Dairy Farming

Tuesday 7th June 2011 Westminster Hall

Motion made, and Question proposed, That the sitting be now adjourned.—(Bill Wiggin.)

09:30

[Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)]

I am pleased to see that, despite the recess, a number of colleagues are arriving, and more will join us later.

It is important that we debate the future of British dairy farming. It is an important matter throughout the country, but especially so for East Anglia, and particularly for Suffolk and south Norfolk and for Waveney valley in my constituency. All Members here today would like to see the re-establishment of a thriving, profitable and sustainable agriculture sector in the United Kingdom. About 15 or 17 years ago, the country produced 70% of its own food, but we now produce only 40%. There is a strong case for supporting the development of much greater food security and food sustainability, and the dairy sector has an important part to play in that.

Milk prices affect dairy farmers from time to time, but the dairy industry has faced a particular crisis over the past few months and, as a result, at least eight farms in East Anglia close to my constituency are no longer in business. The key factor is the price that dairy farmers receive for their milk. There is a tension between the price paid by the consumer, particularly given the current economic climate, and the price that retailers pay milk producers. Nevertheless, if we want to maintain a profitable and thriving agricultural sector, we need to ensure that milk producers receive a fair price. At the moment, Britain is third from bottom in the European league table for the price that our milk producers receive, which is unacceptable.

I know that the Minister is familiar with a number of these factors as they affect Suffolk, having originally been with AtlasFram farmers, but the point of this debate is to focus on what the Government can do to support the British dairy industry over the next few years, particularly in the current crisis.

[Sarah Newton (Truro and Falmouth) (Con)]

I congratulate my hon. Friend on securing such an important debate. The future of dairy farming is important to people throughout the country, as we need greater food security and must produce more of our own food. Does he agree that it is about not only the supply of milk, but the products that are made from it? Those products are important to the economy of Cornwall. They include not only our famous clotted cream but our ice cream, cheese and yoghurt, which all depend on healthy supplies of milk. Many dairy farmers in my constituency, like those in my hon. Friend’s, face the prospect of having to give up that important part of their livelihood, along with their farming traditions.

[Dr Poulter]

My hon. Friend makes a good point. I want to focus on milk, but others may wish to discuss other milk commodities and derivatives. Many retailers do not pay our dairy farmers a proper price for the commodities that they produce, as she has said so eloquently, but I shall focus on milk because, for producers throughout the UK, milk is the main produce of the dairy farm. None the less, I accept that the price that those farmers receive for yoghurts, cheeses and other milk-based products is a problem.

There has been increasing coverage of dairy farming issues over recent months, and I am sure that the Minister is aware that a key problem is the contracts that dairy farmers are tied into with the retailers. Before going into that aspect, however, it is worth setting out the background to the problem.

There is increasing concern that the milk industry is in crisis. Milk is a perishable product, as we all know, and farmers have little choice but to enter into contracts that often feature exploitative terms and conditions. These contracts contain no certainty about the price that will be paid from month to month, and producers are locked into contracts with notice periods of 12 or 18 months and with penalty clauses from the moment that they announce that they wish to move to another retailer. Such penalty clauses often include a section on price, which adversely affects the farmer.

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

I congratulate my hon. Friend on securing this debate. Both he and the Minister know that this matter is close to my heart, and I hope that my private Member’s Bill will receive his support on Friday—I am sure that it will.

My hon. Friend has mentioned contracts. Does he agree that the major problem faced by the dairy industry is that retailers regard milk as a loss-leading product, and that they use their superior position in the market to drive down the price in a way that has made dairy farming unsustainable for many producers? The Government need to tackle that issue.

[Dr Poulter]

I thank my hon. and learned Friend for his intervention. The point is that the framework around those contracts has helped to keep the market subdued. As I have indicated, Britain is third from bottom in the league table of what farmers are paid for their milk in Europe.

The average European Union milk price in March 2011 was 29.72p per litre, but it was only 26.59p in the UK. For most farmers, over an average year that 1p a litre amounts to between £80,000 and £100,000. On average, British farmers are being paid £300,000 less than the European average, which is unacceptable if we wish to support a thriving dairy industry. We need to drill down into why British farmers are not paid a fair price for milk, whereas a much higher price is paid by European retailers to their milk producers.

Various narratives are put forward by retailers and suppliers on what they pay our dairy farmers. They say that they pay a fair price, but according to the European average they do not. They say that consumers are under financial pressure and that they need to keep the cost of milk down, and there is some truth in that. Yes, we are in difficult economic times, consumers are under financial pressure, and we want the cost for consumers to be as low as possible. However, although the price of milk in the shops over the past few years has risen considerably—by 70% or 80%—the increase paid to the farmer has been disproportionately lower. There has not been the necessary knock-on for farmers, so although retailers and suppliers are benefiting from a rise in the price of milk in the shops, our milk farmers are not. That is not fair, and it is not beneficial to the dairy industry. If we do not support our dairy producers, more farms will go out of business, which will be bad because it will impact adversely on consumers given the perishable nature of milk.

