Living Wage (Farmers)

(Limited Text - Ministerial Extracts only)

Wednesday 28th October 2015 Westminster Hall

[The Minister of State, Department for Environment, Food and Rural Affairs (George Eustice)]

I thank my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson) for putting this important issue on the agenda. Food and farming is a vitally important industry; it is our biggest industry—bigger than aerospace and automotive put together. I am conscious that horticulture makes an important contribution, with an output of about £9 billion per year and employing some 12,000 people, many of whom are casual workers and many of whom are in Kent, the garden of England.

I declare an interest, because I spent 10 years as a strawberry farmer. As my hon. Friend described some of the challenges for soft fruit producers, I got flashbacks to difficult problems that I, too, encountered. He made the valid point that we are discussing perishable products. There are immense challenges in getting the crop harvested without the pickers bruising the fruit, getting it into a cold store so that the field heat can be removed and we can preserve the shelf life, getting the right orders at the right time, and getting the fruit on a lorry without someone tipping over the pallets on the way, so that it arrives in good condition. Those are daily challenges for soft fruit producers.

My hon. Friend also mentioned that producers can have problems with supermarkets. Again, he is absolutely right, and I have seen that happen. If there is a rainy day and sales in the supermarkets go down, supermarket buyers will look for excuses to reject consignments of soft fruit. That is a hazard of the industry. Another risk is weather, which I will come on to later. The risk has been reduced, but it is still there, in particular in the top fruit and stone fruit sector.

The biggest challenge of all is staffing. In the farm that I ran, we had 50 acres of soft fruit and employed about 300 people. Half of them were local people and the other half came from a number of different countries, mainly European Union ones, but also some Commonwealth countries such as South Africa, Australia and New Zealand—students who were on a work visa. So I know the challenges that farmers encounter with staffing.

I am, however, more optimistic than my hon. Friend on a number of fronts. He claimed that supermarkets will not pay a premium for fruit, but the evidence does not bear that out. English soft fruit has always commanded a premium. Consumers are tired of Spanish strawberries by March and April and are looking for quality, English glasshouse-produced strawberries. Those glasshouse and then tunnel-produced strawberries command a premium not only over Spanish fruit, because we have superior varieties, but even over Dutch strawberries. The Dutch use similar varieties to us, predominantly Elsanta or more recent ones, but even so English and Scottish fruit command a premium over foreign imports. I am more optimistic than he is about supermarkets paying a premium.

Another development of recent years has been the changes to production systems—a big transformation, which was starting 20 years ago when I was still in the industry. In fact, I was one of the first producers of glasshouse strawberries, and we used to be the first to supply the supermarkets, normally in time for Easter. We have had a huge change in production, so the season is no longer four weeks in the middle of summer, with Wimbledon fortnight smack in the middle; we now have production from March right through to Christmas.

We have also seen the development of table-top systems, which have lower labour costs. Few commercial soft fruit farms now produce strawberries in traditional beds, growing in the soil; most of them grow in a coir substrate, basically on a table top, which makes the fruit much easier and much cheaper to pick. The other advantage of moving to such systems is the advent of the so-called Spanish or French tunnel—temporary tunnel structures, which hon. Members can see in their Kent constituencies for most of the year and which protect the fruit from the weather. That has had a major impact in reducing weather risk. In fact, the greatest weather risk is now probably the effect on demand, with problems such as sales collapsing in the middle of summer because of a wet week.

There have also been big changes in the top fruit industry. Again, over the past 20 years the advent of new, more intensive systems, such as apples grown in spindle or bed systems, has lowered the cost of picking. They are now generally grown on M9—dwarfing—stock, which keeps the size of the tree down, makes the apples easier to pick and keeps the picking costs down. We have also seen big innovation in the top fruit industry with new varieties. In the case of stone fruit, who would have thought that this country would have seen a huge expansion in the production of apricots? However, we are seeing apricots and cherries grown in this country like never before.

The changes in production systems have made it easier for soft fruit businesses to manage their staff. In my day, we had to build from nothing to 300 staff within about 10 days. By the time all the staff issues had been sorted out—such as supervisors who could not do the job, endless recruitment or problems with training—and things had been perfected, it was time to start shutting everything down, because the season was over. Every soft fruit business used to have that challenge. The big change is that it is now possible for a soft fruit farm to offer employment from March right through to December.

Two years ago I visited one of our largest soft fruit producers, Hall Hunter, near Guildford, as part of the open farm Sunday project. The people there explained to me that about 60% of their staff are retained from the previous year. That was unheard of 20 years ago—every soft fruit business had to start from scratch each year—so now soft fruit enterprises are getting the bulk of their staff returning from one year to the next, and they do not have those huge costs of retraining.

