Commentary: Milk market smelling sour

The decision to refer a small dairy acquisition in Scotland to the Monopolies and Mergers Commission is a good start, but it does not go far enough. If ever there were an entire industry crying out for examination it is the market for fresh milk.

The industry is hideously complicated, governed by European Community quotas, riddled with restrictions and overseen by the milk marketing boards - statutory monopolies that buy all the raw milk produced by Britain's dairy farmers. That alone means that it deserves more than casual scrutiny on behalf of consumers.

The British pinta is curiously expensive. Our wet climate is ideal. Our huge consumption yields real scale economies. Yet milk is more expensive than in Germany, Denmark, the Netherlands, Belgium and Greece.

The industry has seen massive concentration in recent years, with some companies like Northern Foods lapping up small regional dairies. The big supermarkets sell more and more milk, threatening the survival of doorstep-delivered milk.

There is further upheaval ahead. The Government plans to dismantle the milk boards, converting them to voluntary co-operatives. In some cases they will shed their downstream processing activities. The future of the industry is up for grabs.

The Office of Fair Trading recently won undertakings from seven large dairy companies that they would not engage in restrictive practices. But it is limited in its ability to investigate local monopolies. One solution would be an industry-wide investigation, like recent inquiries into beer and credit cards.

The milk boards are peculiar old cudsters that should have been put down years ago. But without the intervention of the MMC it is hard to believe the farmers, supermarket giants and Ministry of Agriculture will come up with a better animal.