The other argument often put forward by retailers and suppliers is that milk must be resourced exclusively from the UK. We all want to see retailers supporting British farmers, backing honest food labelling and buying from them whenever they can. However, given the perishable nature of the product, and given that unlike many European countries we have a particular market for fresh milk, British retailers and suppliers have no option but to buy from British producers. That is another spurious argument put forward by many retailers and suppliers, and it is not a good reason for them not to pay our British farmers a fair price for their milk.

I am pleased that the European Commission has identified the significant imbalance in bargaining power between farmers and dairies and the lack of certainty and control over the price that farmers receive for their milk. It has recognised that the problem lies with the contracts and has proposed a number of ways in which national Governments can address it.

As the Minister will be aware, the Commission’s proposals to improve the position of dairy farming include allowing member states to introduce minimum legal standards for milk contracts, which would include the price to be paid for the duration of the agreement and a proper arrangement for the termination of those contracts. At the moment, when a farmer seeks to end a contract, they have to wait 12 or even 18 months before it can be terminated, but the penalty clause kicks in immediately, which means a lower price for the milk that they produce. That does not seem to be a fair contract, and it should be investigated.

The EU has talked about permitting producer organisations to be established, which would allow dairy farmers to come together to improve their negotiating power with dairy companies, and that would be a good thing. It has also discussed introducing greater market transparency into the dairy supply chain.

The EU has identified a number of issues with the contracts, which, as my hon. and learned Friend the Member for Sleaford and North Hykeham (Stephen Phillips) has said, are at the crux of this matter. The majority of milk contracts offer dairy farmers no certainty or clarity about the price they will be paid from month to month. They allow the milk buyer to make unilateral changes to milk prices, which often take place at very short notice. Dairy farmers have great difficulty exiting such contracts. All those issues imbalance the contractual relationship between the dairy farmer and the milk buyer.

I hope that the Minister will tell us that the Government support a fair code of practice and that they will give us a little more clarity over the role of the ombudsman. Unless we improve the current situation between milk producers, milk suppliers and retailers, more and more of our dairy farms will go out of business.

It has been a pleasure to flag up these key issues, and I look forward to hearing from the Minister and my colleagues.

[Julian Smith (Skipton and Ripon) (Con)]

I thank my hon. Friend for giving way just as he is ending his speech. Is he convinced that Government-led contracts are the way ahead, or does he see the potential for a halfway house, where there is a greater focus on transparency and a greater use of nudging for all parts of the industry? In other words, does he think that we need to legislate to address the contract issue?

[Dr Poulter]

Instinctively, I do not like unnecessary red tape. However, given that the National Farmers Union has already been involved in some considerable nudging and given that there is a considerable imbalance between the power of the dairy producers and of the retailers, perhaps the Government have a role to play. I agree that it would be good to see a mutually agreed solution that supports the code of conduct and the role of the ombudsman. However, if that does not work, I hope that the Government will intervene. To start with, I would like to see things being resolved without using unnecessary red tape. Hopefully, we will see many organisations taking corporate responsibility and backing British suppliers. We have seen that in the pork and meat sectors of the industry, with many British retailers beginning to show greater corporate responsibility in buying British meat and putting it on their shelves. In the dairy industry, we need to see our retailers taking a similarly robust attitude and showing such corporate responsibility as well. I want to see that first and then, if necessary, further action and intervention from the Government.

[Caroline Nokes (Romsey and Southampton North) (Con)]

I thank my hon. Friend for giving way and for having secured this important debate. Does he not acknowledge that there are a number of retailers who are showing greater corporate responsibility? Waitrose, for example, operates a partnership of dairy farmers, one of which is based in Leckford in my constituency. Can we not encourage a greater use of that model in the rest of the country?

[Dr Poulter]

That is a good point. Marks and Spencer provides us with another good example. Like Waitrose, it has already shown a high level of corporate responsibility. Indeed, Waitrose has a good attitude to supporting British farming in general. My hon. Friend is right to say that there is a need for a number of companies to support a profitable and sustainable agricultural sector. The crisis in the dairy industry at the moment highlights such a need.

A number of dairy farms are being forced out of business. The prices of commodities and fuel are making it difficult for farms to be as successful as they once were. My hon. Friend is right to say that retailers should show some support, and we hope to see the model that she has mentioned rolled out across the country. However, it is important for us to trust the retailers to show that greater corporate responsibility before the Government intervene.

