Prices to rise in milk shake-up: Float of Dairy Crest will mean a bonanza for farmers as marketing board is broken up

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The price of a pinta is poised to rise following the Government's approval of plans to break up the Milk Marketing Board, which has controlled the supply of milk for 60 years.

Gillian Shephard, Agriculture Minister, said she saw no reason for the price of milk to go up. But Andrew Dare, chief executive of Milk Marque - the successor to the MMB which is expected to be responsible for selling 80 per cent of milk production in England and Wales - said he expected a slight increase.

'But I do not think it will be miles beyond the rate of inflation (currently 2.6 per cent)', he said.

That echoed the view of Ross Buckland, chief executive of Unigate - which buys 14 per cent of milk production - earlier this week. He expected price rises to be below 10 per cent, and he hoped the increase would be temporary.

The reforms will, however, mean a bonanza for farmers. They will be given free shares in Dairy Crest, the MMB's milk processing and manufacturing company, which is due to be floated off later this year. The number will depend on their milk production in the year to April 1993.

Dairy Crest could be valued at pounds 250m which, after the cost of the float and the pounds 39m to be retained for establishing the new system, could give each farmer an average of about pounds 7,000.

They will also be given certificates of entitlement to Milk Marque, which could be worth a further pounds 1,000 each.

Under the present system, the 29,000 farmers in England and Wales have to sell all their 11 billion litres of milk to the MMB at a current average price of about 22.5p a litre. The MMB then sells the milk on to dairies and food manufacturers. Selling prices are negotiated between the MMB and the Dairy Trade Federation, which represents purchasers, and will vary depending on the end use.

The MMB has to give priority to milk for drinking so when production is low it takes supplies from cheese and butter makers to ensure the liquid market gets enough.

Under the reforms agreed by the Government yesterday, from 1 November farmers will be allowed to sell to anyone, while dairy companies will be allowed to buy direct from farms. The price will be negotiated between buyers and sellers, and there will be no requirement to satisfy the liquid market. But Milk Marque will set its prices and contracts depending on whether customers want a guaranteed supply, or are prepared to take less if required.

Approval of the scheme will set off a rush to sign up farmers by Milk Marque, dairy companies and farming co-operatives. Northern Foods, Britain's largest milk supplier, is asking farmers to join the Northern Milk Partnership, which it hopes will supply a large part of its 2 billion litre annual requirement. And it is guaranteeing to pay a premium over the price offered by Milk Marque.

Milk Marque, however, has already signed up half the farmers - although it is allowing a 14-day cooling off period in case they want to change their minds - and hopes eventually to sign contracts with between 75 and 80 per cent of milk producers.

That has angered dairy companies, which believe the MMB is simply being replaced by another monopoly, but with no safeguards to prevent Milk Marque abusing its position. At the moment, either the MMB or the Dairy Trade Federation can call in an arbitrator in pricing disputes but the new regime will have no such controls.

The dairy industry says that is untenable when European quotas mean that Britain can produce only 85 per cent of its annual requirement. 'We think it is quite unacceptable to approve a private monopoly, which says it is to control 70 to 80 per cent of the milk market, when the market itself is undersupplied,' said John Price, director general of the DTF.

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