§ Sir Peter Mills
asked the Minister of Agriculture, Fisheries and Food whether he has completed his autumn review of liquid milk prices.
§ Mr. Peter Walker
I have now completed the annual autumn review of conditions in the dairy industry in the light of the latest available costing and capital information and I have also, in consultation with representatives of milk producers and of the dairy trade, reviewed the arrangements for the annual determination of the dairy trade's target rate of profit.
Last December the Government decided, on the basis of recommendations by Binder Hamlyn, that in future determinations of the target rate of profit should rest on comparisons with the rate of return in comparable groups 9W of food manufacturing and retailing companies. Last year the determination had to be made on the basis of adjusted historic cost accounting data because of the lack of current cost accounting—CCA—data in the dairy industry. This deficiency has now been remedied by the dairy trade undertaking the necessary revaluations and Binder Hamlyn has now completed a new capital study on a fully CCA basis. These capital studies will now be carried out annually and it has been agreed that in future the target rate of profit established for each costings year will be reviewed subsequently in the light of the next annual survey of dairies' returns, as is already the practice for the annual costings exercise.
The target rate of profit for 1982–83 which results from the application of this new fully CCA based system is 0.9048p per litre. This figure cannot be directly compared with the target rate of profit established at the last annual determination. The adoption of a fully CCA based method involves a change in the treatment of depreciation which has the effect of offsetting part of the increase in the target rate of profit.
On the basis of this determination and of the outcome of the 1982 costings and projection exercise, and having regard to the interests of both sides of the industry and of the consumer on whom they both depend, I have come to the following decisions:
- (i) the maximum retail price will be increased by 1p per pint on 14 November 1982: this is a 5 per cent. increase over the present price. I hope that it will be possible to avoid a further increase for a considerable period;
- (ii) the maximum wholesale price will be increased with effect from 1 December by 0.2 pence per litre. The new maximum wholesale prices will be as follows:
These increases restore the seasonal cut made last spring.
Pence per litre England and Wales (except London) 17.983 London 16.099 Northern Ireland 21.600
These determinations complete the review of the distributive margin and costing system which was first set in hand by Binder Hamlyn in November 1979. I am confident that the revised system now agreed will operate smoothly and predictably, is fair to both sides of the industry and will create the greatest possible incentive to efficiency; and I believe that the price determinations set out above strike an equitable balance between the interests of dairy producers, the dairy trade and the consumer.
A statutory instrument giving effect to the new maximum prices will be laid before Parliament shortly.