In conclusion, the number of dairy producers in the UK is plummeting, and the price paid for milk is consistently low. At the moment, we are 25th out of 27 in the EU league table. Input costs have soared for producers in recent years, especially over the past few months. In 2009-10, milk production was at an all-time low in the United Kingdom.

The crux of the matter lies in the fact that contracts between suppliers and producers are skewed against the producer, so that prices can be changed arbitrarily while notice periods are often 18 months or more. Most contracts are exclusive, which means that a producer can be tied to one supplier for a long period. The penalty clauses in many contracts are detrimental to the producer and favour the retailer.

The Food Labelling Regulations (Amendment) Bill will help to address some of the imbalances, and I am sure that the Minister will discuss it. None the less, retailers need to show greater corporate responsibility. The Government must be prepared to intervene if retailers do not support the industry in such a way and if the current nudges in our regulations do not work.

I thank the Minister for attending the debate and look forward to hearing his remarks. Some colleagues may wish to add some remarks on bovine TB.

09:49

[Mr Geoffrey Cox (Torridge and West Devon) (Con)]

I congratulate my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) on his informed and interesting presentation of the problems affecting the dairy industry. I do not propose, as the Minister would almost certainly have predicted when I rose to my feet, to tackle the problems, serious though they are and requiring pressing and urgent attention as they do, of the unfairness of the contractual situation between dairy producers and the processing and retail industry. It is manifest that the situation is crying out for action and I hope that after the 13 months of careful reflection that the Minister, who has responsibility for agriculture, has given the problems, ably assisted by those who sit behind him, we will see a courageous and powerful response from the Government to the legitimate interests and concerns of the vital industry that those of us who are in Westminster Hall today represent.

In standing up to speak today, I do so, as I have done many times in the past six years, to raise the subject of bovine tuberculosis in the House. I represent Torridge and West Devon, a constituency in the south-west that is probably the area of the country most densely affected and infected by bovine TV; it is certainly one of the three worst affected areas. I do not propose that the solution that I have long advocated for my own constituency should apply across the board to each area of the country where bovine TB is found. Manifestly, a solution that is appropriate to a densely infected hot-spot area will not be appropriate to an area where bovine TB is only found in widely scattered parts.

However, the Minister will know that I rise to speak with a sense of real concern. He, probably more than anybody else in the Government and possibly more than anybody else in the House, knows well the corrosive, attritional, distressing and unhappy effects of bovine TB. They not only affect the infected animals—the cattle that are slaughtered and the badgers that die appalling deaths as their lungs literally liquefy as a result of being infected by TB—but the farming families and communities who daily have to endure the strain, stress, upset and sheer unhappiness of watching their herds being destroyed, their livelihoods threatened and their farms placed under the sterilising restrictions required by the bovine TB regulations.

I know that the Minister appreciates the situation because he has visited my constituency on many occasions. I have seen him sit down in farm kitchens and I have seen him address larger audiences of farmers, doing so with an empathy and instinctive understanding that does him credit and wins the trust of those who listen to him. For the six years that I have been in the House, I have been intensely grateful to him—first while he was in opposition and now that he is in government—for those visits to my constituency and for the words of reassurance and the empathy that he has offered to the farming community that I have the privilege to represent.

Nevertheless, the Minister knows what I am about to say next; it is time to deliver. For six years, we have told farming communities in the UK that if the Conservative party reached the corridors of Government we would take hold of the situation and tackle this dire emergency that, like a flame slow burning, is consuming farm upon farm throughout the south-west. We have told farmers that we would not fail to have the moral courage to bring the only solution that will deal with the problem for the areas I represent.

The Minister knows what I mean. We cannot rule out a policy of limited, targeted culling; indeed, we must urgently embrace such a policy. It is the only way to tackle the issue in Torridge and West Devon and it is vital that the Government now firmly embrace that policy, as it is the only one that will yield results.

As the Minister knows, I was a member of the Environment, Food and Rural Affairs Committee in the last Parliament and consequently I do not propose for a moment that we apply a simplistic solution; nor do I suggest that culling alone is the only prescription that will bring success. As he also knows, I have long advocated, and I long criticised the last Government for not implementing, a full package of measures on the cattle side, biosecurity and all the areas of animal husbandry that need to be improved, including vaccination when we can see it. However, we cannot have a package of measures that does not include culling where it is necessary, such as those densely infected hot-spot areas where the risk assessment concludes that it is a necessary part of any prescription or solution. We cannot exclude a cull.

The Minister has sat with me and listened to farmers in Torridge and West Devon as they explained why they feel so strongly that a cull is necessary, how they have taken steps to prepare for it and how they feel it could be carried out. I know that he has been looking at the problem of bovine TB and that it has preoccupied him; it is probably one of the major priorities that he has been dealing with. Consequently, I hope that he will forgive me for expressing the real anxiety and apprehension of farming communities in the south-west that the Government may be losing their nerve.

