The Lord Bishop of Wakefield
To ask Her Majesty’s Government what assessment they have made of the impact of the recent low prices for milk in the major supermarkets on the United Kingdom dairy industry and its long-term sustainability.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Henley)
My Lords, there is no simple link between supermarket retail prices and farm-gate prices. Producers in dedicated supply groups for individual supermarkets tend to receive the highest prices for their milk. The Government believe that the market must drive price levels. It is important that large retailers cannot abuse power by transferring excessive risks or unexpected costs onto their suppliers. We therefore propose to establish a groceries code adjudicator to monitor and enforce the groceries supply code of practice.
The Lord Bishop of Wakefield
My Lords, I thank the noble Lord for his answer, but the situation has become even more serious. Last Friday, 4 February, the NFU published a report noting a £330 million gap between the price paid for milk and the cost of production. It is ironic that many demonstrations outside supermarket depots belong to a company that was once a co-operative of northern dairy farmers. In the light of that, will Her Majesty’s Government urgently support the European Commission’s dairy package to change the way milk contracts and supply chain contracts are negotiated?
Lord Henley
My Lords, I ought to make it clear that prices have in fact gone up somewhat. The average price in December was 26.4 pence per litre, which was a 5.8 per cent increase on a year ago. However, I appreciate that other prices for dairy producers have gone up just as fast and that they are facing quite severe problems. As regards the work being done in the EU, I think that the right reverend Prelate referred to the High Level Group on dairy. We will certainly be making appropriate comments on that and feeding in our views to what the Commission is proposing.
Lord Lea of Crondall
As I understand it, there are 17,000 dairy farms in this country and the average dairy farm gets a subsidy of £30,000 a year, which by my arithmetic is £500 million. There are 2 million cows, so each cow gets £250. I am sure the NFU will say that the cow does not get it and that the farmer does not get it. So who does get it? Could it be that the processors get it, the supermarkets get it, or the consumer gets it? Somebody must get it, so should there not be something like the Office for Budget Responsibility or the new adjudicator to clarify analytically who does get it?
Lord Henley
My Lords, I cannot confirm or deny the figures produced by the noble Lord, but I can give him an assurance that subsidies go to the farmers and not to the cows as I imagine that the cows do not have bank accounts.
Baroness Parminter
Does the Minister agree that a 3,700-cow mega dairy in Lincolnshire will be as much of a nail in the coffin for the competitiveness of small British dairy farmers as the unopposed arm lock of the supermarkets over farmers with their milk prices?
Lord Henley
My Lords, I am not going to comment on individual applications by individual farmers or farming groups for their own planning consents, but the point that should be made in terms of our own interests in this is that the welfare of the animal must always be supreme. We believe that with proper stockmanship and so on, the welfare of animals can be maintained on big farms as well as on small farms.
Lord Sewel
Can the Minister clarify into which schedule of the Public Bodies Bill the groceries adjudicator, or whatever it is, will be placed?
Lord Henley
The noble Lord will be pleased to hear that the groceries code adjudicator will not be in that Bill, but in a separate Bill being introduced by colleagues in the Department for Business, Innovation and Skills. I look forward to the Bill coming before this House in due course.
The Countess of Mar
My Lords, the noble Lord hinted that farmers who act co-operatively succeed in getting better prices for their milk than those who act alone. As the British farmer has such a poor record of co-operating with his fellow farmers, what will Her Majesty’s Government do to encourage farmers in order for them to get a better price for their milk?
Lord Henley
I am not sure that the noble Countess is in fact correct. The highest prices being paid for milk at the moment are coming from Wiseman Dairies with its direct contract for Tesco and the lowest current prices are from one of the farmers’ co-operative groups. I do not know whether the two are connected, but certainly it is a matter for individual farmers to decide whether they want to act together, not one for Her Majesty’s Government.
Lord Grantchester
We welcome and take encouragement from the fact that the Government are continuing with the previous Administration’s Dairy Supply Chain Forum as a mechanism to keep in close contact with the industry. Does the Minister agree that the dairy market is not dysfunctional, that the industry’s prospects are positive and that it is undertaking significant investment with a value added strategy? Price rises are feeding through what are now much better integrated relationships. Does he further agree that the problems facing dairy farmers are more the result of volatility in input costs rather than from supermarkets? I declare my interests in dairying.
Lord Henley
My Lords, I can agree with much of what the noble Lord has said. Obviously, individual dairy farmers are facing problems, and we saw a decline of 4.7 per cent in their number last year. But as the noble Lord said, prices are increasing somewhat at the moment, even though there is considerable volatility in the other prices dairy farmers have to face in terms of their milk production.
The Lord Bishop of Exeter
My Lords, I am delighted to know that the Government are still committed to bringing in a Bill to establish the office of the groceries code adjudicator. Given the seriousness of the situation that we face in dairying and other aspects of farming at present, when is that Bill likely to be brought before the House?
Lord Henley
My Lords, my understanding is that there is a good chance that it will start in another place first some time this Session, but I cannot give any precise timing at this stage.
The Earl of Sandwich
My Lords, the adjudicator was going to be situated in the Office of Fair Trading. Can the Minister confirm that the Office of Fair Trading is to be abolished? In which case, the adjudicator will have to be situated in the Competition Commission, which is also to be abolished.
Lord Henley
My Lords, I am not sure at the moment where the groceries code adjudicator will be sitting, but I can assure the noble Earl that he will sit somewhere where he can do the job that he will be asked to do as effectively as possible.
Lord Phillips of Sudbury
My Lords, will the Minister also look at the impact of predatory pricing on small, local convenience shops, which make a great contribution to their communities?
Lord Henley
My Lords, that is obviously a matter that ought to be looked at but I think everyone should welcome the fact that supermarkets deliver low prices not only for milk but for other matters as well. The consumer would welcome that.