MILK MARKETING BOARD: Dairies alarmed by free market for their product: Abolition of an institution prompts fears of thousands of job losses and an increase in price of a pinta

MARKET forces will not stampede Herd YZ507 in November. All 90 Friesians are contracted to Milk Marque, the putative farmers' co-operative, which anticipates signing up four out of five British udders by the time the market for milk is deregulated, writes Jonathan Foster.

The Government-expected abolition in November of the state-owned Milk Marketing Board would encourage competition, but conservative instincts of farmers such as Peter Mosley rejected attractive direct deals with dairies.

Mr Mosley, whose family run Bingley House farm in the Rivelin valley, west of Sheffield, finds safety in the numbers remaining loyal to the old board's successor, Milk Marque. 'An individual farm like ours can't negotiate fairly with a multi-national corporation,' Mr Mosley said.

'You need strength in price negotiations. If we did deal with an individual dairy, how long would it stay in business?'

The familiar Milk Marque has offered less in the imminent new market for the Mosleys' milk than dairy conglomerates like Northern Foods. But most small to medium-sized producers supplying northern conurbations have chosen to forgo the extra 0.7p per litre on offer.

'I think it would be just a short-term advantage. We've been to a lot of meetings, and it is difficult to know who to trust. Better the devil you know,' Mr Mosley said.

The Milk Marketing Board endured almost constant criticism during its 60-year history, but farmers like the Mosleys relied on the Board's reliable, regular service.

Tankers arrived promptly to collect milk, cheques arrived promptly each month. And memories on family-owned farms are long enough to recall times when farms were at the mercy of individual dairies.

The Government's milk market for the 1990s was supposed to enable large companies such as Northern Foods to secure their supplies directly from the farms, eliminating the middleman between milking shed and the creamery.

Instead, Northern Foods will need to buy about one-third of its supply from Milk Marque, and it will no longer enjoy priority. The dairy industry predicts higher prices and fewer jobs, but the farmers are sceptical.

European production quotas, which have created a shortage, are the fulcrum of price, farmers say. Their commitment in droves to Milk Marque has turned the Government's reforms on their head.

'Rigid pricing systems have gone, and it will be easier for farmers to move into dairying themselves,' Mr Mosley said.

Much of Bingley House farm's milk goes via its own bottling plant to doorstep deliveries in suburban Sheffield.

After November, the Mosleys will no longer pay a levy on their own bottling, but they will retain through the deal with Milk Marque guaranteed sales of the surplus.

'We should be able to make a little more,' Mr Mosley said. 'Small and independent creameries and cheese-makers should also be better off, and the big companies will not have farmers at their beck and call.

'I think what they're frightened of is competition,' he added.

FOR 61 years, amid variable weather and changing governments, the one thing dairy farmers have usually been able to rely upon is the Milk Marketing Board tanker turning up to collect their produce.

They had to sell to the board but at least they knew what price they would get. It provided stability in an unstable world but in November this relic of the command economy will be abolished.

The board will transform itself into Milk Marque which will dominate the market but will have to compete against dairy companies and smaller farmer-run businesses to buy milk. In theory, the free market will have arrived.

This has produced howls of protest from the Dairy Trade Federation, which represents companies that buy 97 per cent of Britain's raw milk. It says that the move could increase the price of a pint of milk by 3p and raise cheese prices by 18 per cent.

Factory closures could lead to the loss of thousands of the 70,000 jobs in the pounds 7bn British dairy industry, according to the federation, which is asking for a judicial review, and for the Monopolies and Mergers Commission to investigate.

It is angry because Milk Marque has already signed up 65 per cent of the 30,000 dairy farmers in England and Wales and says that a regulated state monopoly is being replaced by an unregulated effective monopoly.

Many farmers were quite happy with the old system, but the Government replaced it partly for ideological reasons and partly because, increasingly, the board had become out of date.

A cosy regulated system such as the MMB was always unlikely to survive under a government which has made deregulation a central article of faith. The only surprising thing is that it has lasted so long.

But the board, introduced in 1933 partly to protect farmers from the dairy companies, was also increasingly out of step with the real world and, in particular, with the problems caused by European Union milk quotas.

Quotas are based on EU-wide milk production, not national output. Britain's quota, first imposed in 1984, does not allow it to produce enough milk to satisfy domestic consumption. It is not profitable enough to make it worthwhile to import more from the Continent.

At the same time, milk has been sold to some dairy companies under a price formula known as the Common Approach to Financial Information (CAFTI), which gave the manufacturers of butter and cheese a guaranteed average profit.

This was calculated by subtracting the average manufacturing cost from market prices, which encouraged processors to keep inefficient plant open. This reduced the price they had to pay for their milk by increasing the cost of production.

All this has led to a situation in which British milk prices have remained among the lowest in Europe while simultaneously we have suffered from a milk shortage and some processors have been unable to buy enough because of CAFTI.

In the late 1980s, the Government decided this increasingly unreal situation needed sorting out. It gave the board the job of replacing itself because the system is so complicated that not many other people understand it.

It was always predictable that the dairy companies would complain. But other cynics are saying that the effect of the reform, as with some other parts of the Government's deregulation strategy, will be higher prices without genuine competition.

(Photograph omitted)