I very much hope that that is not the case. I was at the Devon county show a couple of weeks ago, and, as ever, the exchange of views was frank and robust. The Minister had recently appeared on television and had apparently said that we may not even have a cull. I appreciate that at this stage he must be considering a policy that is based on evidence and that is carefully fashioned to the reflect the existing scientific knowledge of the subject, but there is growing concern among the farming community that the Government may not be living up to the height of expectations on this question.

I urge the Minister to take the opportunity this morning to deal with the subject by at least giving encouragement to the people I represent and those who are listening to this debate that he fully appreciates the importance of the problem, and that he understands the need to find a way to ensure that the policies that the Government implement to deal with this disease that is raging throughout the countryside of the south-west will include all necessary instruments.

Of course I understand that the Minister will have a judge looking over his shoulder and that any policy that is subsequently introduced will almost certainly be challenged in the courts by those who wish to suggest that it offends judicial review principles. The Welsh case, which is the only example that we have to go on at the moment, demonstrated that if one did not attach great importance to fashioning a policy that would pass the test of administrative and legal scrutiny, matters could be delayed even further. I have spent the past 13 months patiently explaining to farmers down farm lanes and at cattle markets that that is so. After 13 months, it is to be hoped that the Minister is close to a solution.

The Welsh case did not for a moment propose, nor did the judges ever say, that to make culling an instrument of policy was unlawful. As the Minister knows well, the Welsh case simply criticised a logical flaw in the way that the Welsh Assembly and its Executive had gone about consultation on that specific matter and that specific formation of policy. It would be relatively simply avoided with care and preparation by this Government.

I cannot be privy to the private discussions, the policy formations and the preparations that the Minister is involved in. Perhaps all the things I have said today are entirely redundant and superfluous—I very much hope that they are—because the Minister is about to cause a sigh of relief throughout the south-west by announcing a new policy on the control and eradication of bovine TB. When he does so, the feeling across the countryside—in Devonshire, in Cornwall and in all the parts so badly affected by this pernicious disease—will be of intense gratitude and admiration for the moral courage and consistency that the Minister will have shown. During my six years as an MP, the Minister has been a friend to the farming communities that I have the privilege of representing, and by announcing the policy that I urgently press upon him, he will prove himself, once and for all, to have been a friend who stood by them at a time of crisis and emergency.

I hope that the Minister will rise to his feet to deal, of course with the matters that my hon. Friends raise on the importance of fair contracts, but with bovine TB, which is probably even more important to the dairy farmers listening this morning in the places that I represent, waiting anxiously for what the Minister is to say. So deeply afflicted is the south-west—specifically the areas that I represent—that I urge him, when he rises this morning, to have in the front of his mind the families he has met, the farms he has visited, the herds he has seen and the pride in the eyes of those who look after them, and to reach out to them and give them the courage and encouragement that it is our duty to permit them—saying to them that the Government understand the problem and are coming forward with the solution that those families so fervently and expectantly await.

10:02

[Mr William Bain (Glasgow North East) (Lab)]

I congratulate the hon. Member for Central Suffolk and North Ipswich (Dr Poulter) on securing the debate and on articulating the concerns of many people in the dairy industry about the operation of the UK milk and dairy market sectors. I commend the interventions made by hon. Members and the remarks of the hon. and learned Member for Torridge and West Devon (Mr Cox) who spoke very movingly about the impact of bovine TB on small farming communities in the south-west.

In the past six months, we have had several debates on this subject, both in this Chamber and in European Committee A. What has emerged from those debates and from the speeches this morning is the need for good intentions on the part of the Government to be turned quickly into firm action, and the Opposition believe that such action is needed in three areas. First, the Government need to signify their support for the EU’s adoption of standard contracts for the dairy sector—should member states wish them to apply in their territories—to ensure greater parity in bargaining power between producers, processors and retailers. Secondly, there needs to be a grocery code adjudicator with greater powers of market intervention and greater independence from the Executive than is proposed in the Dairy Farming Bill, with the adjudicator being allowed to impose fines and other sanctions on those operating anti-competitively in dairy supply chains. Thirdly, further incentives in innovation and in research and development are needed to ensure that the British dairy industry has a financially viable future in delivering the highest-quality products both for domestic consumption and export, while cutting its share of greenhouse gas emissions, as indicated in the “Dairy Roadmap” report published this year.

There is evidence that dairy farmers in Britain face problems because of the operation of milk supply contracts in the marketplace. Current milk contracts deny milk producers real stability in pricing and stifle competition and innovation. The National Farmers Union has established that average EU milk prices this March were 14% higher than they were a year ago, at 29.72p per litre, but in the UK the price was 26.59p per litre, which, at 10.2%, is the fourth-lowest increase among the five highest EU milk-producing member states.

