Commodities: Big milkshake brings a sour reaction

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The Independent Online
IS MILK delivered to your front doorstep every morning? For those who don't have much time to shop, having enough fresh milk for your morning tea or coffee every day could be near the top of your list of 'necessary' luxuries.

But a luxury it is. For the supermarket price wars are rapidly forcing down the cost of milk on the high street. The price gap is widening almost weekly between your doorstep pint, at around 36p, and a pint of milk from a supermarket, which now costs as little as 21p.

Even the most devoted believers in doorstep delivery are questioning their allegiance to a habit that is costing their household an average pounds 131 more a year than if they bought milk at the supermarket.

At the end of last year doorstep milk delivery was equal to about 60 per cent of Britain's liquid milk consumption, a steep decline from 80 per cent in 1986. The amount of milk delivered is falling steadily this year too, worrying small dairies whose profits depend on it.

But what will happen to consumer milk prices and the future of doorstep delivery after this year is up in the air. It is just one of the issue at stake in the controversial shake-up of the dairy industry slated for April.

Today ends the consultation period for the Government's proposals to open up the UK milk market, considered by some as 'one of the most tightly controlled monopolies of all time', to competition.

The Government's plans involve abolishing the milk marketing boards in England and Wales, Scotland and Northern Ireland to which farmers have been forced to sell their milk for 60 years.

Few will shed tears for the old system, criticised for bringing low prices to farmers relative to their European counterparts, encouraging production of low-value dairy products which are least popular with consumers - such as skim milk powder and butter - and pushing up retail dairy prices.

The milk marketing boards have been charged with effectively creating a monopoly with the Dairy Trade Federation, the industry body, so that big dairy companies have remained profitable without modernising their factories to meet changes in public demand or scrapping idle capacity.

But that is not the extent of the British milk market's quirks and inefficiencies. Despite having plentiful production capacity and abundant grazing land, the country is not self-sufficient and must import 15 per cent of its dairy needs to meet annual domestic consumption.

Structural processing limitations, which mean dairies are not geared up to produce the popular yoghurt and fromage frais in the quantities consumers are demanding, and EU milk quotas have added to the distortions.

Farmers, generally a conservative bunch, may dread being left in the cold after having a milk marketing board tanker collecting their output every day for decades.

But they believe the system of marketing boards - which involves formula pricing (another word for price setting) and priority allocation of milk to powerful dairies during seasonal shortages - has disadvantaged them and benefited the dairies. 'Someone in the industry has been making money and it sure as hell isn't the producer,' says Mark Thomas, milk adviser at the National Farmers' Union.

The Government proposes to correct this by replacing the boards with a voluntary co-operative called Milk Marque, which will provide farmers with a higher price for their milk. It hopes to sign up most of Britain's 29,000 dairy farmers and retain more than 80 per cent of milk production in England and Wales, which it will then sell to dairy companies.

But the dairy trade is afraid that, as proposed, Milk Marque will be an unregulated 'son of MMB' which would deal them out. The Dairy Trade Federation wants the Government's proposals altered.

Individual dairies - such as Northern Foods, which makes Ski yoghurt, Nestle and Unigate - are openly challenging Milk Marque and plan to buy milk direct from farmers through their own co-operatives. Northern Milk Partnership is promising farmers higher prices than Milk Marque.

Northern has claimed that, as proposed, Milk Marque would cause consumers to pay up to 15 per cent more for their milk after April. If farmers are getting more for their milk, processors are likely to pass the increase on to retailers and this will raise prices on the supermarket shelf.

But no one is sure. The supermarkets will continue to battle over prices and may be determined to keep an edge on the competition in milk and other staples. That can only be good for shoppers.

One thing is certain. If Milk Marque attempted to abuse its market power, dairy companies and farmers would rush to complain to the Office of Fair Trading.

Stephen Locke, policy director for the Consumers' Association, says that the effect on retail prices will only become clear after reorganisation and urges regular reviews of the system.

'We believe that this is an area where competition can and should be made to work in the consumers' interest,' he says.

Let's hope it doesn't turn out like water privatisation has.

(Photograph omitted)

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