Leading Article: Sour taste of free market milk

Today's milk may taste no different, but yesterday marked a turning point in the history of British dairy farming. For the past 60 years, milk has been produced under a command economy of which Stalin would have been proud. Farmers have been forced to sell their milk to the Milk Marketing Board at uniform prices unrelated to quantity or geography; and customers, from cheese- makers to supermarkets, have had only one source of supply. Under arrangements approved yesterday by Gillian Shephard, Secretary of State for Agriculture, the MMB will now be abolished - and in theory the market will be free. In practice, the outcome will be less desirable.

The ideal way to introduce competition would have been to break up the board into five or more regional co-operatives. Like their counterparts at British Telecom and British Gas, MMB officials managed to quash that suggestion before it became a serious topic for discussion.

The Government has thus allowed the board to reincarnate itself from this November as Milk Marque, a voluntary national body that farmers can choose whether or not to join. Yet this successor to the MMB will be immensely powerful: thanks to farmers' conservatism and its own skilful marketing, the MMB's chief executive still hopes to handle 80 per cent of British milk.

The reason for this is not hard to discern. It was always intended that the assets of the old MMB would be divided up between its farmer-owners before abolition; but under the restructuring arrangements that Mrs Shephard has approved, farmers who decide to go their own way will not receive their share of the old board's assets (roughly pounds 1,000 per farmer) for two- and-a-half years. As a result, there is less capital around than there might be to set up co-operatives to compete with Milk Marque.

Milk Marque will also be in an unduly powerful position as a seller of milk. Instead of appointing an arbitrator or a regulator to prevent Milk Marque from abusing its dominant position, Mrs Shephard has decided to rely on the Office of Fair Trading and the European Commission. Yet the OFT is unable, and the Commission is unwilling, to intervene in the crucial months between now and November, when the market will be freed.

Mrs Shephard has probably calculated that her lack of nerve will do her no harm, since modest producer price rises need not force consumers to pay more for a pint of milk on the doorstep or in the supermarket. While the EU's Common Agricultural Policy keeps Britain in the absurd position of having to import 15 per cent of its milk, the market will always be distorted. But when supply and demand are given their head, the price of yesterday's decision will become clear.