The hon. Member for Central Suffolk and North Ipswich has pointed out that the UK has the third-lowest milk price per litre in the EU, beaten only by Slovenia and Romania. The “NFU Cost of Milk Production Report” states that the average cost of milk production was 29.1p per litre between April 2010 and March 2011, which represents a shortfall of 2.76p per litre between the cost of producing milk and the price that the farmer receives. Added to that, dairy farmers in the UK face rising input prices, and the greater demand for dairy products is leading to increased imports.

The European Commission proposals to introduce standardised contracts for milk producers across the EU offer the opportunity for greater stability, alongside an equalising of contractual bargaining power for milk producers. The plans would allow the establishment of collective producer organisations, which have proven successful in other parts of the world in securing fairer farm-gate prices for milk, and member states could create greater transparency in the terms of milk contracts by regulating duration and price, as well as rights of termination should member states see fit. Importantly, the plans would also require milk processors to declare information on milk deliveries. It is vital that the Government indicate—I hope, this morning—whether they will accept the Commission’s proposal to permit national Governments to introduce contracts across all milk supply and delivery chains and whether they will be prepared to enter into further collaborative work with the industry on the wider reform of contractual arrangements, including price variation and exclusivity of supply.

Another important point to address is the competition that the EU dairy industry faces from China and other dairy producers in south-east Asia and from some of the developing economies, as that will become increasingly important in the coming years. The annualised annual growth in the Chinese dairy sector between 1998 and 2008 was 10%, and the increasing demand for dairy, specifically milk, products in south-east Asia will further drive global demand.

On the environmental impacts of dairy farming, the Opposition’s view is that we need to further incentivise farmers who are doing the right thing—for example, recycling water from the milk cooling processes and harvesting rainwater. We know from the Foresight report published earlier this year that an increase in sustainable food production to feed 9 billion people across the world by 2050 will mean producing more food with less water and making better use of soil, so we ought to give fiscal and other incentives to farmers in this country who already do the right thing and simply need additional Government support to continue to do so. Energy efficiency across the dairy sector has increased by more than 27% over the past decade, thus leading to a reduction in emissions equivalent to 270,000 tonnes of CO₂.

We therefore face a number of challenges. First, on contracts, the retail sector might not be willing to make changes to give farmers a fairer price.

[Julian Smith]

May I ask for clarification about the Opposition policy? Is the shadow Minister saying that he now believes that we should have contracts in the UK, or does he agree with me and my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) that we should begin by exerting significant pressure and by nudging the industry much more strongly in the first instance?

[Mr Bain]

I am not a great fan of nudge theory, but I believe that the Government could do a great deal by indicating that they support the broad thrust of the Commission’s recommendations. That could lead to changes in practice by the supermarket sector and other processors. The Opposition’s position is one of agreement between producers and retailers where possible and regulation where necessary. If it is established that even the most profound of nudges from the Minister has not brought greater fairness in the prices that the retail sector offers our producers, regulation may well have to be the answer. There is a great deal more consensus across the House than might have been immediately apparent.

On the future of the dairy sector, we must sort out the problem of contracts, because they are driving unfair prices. We must also continue to consider the environmental impact of the dairy sector. Some people want far less meat and dairy to be consumed in this country. I believe that one of the best ways to counter that argument is to show and deepen the dairy sector’s environmental sustainability and reduce its greenhouse gas imprint. The Government should work hard with the industry on that front. We must be aware of competition from overseas. We hope that the Doha round of World Trade Organisation talks can be resuscitated to end damaging subsidies and open the issue of animal welfare standards, to the benefit of milk producers in the United Kingdom and across the EU.

If the Government take those three steps and make great progress over the next four years, it will lead to a better, fairer and more financially viable dairy sector than we have at the moment. I hope that, in his remarks, the Minister will outline how he will deliver that.

10:09

[The Minister of State, Department for Environment, Food and Rural Affairs (Mr James Paice)]

I congratulate my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) on securing this debate. It was widely discussed when I was at the Suffolk show last week, so I was given plenty of notice that I would be grilled on these issues. I also thank my hon. and learned Friend the Member for Torridge and West Devon (Mr Cox). I am not sure whether he was appearing for the prosecution or the defence, but his speech not only contained the gravitas that we expect but correctly conveyed the huge importance that the dairy and beef sectors attach to the issue of bovine TB, to which I will refer in a few moments. Finally, I thank the hon. Member for Glasgow North East (Mr Bain). As he has said, there is probably agreement among the parties about where we need to go.

I will address some of the points made by my hon. Friend the Member for Central Suffolk and North Ipswich. He said that our food production is 40% of our total food supplies; it is actually well over 50%, and we could produce more than 70% of our food indigenously. I do not want him to think that things are worse than they are, although I want to improve both positions.

