COMMENT:The real reason the milkman's time is up

"The milk round may be a great British institution. But it will only be preserved if consumers choose to pay higher prices to keep it."

William Waldegrave, the agriculture secretary, was talking party political rubbish when he blamed bad management at Northern Foods for the company's problems. Chris Haskins is a good manager, but he does have the rare distinction among public company chairmen of being an openly committed Labour supporter. That makes him fair game for a Tory minister.

Unfortunately, Mr Haskins was also talking a certain amount of rubbish himself, in blaming job losses and the death of the milkman and the corner store on Milk Marque, the farmers' co-operative that last year replaced the old Milk Marketing Board.

It is true that Milk Marque is an unregulated monopoly with 70 per cent of the market, operating in a business hamstrung by the Common Agricultural Policy, whose milk quotas restrict UK farmers to supplying no more than 85 per cent of the market. This produces an institutionalised shortage that distorts the market in fresh milk and milk products, and cries out for utility-style price regulation to protect consumers.

The Government rejected the idea of a regulator during consultations on the new organisation, claiming milk prices would fall when Milk Marque started selling last November. But it was wrong. Instead, Milk Marque's aggressive pricing policy has led to an increase of up to 20 per cent in the cost of milk supplies for making butter, cheese and yoghurt and of at least 5 per cent for fresh milk. The dairy industry has quite rightly complained to the Office of Fair Trading and the Brussels competition authorities.

There is no doubt that Milk Marque has added to the cost pressures on food manufacturers. That in turn exacerbates rationalisation and job losses. But it is also quite clear that these trends were well under way, and were bound to continue whatever happened to the price of milk.

Northern admirably clung to the idea of preserving milk rounds and corner shop deliveries at high levels longer than most of its competitors. To some extent the latest restructuring is a catch-up, and is all the more dramatic because it has been delayed.

The milk round and the corner store have in reality been declining because of tough price competition from supermarkets. In both fresh milk and milk products, the huge buying power of Sainsbury's, Safeway and the other large chains is the real driving force behind the changes in the industry and the squeeze on manufacturers. Dropping the milk price a notch or two would do nothing to alleviate this pressure.

The milk round may be a great British institution. But it will only be preserved if consumers choose to pay higher prices to keep it. Alternatively milkmen must learn some new tricks. Your average milkman is hardly the world's best salesman, and his product range is expensive and distinctly limited. What he does have, however, is a direct relationship with the consumer, something which many businesses would pay to exploit.

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