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Milk prices in a deregulated market

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Abstract:

Purpose ‐ When the UK's Milk Marketing Boards (MMB) were disbanded in 1994 the formal link between the farm gate milk price with the milk's end-use was broken. The purpose of this paper is to examine whether milk prices fell to their "marginal value in the least remunerative use" or whether "the market had put in place some other mechanism for raising the price upwards". Design/methodology/approach ‐ An on-line survey of UK milk producers, open to all, conducted in the summer of 2008, explored farmers' knowledge of their milk contract, the use of their milk, and the reasons for choosing their current milk buyer. Findings ‐ A liquid milk price premium (of 1.06ppl.) was earned by farmers who: sold on liquid milk contracts to processors, rather than to one of the three large farmer-owned co-operatives; and who recently switched milk buyer. Switching incurred high transaction costs, additional uncertainty, and went against commitments to the co-operative ideal. Practical implications ‐ Publication of differences between a buyer's milk price and a benchmark related to how the milk is processed, (a D-score), cumulative difference values (D_C), 12 and 24 monthly moving average difference measures (D_MA12 and D_MA24 respectively) alongside milk buyers' milk price would improved supply chain transparency, and lower farmers' switching costs. It would also help farmers to treat their milk's final markets, rather than their milk buyer, as their customers. Originality/value ‐ The paper puts forward practical suggestions that have never been discussed by the UK supply chain, even though they would have direct and indirect benefits to the actors involved.
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