It is worth making the point that we are the EU’s third largest milk producer, well ahead of the only country that we might reasonably say could do better than us, Ireland, which has the temperate climate and conditions to grow grass for more of the year and more effectively. With the exception of Ireland, we should be competing effectively with every other country in the EU.

My hon. Friend and others are entirely right that the industry is under huge pressure. Members who watched “Countryfile” on Sunday evening will have seen yet another auction of a large dairy herd by a farmer going out of business. However, we have a slight conundrum. Although the number of dairy farmers is decreasing significantly, by an average of 5% a year over the past decade, there has been no such dramatic reduction in the number of cows or in the amount of milk that we produce. In fact, milk production in the UK increased by 500 million litres last year, and it is now almost back to the level of three years ago. That is due to the expansion of herds by many farmers, as well as to genetics, better feed and so on, which cause individual cows to produce more milk. From the Government’s perspective, we are faced with a dilemma. Are we interested in supporting individual dairy farmers or the industry and this country’s ability—to return to the issue of self-sufficiency—to produce the milk that we need at home? It is a conundrum, and I do not pretend to have the answer.

The state of the UK market is easily clarified in some round figures. Roughly 50% of UK consumption of milk and dairy products is liquid milk, almost all of which is domestically produced—as my hon. Friend has said, carting liquid milk overseas is not common. Another 25% of the market is milk products such as cheese, yoghurt and so on processed from British milk. The other 25% is processed products imported from abroad. It is fairly easy to divide the market into those three.

To return to my point about the European market and competition from elsewhere, there is no doubt in my mind that we should be able to compete much more effectively with other countries, with the possible exception of Ireland, in the 25% of the market that consists of imported processed products. My hon. Friend made a great deal of the prices being paid by our supermarkets. I am not saying that supermarkets are without fault, but the real issue is the price being paid lower down the chain at the processed end.

The latest milk prices—they are published weekly, so this is open information—say that the highest price being paid for milk is 29.01p in the dedicated supply chain for Marks and Spencer through Dairycrest. The second highest is in another dedicated pool, for Sainsbury’s, through Arla. The lowest, at 23.8p, or more than 6p a litre less, is paid by North Milk Co-op. A little above that, the supplier First Milk pays 24.2p. The table that appears in the farming press each week simplifies things slightly, but the top half of prices mainly go to the liquid trade, while the bottom half go to the processed trade. There are exceptions, but that is a general point. Increasing the price paid for processed milk would improve the overall situation for everyone.

As my hon. Friend has said, the retail market is important. The average farm-gate price in March was 26.57p a litre, which is 10% higher than the year before, although, as several people have said, costs have rocketed proportionately or by even more. However, the retail price of a 4-litre carton of milk is about 55p a litre, which means that the processor and retailer take 28.5p a litre—that is more than the dairy producer, the guy who keeps the cow for 365 days a year, takes—just to bottle, distribute and retail the milk. There is no doubt, as the Dairy Council and others have shown, that the share of the overall retail price taken by the farmer has stayed the same or even fallen, the share taken by the processor has stayed roughly the same and the share taken by the retailer has rocketed. There are questions to be asked about that, and I will come back to them in a moment.

I will discuss the shape of the industry to demonstrate to my hon. Friends that the issue is not only about liquid milk or about supermarkets. Much has been said about the European package, particularly about contracts. The first thing to say in response to the hon. Member for Glasgow North East is that we are a long way from any decision, because we do not have the European Parliament’s decision yet. That is a post-Lisbon treaty event that involves the European Parliament. I will come back to the other points, but we support the issue of contracts as presented by the Commission. We support the proposal that individual member states should be able to make contracts compulsory in their own country, if they so wish. As far as England is concerned, I have already said publicly that, if that is what the end version looks like, we will consult the industry about whether to have compulsory contracts, but I have not hidden my view that I do not think that they will achieve what people believe they will.

That is the point that I want to address, because my hon. Friend the Member for Central Suffolk and North Ipswich paid great attention to the issue of contracts. Let me make it clear that, in the UK, virtually all farmers have contracts, which takes us back to what is in them. The main reason why this matter features so highly in the European dairy package is that most dairy producers in other countries do not have contracts, so for them it would be a great innovation. Although this is a devolved issue, it is relevant to the UK and, as far as England is concerned, it is clear that the proposal as it stands—we do not know how it will end up—does not allow individual member states to lay down minimum standards or terms in the contract. It says that the contract must address the issue of price, either by setting a price or a formula, but it does not allow the member state to set it. It will be open to negotiation between the producer and processor to decide the price or formula by which the price is arrived at.

Similarly, the contract must address the issue of duration, but it does not allow the member state to lay down a minimum duration. Some, including the National Farmers Union, seem to think that the contract should include a lot more. We can argue about whether it should, but it does not. The proposition from the European Union does not allow member states to lay down detail on standards, which some seem to believe that it should. That is why I do not think that it is the panacea that some have made it out to be.

