THE Government's plan to deregulate the milk industry in England and

Wales was thrown into turmoil yesterday after the Dairy Trade Federation

called for a judicial review over what it described as the mishandling

of deregulation.

That was after two of Britain's biggest milk companies, Northern Foods

and Unigate, warned that prices would increase -- perhaps by as much as

10% in England and Wales -- after the break-up of the Milk Marketing

Board on October 31 and its replacement by Milk Marque on November 1.

Then the 30,000 British dairy farmers will be able to sell their milk

where they wish.

Northern Foods chairman Chris Haskins said that the cost of increased

milk prices would be #50m a year for its approximately 35% share of the

English and Welsh milk markets. Apart from doorstep deliveries, its

brands include Express and Eden Vale processed milk as well as several

supermarket own-labels and that of Marks & Spencer.

Some of the increased costs would be passed on to customers but a

significant proportion would not be recoverable. Milk prices under

arbitration rose [1/2]p a litre from July 1 but have not yet been

recovered by the dairy companies.

To claw back the full impact of higher costs on doorstep deliveries

would require 2p a pint in England and Wales but, with that sector

seeing volume falling by 12% annually, any further price change would

only widen the differential with what is charged in supermarkets even if

there was some upward adjustment there.

Dried milk prices will not be raised because of the surplus capacity

on the Continent. However, there will be some upward movement in yogurts

where manufacturing costs have risen 12%, and this will probably be

reflected throughout the whole of Britain.

Altogether, Northern expects that it will see #15m knocked off profits

for the current year or about 10% of last year's pre-tax total of #157m.

That is made up of #23m of increased costs offset by some clawback and

#2m of exceptional costs on its Coldstream farm milk collection

business.

Likewise, Unigate will bear a charge of about #10m for its 25% or so

market share -- it would not reveal how much was actually involved. That

is also about 10% of its #102m profit last year.

The break-up of the MMB will allow farmers to sell milk to the highest

bidder. Already prices in Scotland have been bid up by English buyers at

auction.

Northern has managed to arrange for some 35% of its supplies to be

bought through its Northern Milk partnership with farmers under

contract, but it has been forced to sign up with Milk Marque for the

remaining 65%.

The concern is that buyers will face the problems of dealing with a

monopoly supplier with the attendant threats to jobs through reduced

profitability as well as sucking in dairy imports at an even greater

rate than at present from Europe.

The Dairy Trade Federation claimed that Milk Marque could force up

prices to make them the most expensive in Europe.

Asda's trading director Tony Campbell said that he would have to look

overseas for cheaper products unless the Government acted to stop

arbitrary price increases being introduced by Milk Marque.

Inevitably prices in Scotland must move towards those being achieved

in England, particularly as the industry overall is now short of

capacity.

Milk Marque is expecting to float its Dairy Crest activities, probably

best known for Clover spread, for a price of perhaps #250m.

Northern shares fell 7p to 216p and Unigate eased 3p to 374p, while

those of Scotland's Robert Wiseman were just 1p down at 99p. The latter

is trying to by-pass the Scottish Milk Marketing Board by dealing

directly with suppliers.