Commodities & Futures: Dairy industry wary about Milk Marketing Board's replacement

THE way milk is bought and sold in England and Wales is about to change.

Legislation going through Parliament will abolish the Milk Marketing Board, which for 60 years has controlled milk supplies and prices through a complicated scheme. The reform is the Government's overdue deregulation of the milk monopoly.

But there are concerns over the system with which the Government wants to replace it: a giant, equally monopolistic body called a 'voluntary co-operative'.

With their natural distrust of dairy companies, dairy farmers could feel compelled to join it and thus foil free-market forces after all. Yet farming peers in the House of Lords debate welcomed the plan as the old Milk Marketing Board by another name.

Dairy companies, represented by the Dairy Trade Federation, claim they are happy to see the old monopoly go. But they believe the new system, organised around one co-operative, will discourage competition and exacerbate Britain's structural milk shortages.

'It's a recipe for very high prices,' a spokesman said.

As the single co-op will control 80-90 per cent of milk output in England and Wales - a pounds 2.5bn a year business - the dairy trade wants other ideas considered and is urging public consultation. Dairy firms doubtless have their own interests at heart. But public consultation, including consumer groups, would be in everyone's interest.

The Monopolies and Mergers Commission, the competition watchdog, is unable by law to investigate the current system of buying and selling milk. However, developments in Scotland last week indicated that regulators will be scrutinising the new system with an eagle eye.

On Tuesday, the MMC recommended that the Government reject a proposed takeover (an area the MMC can probe) of the Cooperative Wholesale Society's milk business by the Scottish Milk Marketing Board, on the basis that the SMMB might abuse its large market share.

Barry Wilson, editor of the Dairy Industry Newsletter, said the MMC stance 'clearly indicates that the regulators are going to be taking a very close look at the deregulated milk industry'. Since the proposed new regime sounds suspiciously like the old, strict regulatory oversight is absolutely necessary at the least.

DIAMOND RUSH

Explorers hoping to get rich from the Canadian diamond rush received some reassurance last week when a survey by Dia Met/BHP, the joint venture that made the original discovery early this year, indicated potential for diamond-bearing deposits beyond those in the original find.

Discovery of diamonds in the Lac de Gras area in the remote Northwest Territories sparked the largest land rush in Canadian history, as small exploration ventures and international mining giants rushed to stake claims.

But after the initial euphoria, the search took an embarrassing turn. A Canadian mining group admitted last month that two out of five microdiamonds it claimed to have found in the Lac de Gras region actually came from a drill bit, and were not natural stones.

The boo-boo immediately caused shares in junior diamond mining companies to drop on the Toronto and Vancouver stock exchanges; they lost up to 30 per cent of their value in a day.

However, last week's survey should encourage investors and companies like the world's biggest diamond group, South Africa's De Beers, which has staked 4 million acres in the area.

The Dia Met/BHP report said that of 500 diamonds in its samples, almost 25 per cent were over 0.5mm in diameter.

BHP, Australia's Broken Hill Pty, is warning that it could be some time before the deposits could prove to be commercial. Steve Oke, an analyst at the brokers Smith New Court in London, also takes a cautious view; he says it could be years before the exploration becomes economic.

Dia Met shares last October were trading at about Cdollars 1, but after the discovery shot up to dollars 25.