[Stephen Phillips]

Given that, as the Minister has said, the package is not the solution to the problem, and given that he has identified the discrepancy between what is paid for liquid milk to, on the one hand, those who supply it as liquid milk and, on the other, those who process it, is the solution not for the Government to bite the bullet and set a minimum price for dairy products, at least in England? Will the Government therefore support my private Member’s Bill, which will receive its Second Reading on Friday?

[Mr Paice]

My hon. and learned Friend must be aware that it would be contrary to EU law for us to set a minimum price. The whole common agricultural policy has—with, I think, cross-party support—moved away from the idea of Government setting prices, whether at a member-state or EU level. That has been the big reform of the CAP over the past 15 to 20 years, and it is right that we move in that way. I do not think that the answer is to set a minimum price. The Government’s role—I will return to this in a moment—is to try to make sure that the market is working properly. There is parity of power, wherever possible.

Let me turn to an issue raised by the hon. Member for Glasgow North East. We fully support the proposition in the European dairy package that producer organisations should be allowed, although we are concerned about a point of detail regarding how big they will be allowed to get. However, the only two significant co-operatives in this country—Milk Link has about 13% of the market and First Milk has about 10%—are light years away from what we believe should be the maximum, namely 25%, or the EU proposal of 33%. To be honest, that upper limit is relatively hypothetical at the moment, because we are nowhere near it. Even if the two merged—it was once proposed that they should merge; the merger was approved by the Office of Fair Trading; but they decided not to—they would still not be up to the maximum. I need to make it clear, therefore, that nothing today prevents groups of dairy producers from getting together to become a producer organisation. Indeed, the Secretary of State, in her speech in Oxford, and I have frequently said that we strongly encourage them to do so. However, Government cannot force farmers to work together, and it is for them to do so.

The final point on the package concerns transparency, to which the hon. Gentleman referred. We strongly support a transparent marketplace. Obviously, there is a limit in terms of regulation and bureaucracy on how much information it is sensible to demand, but we support the principles of transparency in the package.

I am in the unusual position of having a bit of time to respond to the debate, so let me now address some other issues. The supermarket adjudicator takes us back to my point about parity of power. The Government have published their Bill, and I was interested to hear the Opposition’s concerns. I am not too clear on all of them, but one related to the adjudicator’s powers to impose fines and other sanctions, although I am not sure what they are. Let us be clear that the Bill provides the option for the Secretary of State to give the power to provide fines. In other words, if we find the adjudicator’s initial power, which might be described as the name-and-shame approach, to be inadequate, the Secretary of State can provide it with the power to impose fines. I do not think that we in this Chamber necessarily understand the relative import of that. The big retailers assure us that that is totally unnecessary, that they do not break the code, that there is no need for an adjudicator and that they are all doing the job properly. I am sure that they have assured everyone present of that. They all pay a huge amount of attention to their reputations. They want their good name to be known and seen. If we say, “We’re going to fine you instead,” what level of fine would make any difference to one of our big retailers? That is the question. The level would not be £10,000. I do not even want to guess what would actually influence their behaviour, but it would be many times that. We therefore have to consider whether that is really a sensible way forward, commensurate with all the other issues of fines, levels of fines and penalties throughout the country. I think that we underestimate the power of damaging somebody’s reputation in that way.

The hon. Gentleman also referred to incentives for innovation and development, particularly in relation to energy saving. He referred to the industry road map. I am not sure whether he or any other colleagues were present when I launched the industry road map a few weeks ago, but one of the most telling charts in the document—I do not take any credit for this, but it is worth making the point—shows that the dairy producers who had the highest margins also had the lowest carbon footprint. Fiscal incentive, to which the hon. Gentleman referred, is therefore built into the system. Of course, we can provide fiscal incentives from the rural development plan for England, but the real incentive is that it is profitable to conserve energy, which the report clearly shows

We are putting in place other things and taking action on them. My hon. and learned Friend the Member for Torridge and West Devon is looking at me with beady eyes—I have not forgotten his remarks. We hope that the Government buying standards will be published shortly. They will lay down particular criteria, so that the Government will lead by example. The Macdonald taskforce on regulation made a number of proposals about nitrate vulnerable zones, which are hugely important to the dairy sector. We are taking those forward as fast as we can. Indeed, at the outset, I was able to announce that we could accept one or two areas relating to NVZs immediately. I am looking across the whole of that issue and am considering how we can reduce its impact and cost.

