Dairy Industry

Tuesday 4th September 2012 Written Statements

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

During the summer, the UK dairy industry suffered a major crisis caused by price cuts and I would like to update the house on events since then. Original price cuts were withdrawn, whilst processors, producers and retailers held discussions.

On Friday 31 August, industry leaders agreed a code of practice on contractual relationships in the dairy sector. This is a significant step forward. The code of practice is a robust and proactive basis for a more effective system of raw milk contracts that will provide greater certainty and clarity for all parties. It addresses issues of price, volume, timing of deliveries and duration, and it includes effective processes to analyse progress and review the impact of the code.

The Government will continue to work with industry to build on this progress. We will shortly consult on key elements of the European Commission’s proposals for the European dairy sector (the EU “Milk Package”). We will seek views on whether it should be compulsory for dairy producers and processors to have a written contract. But at this stage the Government consider that the new code of practice should be given proper time to take effect and deliver change for the benefit of the industry as a whole.

The Government also recognise the value of farmers working together in producer organisations to improve their profitability through efficiency and competitiveness gains as well as increasing their negotiating power. The Department for Environment, Food and Rural Affairs recently announced that £5 million-worth of new funding will be made available for farmers to collaborate and to support business-led innovation. We will consult on the arrangements needed to implement dairy producer organisations and work with industry to encourage participation and secure the benefits of effective collaboration.

The UK is one of the largest milk producers in the world. Dairy is the UK’s single largest sector of agriculture and its future prospects are positive. There is growing recognition that real changes are needed at all levels of the supply chain to drive greater confidence, innovation and investment and take advantage of the huge opportunities that exist—in domestic markets and abroad. Over the last few weeks, dairy farmers and buyers have faced up to some of the most challenging issues currently facing the UK dairy industry and taken steps to address the problems that are hindering its development.

There are potentially bright prospects for the UK dairy industry. Apart from Ireland, the UK has the best climate for growing grass in Europe and we should be producing more value-added products such as cheese, butter and yoghurt for the domestic dairy market. The UK currently has to import 50% of these products, which indicates that the sector is not yet reaching its full potential.

There are also major export opportunities with emerging markets such as China, whose growing middle classes are crying out for dairy products. Early in 2012 the Government published a food and farming exports action plan to encourage more food and drink companies to venture into overseas markets. This includes supporting and encouraging businesses at home and promoting British food abroad and opening up markets.

Securing a healthy future for the UK dairy industry is a real priority for the Government. We are confident about its longer-term prospects and the agreement of the industry code of practice is a genuine step forward which we support.