Outlook: Milk Marque

Outlook: Milk Marque

AS A BREED, farmers are a bolshy lot and what with plummeting livestock prices, the BSE debacle and continuing attempts to ban fox hunting, they are feeling more hard done by and sorry for themselves than ever right now. Which is possibly why the Government has been delaying publication of the Competition Commission's report on the supply of milk - delivered to ministers more than three months ago - until after the European elections are safely in the bag. At more than 1,000 pages, this is a real door stopper of a report, the longest one ever, so a more innocent explanation could be that Stephen Byers, the Trade and Industry Secretary, is simply struggling to get through it.

Either way, an announcement is promised finally within the next week or two. To some extent, we already know what it is going to be, for ministers have been careful to stress in recent weeks that farmers are to be allowed to "add value" to their raw material and get "closer to the consumer". In plain English what this means is that they will be able to undertake milk processing for the mass market (into butter, cheese, yogurt etc) and distribution of the resulting products direct to the big national retailers, thereby gaining access to the full margin on their milk.

This is an odd reversal of the present trend in competition policy, which is strongly against vertical integration of this sort, but then the Government has to arm itself with something positive to throw at the beleaguered farming community.

In other respects the report is likely to be quite hostile to farming interests, recommending the enforced breakup of their present monopoly supplier, Milk Marque. This is an inevitable quid pro quo for allowing farmers into the "value added" chain, for it would plainly be highly anti- competitive for a monopoly supplier like Milk Marque, with more than 55 per cent of the market, to have its own processing facilities; the temptation to disadvantage the rest of the processing industry and fix prices would be too much to resist.

The question is whether this amounts to a reasonable compromise solution, or whether it is just another kick in the proverbial for the poor old diary farmer. The answer has to be more of the former than the latter. Monopolies are bad for the consumer (as well as ultimately for the industries they dominate), wherever they exist, and the fact that the Milk Marque monopoly is there to serve countryside interests should not absolve it from this ancient truism.

It ought to be said, of course, that with milk production and prices determined by tradable quotas, dairy farming cannot in any way be described as an industry which conforms to normal market practice. Even so, to allow Milk Marque as it presently stands to enter the processing industry would seriously disadvantage established processers, who incidentally employ far more people than dairy farmers. On the other hand, smaller farming cooperatives that produce and market their own processed foods may be quite good for competition. So, a reasonable compromise? Yes, probably.

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