Milk cuts raise Labour hackles

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The Independent Online

Deputy City Editor

A political row blew up yesterday after Unigate, Britain's second-biggest milkman, said it was laying off 2,000 staff in response to the rising cost of milk and increasing competition from supermarkets. The cuts, the latest move in a radical shake-up of the milk industry, follow 2,200 job losses from rival Northern Foods in March.

Gavin Strang, Labour agriculture spokesman, said: "The Tory government's deregulation of the milk industry has pushed up prices and destroyed jobs. It is a scandal that political dogma should be allowed to damage our industry with such disastrous results."

Changes to milk marketing arrangements last year have led to a sharp increase in the price farmers are able to charge milk wholesalers to guarantee supply.

Unigate took a pounds 58.3m charge to pay for the restructuring, leading to halved profits for the year to March. Closing two bottling plants has already cost 500 jobs and 1,500 more redundancies have been pencilled in for the next three years, bringing the demise of the traditional milk round a step closer.

Ross Buckland, chief executive, called for changes to the UK's system of milk wholesaling as he spelled out measures to reduce Unigate's milk bottling capacity by 40 per cent. He repeated his claim that replacing the Milk Marketing Board last November with Milk Marque had simply created an "unregulated monopolist".

Since the introduction of Milk Marque, a voluntary farmers' co-operative, the cost of milk to Unigate has risen 11 per cent as buyers have paid to ensure supply, adding pounds 40m to the company's costs in a full year.

Mr Buckland said, however, that Unigate remained committed to doorstep deliveries, in contrast to Chris Haskins, chief executive of Northern Foods, who warned in March that the company might abandon home delivery.

Early-morning deliveries have been in rapid decline for several years as shoppers become increasingly unwilling to pay as much as 50 per cent more for doorstep milk than the supermarkets charge. A pint of milk delivered in London costs 41p, compared with 26p in shops.

Mr Buckland said Unigate was working on the assumption that higher-margin doorstep deliveries would account for only 25 per cent of its milk business within three years, compared with 44 per cent currently. Only five years ago, almost two-thirds of British milk was delivered.

He accused the large supermarket chains of using milk as a loss leader, selling it at little or no profit as a way of attracting shoppers into stores.

Problems in dairy products took the shine off otherwise good results from Unigate's European food operations. Fresh Foods, which includes the Malton bacon business and two recent French acquisitions, saw profits rise 29 per cent.

Elsewhere, however, the group faced tight margins in distribution and continued problems at a chain of US restaurants which Unigate is looking to sell.

Before the exceptional charge, operating profits edged up from pounds 105.2m to pounds 107.3m. Pre-exceptional earnings per share were 36.8p (35.4p), leaving the final dividend of 18.2p, up 5 per cent, twice covered.

Investment Column, page 22