DairyCo

IMPE/AMPE Calculation

The calculation for IMPE (Intervention Milk Price Equivalent) was created by the OFT in conjunction with Wye College as part of the investigation into Milk Marque.  The aim was to create a pricing formula that represented the returns from selling Butter and SMP into intervention. With the collapse of Milk Marque, its direct use in milk pricing became less important.    

When Datum was created, the IMPE and subsequently the AMPE (Actual Milk Price Equivalent) were seen as useful indicators of changes in support prices and market prices for butter and SMP.  Comparing trends in these indicators with trends in farmgate prices provided one of several useful ways of seeing how well and quickly transmission of price changes were feeding down the milk supply chain. 

Although the manufacturing margin within the IMPE and AMPE calculations has not been changed (to reflect changes in inflation etc.) and is highly variable between manufacturers, this does not matter because it is the trends being looked at and not the absolute values.  The exact processing margin calculated by Wye College was the subject of much debate within the industry before the figure below was finalised.

IMPE Calculation

IMPE = (Intervention price of butter in ppl + Intervention price of SMP in ppl) - Margin

To calculate intervention prices in ppl for butter and SMP

Take 90% of the unsalted butter intervention price, convert into pounds using the month in question's average Euro/£ exchange rate and then multiply by 100 to get a pence value. Divide this by the yield factor for butter (20,273).  For the ppl price for SMP take the SMP intervention price, convert into pounds using the month in question's average Euro/£ exchange rate and then multiply by 100 to get a pence value. Divide this by the yield factor for SMP (10,855).

• Intervention price of butter in ppl = ((90% unsalted butter intervention price * € to £ exchange rate)*100) / 20,273
• Intervention price of SMP in ppl = ((SMP intervention price * € to £ exchange rate)*100) / 10,855

Margin = A figure corresponding to estimated production costs, profit, time lags in receiving payment for finished product etc.

• Assuming an interest rate of 7% and that there is a delay in payment of 45 days a year for butter and 120 days a year for SMP.
• In addition there is a static 2.646ppl removed to cover overheads, variable cost etc along with 5.4% of the total ppl for intervention butter and SMP which comprises overheads and a 2% profit margin

Margin = (Intervention price of butter in ppl * 45 / 365 + Intervention price of SMP in ppl * 120 / 365) * 0.07 +2.646 + (Total Intervention ppl * 0.054)

AMPE Calculation

The AMPE calculation uses the same formula as IMPE but wholesale prices for Butter and SMP are substituted in for intervention prices. The margin calculation is done in the same way as the IMPE calculation.

AMPE = (Wholesale butter ppl + wholesale SMP ppl) - Margin

Butter ppl = (Wholesale price for butter (in £/tonne)* 100) / 20,273

SMP ppl = (Wholesale prices for SMP (in £/tonne) * 100) / 10,855

Margin = Margin for IMPE formula.