UK dairy industry losing confidence in OFT

By Chris Mercer

- Last updated on GMT

Related tags Dairy Competition Dairy farmers

Britain's Office of Fair Trading is losing support among dairy
industry officials, who claim the agency does not understand the
sector and has been far too heavy-handed.

"There is a lot of dissatisfaction with the way the OFT interprets competition policy in the UK,"​ said Jim Begg, director-general of dairy industry body Dairy UK.

"There is a view in the industry that competition law for things such as mergers and acquisitions is more liberally applied in mainland Europe than in the UK, and that the rationalisation seen in Europe could perhaps not happen in the UK."

Begg said many people in the dairy sector were "astounded"​ that the OFT recently referred dairy processor Robert Wiseman's proposed takeover of Scottish Milk Dairies to the Competition Commission.

The move prompted Wiseman, one of the Britain's top dairy processors, to pull out of the deal.

"There is a widespread feeling that we have to rationalise our facilities and industry to be competitive in the future,"​ said Begg.

His words echoed those of Gwyn Jones, head of the National Farmers' Union Dairy Board, who launched a scathing attack on the OFT after the Wiseman decision.

"We find this decision incredibly frustrating because it is precisely the kind of move we believe should be encouraged if we are to achieve the economies of scale required to compete with the rest of Europe,"​ he told government representatives.

Wiseman and rival processor Dairy Crest revealed last week that the OFT was investigating them on price-fixing charges in relation to "retail price initiatives".

It is thought that several deals have been done over the last few years between certain processors and supermarkets, to raise retail milk prices so that more money can be passed down the supply chain.

Britain's farmgate milk price averages 18p and is the lowest among the pre-enlargement EU-15 countries. The price reflects poor earnings across the sector, with Dairy Crest and Wiseman both seeing their profits slashed last week.

The OFT has been investigating for most of this year and warned the dairy industry in a letter in January that "price fixing agreements are among the most serious breaches of competition law"​. It said dairy farmers' difficulties were no excuse.

The Milk Development Council said in its recent supply chain report that growing cost pressures last winter led to "retailers increasing their retail price by 3.5p per litre, with 1.5ppl proposed to go back to farmers and 2ppl being divided up by both processors and retailers"​.

It said intense competition between the main processors, Arla UK, Dairy Crest and Wiseman, was mainly responsible for cuts to farmgate milk prices from April.

"For absolutely sure, dairy companies fully understand their obligations under competition law,"​ said Dairy UK's Begg.

"Milk is a hugely competitive market and the competitive nature of the dairy industry is pretty obvious to the neutral observer."

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