purchase unused quota as an alternative to non-delivery," says Townsends Mark Dyson.

He estimates buying unused quota would cost producers more than 20p for each surplus litre. Paying the super-levy would only cost 19.65p/litre assuming basic rate tax allowances (4.3p less at 40% tax), 4% butterfat adjusted wholesale production and 4% butterfat quota. Non-delivery costs about 15.4p/litre.

Back-to-back exchanges are not allowable against income tax, but cost just 13.5-14p/litre plus about 1p agents fee. Hard-to-find cohort leasing costs 18p/litre but is tax-deductible, resulting in a net loss of just under 14p/litre.

See more