Milk Marque (Hansard, 6 July 1999)

§ Mr. Byers

I have today published the MMC report on the supply in Great Britain of raw cows' milk.

I am requiring major changes to the conditions of sale of raw milk by the dominant supplier, Milk Marque, to prevent it from exploiting its monopoly position, but have rejected the MMC recommendation to enforce a break-up of Milk Marque.

The MMC have found that Milk Marque, which was responsible for nearly half of the raw milk sales in Great Britain in 1997–98, is exploiting its monopoly in the supply of raw milk, using a variety of practices which raise the price of raw milk. Consumers pay more for fresh milk than they should, and the competitiveness of the dairy processing sector is being damaged.

This is a thorough and detailed examination of Milk Marque's selling practices and their effects, and I accept the Commission's findings.

With regard to the remedies necessary to stop these damaging effects, the MMC have explored the possibilities of either reforming Milk Marque's auction sales system, or of restructuring of Milk Marque into several independent producer bodies. Both of these options present difficulties, as the MMC recognises.

The MMC recommends the restructuring of Milk Marque, by dividing it into independent and competing quota-holding bodies, able to sell their milk on an ordinary commercial basis and to engage in milk processing, that is the making of milk products, if they wish. I have not accepted this recommendation.

An imposed restructuring of Milk Marque would be a drastic step which would affect a large proportion of the farmers of England and Wales. I am also conscious that this remedy would take a considerable time to put fully into effect: perhaps as long as two years. This would itself introduce worrying uncertainties for the industry. There is a strong possibility that by the end of the period the market may have changed considerably. I believe a wider debate about the future of Milk Marque is appropriate, informed by the analysis provided by the MMC report.

In the meantime the raw milk market must continue to function, and it must do so on as fair a basis as possible. The report found that Milk Marque has been able to exploit its position by using its selling system to price discriminate and control the supply of milk available to the market. It is clear that Milk Marque must reform its sales procedures. I am therefore asking the Director General of Fair Trading to consider and advise me by the end of this year what changes should be made, after consulting with Milk Marque and its customers.

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Milk Marque will be aware that from 1 March next year it will be subject to the prohibitions on anti-competitive behaviour and abuse of market power introduced under the Competition Act 1998. The DGFT will have interim relief powers to stop behaviour which is damaging third parties.

The MMC also recommends (paragraph 2.400 of the report) a number of interim remedies to prevent Milk Marque abusing its market power. I accept these recommendations.

I am aware that, in its recent auctions, Milk Marque has relied increasingly on sales on undisclosed contract terms to dispose of its milk. The undertakings I am seeking will apply to both auction and private sales.

The MMC have concluded that Milk Marque's planned increase in its milk processing capacity may be expected to operate against the public interest, by enhancing its ability to exploit its monopoly power.

Milk Marque, while it remains a monopoly supplier of raw milk to the processing sector, should not be allowed to extend its milk processing activities in this way. I am therefore also asking the Director General to seek undertakings from Milk Marque that it will not take any further steps towards making or carrying out any agreement to acquire or build processing plant without prior agreement by the Director General, as the MMC have recommended.

Copies of the report have been laid before Parliament.