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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (George Eustice)
I congratulate my hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) on securing this debate. The over-subscription of the debate, which has necessitated such a tight time limit on contributions, shows the importance of the dairy industry. Many cheese varieties have been mentioned, and the hon. Member for Somerton and Frome (Mr Heath) said that the best cheese is in the west country. I say that the cheese gets better the further west it is made. If people go all the way to Cornwall, they will find the best cheese.
Volatility is the new challenge facing the industry, and I will briefly describe what has happened, because we seem to have gone almost full circle in little more than two years. In June 2012, UK farm-gate milk prices fell to just over 26p a litre, and at that time feed prices were extremely high. The situation was incredibly difficult, and confidence was at rock bottom. Many of us will remember attending a meeting with the then Minister with responsibility for farming, my right hon. Friend the Member for South East Cambridgeshire (Sir James Paice), to highlight the issue and the crisis facing farming. However, we then experienced a much better period and something of a turnaround. Relationships in the supply chain improved drastically following the development of a new code of practice for dairy contracts. By November 2013, prices had gone up to 34.5p a litre. Demand started to grow in China, feed costs fell dramatically and our farmers responded by increasing production. UK milk production increased for the first time in 10 years.
The latest figures from the farm business survey published just last week show that, in the very positive 2013-14 financial year, the average farm business income on dairy farms increased by more than two thirds to more than £87,000 a year, which was driven by both increased prices and increased production. That was perhaps a record year, but as my hon. Friend the Member for South Dorset (Richard Drax) showed when he described the concerns of one of his constituents, many farmers will now feel that that seems a long time ago. Since then we have sadly seen another serious dip in prices, with the latest statistics from the Office for National Statistics showing that the average milk price in September 2014 was just over 30p a litre. Anecdotally, there are some examples of farmers accepting less than 30p a litre. Some projections show that the price could still go down further. In fact, we can probably expect to see another six months of relatively low prices.
Roger Williams
Dairy UK is concerned that some information issued by the Department of Health about the quality and healthiness of dairy products is not true. Will the Minister please talk to the Department of Health to address that concern?
George Eustice
That was an issue about a year ago. We had discussions with the Department of Health, and the Government changed some of the approaches in the advertising to which the hon. Gentleman refers.
There is some good news, in that the average price for forage crops remains low, and the price of protein concentrates continues to fall. The UK farm-gate milk price also remains a bit stronger than in some other European countries, notably Germany and Poland. Some of the Baltic states have been very exposed to the Russian ban. In Latvia, for instance, the average farm- gate price is now less than 20p a litre. Nevertheless, the sharp fall in prices has had a big impact on farmers, and confidence is low. As I said, we seem to have gone full circle.
Fiona Bruce (Congleton) (Con)
I thank the Minister for giving way, as I had hoped to speak in this debate. There was a meeting of Cheshire farmers yesterday, at which I am told frustration reigned. The main question they asked me to put to the Minister was this: what can the Government do to reassure dairy farmers that they have a viable future and so should invest in the future of their businesses?
George Eustice
My hon. Friend makes an important point, which I will address in a moment.
Volatility is, of course, a feature of global markets. The National Farmers Union is showing strong leadership in developing futures markets and other market mechanisms alongside industry partners. Every six months I chair a meeting of the dairy supply chain forum. The next meeting was due just before Christmas, and given the challenges that the industry is facing, I have brought that meeting forward to a little under two weeks’ time. One of the key issues I want to address in that meeting is whether we can do more to support the NFU to develop the mechanisms that help farmers to manage volatility.
Despite the current challenges, as many hon. Members have said, the long-term picture for our dairy industry is very positive. British farmers and dairy producers are producing a range of fantastic products. Over the next decade, global demand for dairy is expected to increase by around 2.5% a year. Earlier this summer, I attended the launch of the industry’s “Leading the Way” growth plan, which sets out some of the opportunities for the industry. We are supporting and encouraging dairy farmers and processors to develop their businesses on the back of growing demand, and over the past year exports of milk powder have grown by 65% to £152 million, and cheese exports are up by 12%.
As the hon. Member for North Antrim (Ian Paisley) said, there has been a particular problem in China, where demand has fallen, which has contributed to some of our difficulties with price. The Secretary of State for Environment, Food and Rural Affairs will be visiting China in December, and I am sure this will be one of the issues on her list. Substantial investments are being made in the UK dairy processing industry, which is testament to its long-term potential, including Arla’s new plant at Aylesbury and plans for the Davidstow creamery in Cornwall.
On the idea of encouraging producer organisations, we have given dairy farmers the opportunity to unite in producer organisations so that they have greater clout in the marketplace. In the past two years the Government have spent £5 million supporting that work. My hon. Friend the Member for Montgomeryshire (Glyn Davies) spoke about quotas, and at virtually every Agricultural Council since January I have resisted calls from Germany, Austria and others to loosen the quota regime ahead of time. Earlier, they were concerned about the risk to them of the super-levy fine, and we have resisted those calls because we did not want to create additional pressure on the market. Many hon. Members have highlighted the dairy code, and Alex Fergusson has now concluded his review. He concluded that the code is working well and has made a positive difference, and 85% of production is currently covered by the code.
A number of people have talked about transparency in the contracting system, which is provided for in the code. Farmers essentially have an opportunity to walk away from a contract with three months’ notice, or if there is to be a clear and transparent basis on which the price is calculated, sometimes linked to production costs, it has to be clearly stated in the contract.
A number of Members asked whether the code should be put on a statutory footing. As the hon. Member for Somerton and Frome pointed out, there are drawbacks to that, because we probably would not be able to include a farmer’s right to walk away after three months. We would end up with a statutory code that is far weaker than the voluntary code.
Co-operatives have also been mentioned. One of the points that Alex Fergusson made in his report is that, although members tend to be very happy in co-operatives and tend to support that approach, he thinks that in some cases they could do more to leverage their power within a co-operative to ensure that they are getting a fair deal, which the farming industry might want to consider.
Many hon. Members, including my hon. Friend the Member for Thirsk and Malton (Miss McIntosh), have mentioned the groceries code adjudicator. It is important to recognise that the Department for Business, Innovation and Skills has committed to reviewing the groceries code adjudicator in 2016, but the dairy code is currently voluntary, and the latest report by Alex Fergusson concluded that it is working well. Farmers are not telling us that the code itself is a problem. The other thing we have to recognise is that the dairy code is most valuable to farmers when markets are tight and prices are rising; it is of less use to them at the moment when, frankly, we have an oversupply, with milk production up by about 10%. Finally, the other issues raised today concern whether retailers should be covered by the code, which the industry is considering because it was recommended by Alex Fergusson. The long-term future is bright for the industry, and we are doing all we can to address the immediate challenges.