I am trying to reinvigorate and revitalise the dairy supply chain forum, which was set up by the previous Government. I want to ensure that the only people who come to that forum are chief executives or board member equivalents and that it has an important role because, at the end of the day, the real future of our dairy industry lies not in the hands of the Government, but in the hands of the industry. I am trying to ensure that the retailers, the processors—whether they are bottlers or processors into commodities—and the producers are all around the table and that they are working together to iron out the problems and take things forward. Price is important and I wholly understand the dairy farmer who says, “I need more for my milk.” However, the Government’s job is to ensure that the whole chain is working. If we can do things to take costs out of the system, it would be equivalent to a price rise, although it may not be so readily seen as that.

On income other than that derived from price, let me refer to the two big groups that I have mentioned, First Milk and Milk Link. They are nothing in European terms but, in UK terms, they are pretty substantial producer-owned organisations. They got off to a rocky start, and there were big problems with paying low prices and members having to put up large sums of money. Of course, the third group—Dairy Farmers of Britain—fell by the wayside a couple of years ago. However, those two organisations are now making progress and have chief executives who understand the new world in which we are operating. For example, the chief executive of First Milk has opened up a global pool, whereby when the price of skimmed milk powder on the world market is equivalent to 33p a litre, farmers can say, “Why aren’t we getting it?” They can get that price, although perhaps it will not be quite as much as that. There will be a pool of milk targeted at global price commodities. Of course, there is a downside, because if global commodities collapse—they have done so in the past—so will the pool price. However, such an initiative allows that issue to be addressed and is an ingenious and innovative approach.

Milk Link—I hope First Milk will follow—is paying dividends to its farmer members, which is important. People who have invested in shares and through their commitment to a farmer-owned business are entitled to receive a dividend—a share of the profit. That is just as important to them as the price of their milk, and it is part of the return to their business. From what I have been saying, colleagues will not be surprised to learn that I am an enthusiast for farmer-owned businesses and think that they are the way forward. However, there is a limit to what the Government can do. We will exhort all we can, and if there are any barriers in the way we will do our very best to lift them, but we cannot force farmers to work together.

Finally, I come to the issue of tuberculosis. I am grateful for the words of my hon. and learned Friend the Member for Torridge and West Devon about my personal commitment to the matter, which is completely and utterly undiminished. However, as he has said, we must get things right. A number of his presumptions about why we have not yet been able to make any final decision were accurate. We launched our consultation in September, and it concluded before Christmas. As I have said repeatedly in public, that consultation threw up some serious issues that must be dealt with because, as he rightly presumes, we would almost inevitably be faced with judicial review if we were to decide to go ahead with the badger cull. Several of those issues have taken some tackling. We are working with our own lawyers, and we have retained QCs to advise us. As he will know from his own eminent career, they have raised all sorts of issues to which we must have answers in the courtroom if the situation arises.

I can tell hon. Members that we are getting to the position whereby a decision can be announced and, as my hon. and learned Friend has rightly said, there will be an overall package of measures. This has been a good debate and I do not want to raise the politics of the matter too much but, apart from the issue of badgers, my other big criticism of the previous Government is the piecemeal approach that they adopted to tackling TB. They should have grasped the issue by introducing a comprehensive package and used every available tool in the toolbox, as many people in the industry have said.

I can tell hon. Members—this is not what my hon. and learned Friend wants to hear at this stage—that we hope to make a full announcement before the House rises in July. That will comprise a decision on the issue of badger culling as well as a wider package of measures. He picked up the point that I have been reported as implying that we might not be going ahead with a cull. As a lawyer, I am sure that he fully understands that if one has not made a decision, there has to be a question mark in both directions over what that decision might be. I say to him and hon. Members that, as I expect is blatantly obvious, that decision is not just for me, but for my right hon. Friend the Secretary of State and, indeed, the Cabinet to make. Such a major decision is hugely important, and we must get it right. We need to ensure that the whole Government support the final decision, whatever it may be. As I have said, I assure hon. Members that the decision will be announced before the House rises in July.

As you have rightly said, Mr Hollobone, this has been a tremendously good and very important debate. I am grateful for the opportunity to take a little longer than usual to elaborate on some of the issues. I hope that I have impressed on hon. Members the Government’s determination to tackle a number of these issues and to move forward. As I have said, it is not all in the Government’s hands, but what we can do, we will do. I pay respect to my hon. Friends’ commitment—those who are here now and those who have been in and out of this Chamber during the debate—and to that of my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski), who is sitting behind me. He was the founding member of the all-party group on dairy farmers, but now he cannot discuss the matter, because he is acting in another guise. Many hon. Members rightly feel very strongly about the importance of our dairy sector. It is the biggest sector of British agriculture and long may it remain so.

[Mr Philip Hollobone (in the Chair)]

I congratulate the hon. Member for Central Suffolk and North Ipswich on securing the debate and thank all those who have taken part. The sitting is suspended until 11 o’clock.

10:37

Sitting suspended.