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.
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