Our milk: - What will happen to it? - Who stands to gain? - What will it cost?

A DISPUTE has broken out in the milk industry over the introduction of a new market structure which, it has been claimed, will add 2p to the price of a doorstep pint.

The Government has given permission for the Milk Marketing Board, a statutory body, to transform itself into Milk Marque, a farmers' co-operative, as part of a deregulation process.

The dairy companies say however that the proposals will add millions of pounds to their costs, force prices up, and lead to plants closing with the loss of thousands of jobs.

The Dairy Trade Federation said last week that it would seek a judicial review of the Government's handling of the reforms. It also wants the Monopolies and Mergers Commission to investigate.

How big is the industry?

The UK trade in dairy products is pounds 7bn a year and about 114,000 people are employed, including more than 35,200 milkmen. The industry now produces almost 15 billion litres of milk annually, and at the last count each household consumed an average of just over a litre a day. Per head, the amount is four times that a century ago.

How does my milk get from

the cow to the doorstep?

Dairy farmers are still independent. They farm for themselves in the way they have always have done. However, these days farms are sophisticated and highly mechanised. They sell their milk via the Milk Marketing Board to the dairies, which, after cleaning and testing it thoroughly, either bottle or package it for sale to the customer. Most of the milk is sold in liquid form, either directly to households through doorstep deliveries, or to supermarkets. Alternatively, it can be used to make other dairy products such as butter and cheese.

What are these organisations and what do they do?

The two main industry bodies are the Milk Marketing Board (MMB) and the Dairy Trade Federation (DTF). The MMB acts as an intermediary between the farmers and the dairies. It buys nearly all milk produced by British farmers and resells it to the dairies at a price it has negotiated with the DTF, which represents dairies. Milk Marque will take over from the MMB on 1 November.

How do the MMB and Milk Marque differ?

The reforms are intended to increase competition in the market. The MMB is a monopoly, set up by the government 61 years ago to maintain sole control over the sale of milk. It therefore has no competitors. Milk Marque is an independent co-operative owned by the farmers. Again, it will buy milk from the farmers for resale to the dairies, but it can be challenged by other buyers offering the farmers a better price. It will be streamlined but most of its staff will be ex-MMB, and it will be headed by the same man, Andrew Dare. Although it is open to competition, it has already received notice from farmers supplying 65 per cent of the country's milk that they will patronise it. In many respects, the two organisations will operate identically. However, Milk Marque, rather than agreeing prices during negotiations with the DTF, has set them by talking directly to individual customers.

Why should

prices rise?

Milk Marque has effectively carried out an auction. In preparing for its November launch, it approached individual dairies and asked them how much milk they would be prepared to buy at certain prices. It found that the prices initially suggested produced demand which was far higher than supply. Since it could get a better price, it asked for one, but again found itself with too much demand. It increased the price again, but found that this time demand equalled supply. The price at which it settled was higher than the price previously negotiated by the two parties. Therefore, Milk Marque will sell to the dairies at a higher price than the MMB does. The dairies claim that they cannot simply absorb this increased cost, and are threatening to pass the price rises on to the public.

By how much will they rise?

There is a series of prices rather than a single one. They differ according to whether the milk is to be resold in liquid form or made into other dairy products. Typically, of 36p paid for the doorstep pint, 14p goes to the milkman, 7.2p to the dairy, 2p to the MMB, and 12.8p to the farmer. In the supermarket, a price of 25p is split similarly except that the retailer takes just 3p. Analysts say the changes will see the price of liquid milk rise about 5 per cent and that of butter and cheese by 18 per cent.

Who are the winners

and losers?

The winners are the farmers, who get a better price for their produce. The losers are the dairies. Unigate and Northern Foods, two of the industry's giants, say the changes will cost them a combined total of pounds 100m. Whether the consumer loses or not depends on whether the dairies decide to pass on the cost.

(Photograph omitted)