I am aware of the concerns in the industry about the impacts of the national living wage, such as the potential increase in costs. We have to put that into perspective, with the coalition Government having abolished the Agricultural Wages Board. Twenty years ago I was campaigning for that, along with some of the larger enterprises. Strangely enough, at the time it was the National Farmers Union that stood in the way of the then Conservative Government, who were ready to sweep away that anachronistic organisation, and it did not happen. However, we have now scrapped the board. It is worth noting that in 2012, the final year of the Agriculture Wages Order, the level for a grade 1 standard employee was £6.96, so the change we are seeing is not so dramatic.

My hon. Friend was absolutely right when he said that we should not perceive the agriculture industry as only a low-wage one. In fact, it employs about 500,000 people. Our rough analysis suggests that the number of those affected by the national living wage will be fewer than 20,000—so the vast majority of those 500,000 are already earning more than the national living wage.

The other thing that we have to bear in mind is that the national living wage will apply only to those over the age of 25. As my hon. Friend pointed out, many soft fruit farms still rely on student labour—not only from the UK, but typically from other European countries—and they will be exempt from the national living wage. The national minimum wage rates will apply instead.

My hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) mentioned concerns about the treatment of piece rates, but there will be no change. We already have an approach that allows for a fair piece rate to be set, which is a mean average of the output per hour that a farm’s staff can achieve, divided by a coefficient of 1.2, to ensure that those only a bit slower than the average will still hit the minimum wage. The provision of a fair piece rate, which is still used in many sectors of horticulture, including the flower and soft fruit industries, means that with staff who work intermittently—they might work for two or three hours and then want to take a long break before starting again—instead of having to record every minute that they are sat in a hedge having a cup of tea, there is the ability to set a fair piece rate. That will not change.

My hon. Friend the Member for Sittingbourne and Sheppey invited me to make a whole load of policy commitments that he well knows are issues for other Departments, such as aligning tax thresholds with national insurance thresholds or extending the employment allowance so that it applies per employee rather than per business. He understands that I cannot give such commitments on behalf of the Chancellor of the Exchequer or the Secretary of State for Business, Innovation and Skills, but officials from BIS are present, so I am sure that some of my hon. Friend’s points will be taken into account.

I want to pick up on a number of issues that my hon. Friend raised. First, he commented that horticultural businesses typically will not benefit from the change in corporation tax. I am not sure whether that is largely correct. Even when I was in the industry 20 years ago, about 10 major enterprises controlled about 70% of UK soft fruit production. That has not changed; if anything, even larger businesses have come together. My hon. Friend the Member for Tonbridge and Malling mentioned Marion Regan from Hugh Lowe Farms. I know Hugh Lowe well and I know Marion well. It is a strong, enterprising business, and there are others such as Angus Davison’s business in the west midlands. We have got some very large businesses that are limited companies and will benefit from the change in corporation tax.

Smaller businesses—perhaps not those in horticulture but those in broader agriculture sectors—will in the most part benefit from an increase in the employer’s allowance from £2,000 to £3,000. A small dairy farm owner who has perhaps only one or two staff helping them out on the farm will benefit from that increase in the employer allowance. That will help to offset any additional costs.

My hon. Friend the Member for Sittingbourne and Sheppey mentioned the seasonal agricultural workers scheme, which was discontinued a few years ago. I am keeping a close eye on this, but, in the conversations I have had with soft fruit enterprises, most tell me that they have not had difficulty in sourcing labour so far. Most still find that they manage to get all the staff they need from countries such as Bulgaria, Romania and other European Union countries. We must bear in mind that the scheme was brought in to enable students from Poland and the Czech Republic to come to the UK when we had only about 12 member states in the European Union. Now that those countries are in the EU and we have an EU of 28 member states, the rationale for it has somewhat diminished.

My hon. Friend asked about the accommodation offset. In October 2015—just last month—the offset was increased to £5.35 a day, which is a rate recommended by the Low Pay Commission. The rules for the accommodation offset will also apply to workers aged 25 or older who will receive the national living wage from 2016. The rules are therefore broadly the same, and the rate will be set by the Low Pay Commission. Her Majesty’s Revenue and Customs will assess complaints regarding the accommodation offset for national living wage cases, just as it does now. There is no change: the offset will be based on a recommendation coming from the Low Pay Commission.

I am far more optimistic than my hon. Friend that the industry can cope. This is a vibrant industry that has seen huge growth in production and huge innovation in the past 20 years. That innovation has changed how it employs staff and means that, in my view, it will to cope with the coming change far better than he fears. The industry in Kent has a bright future. I was the most westerly outpost of Kentish Garden, the forerunner to Berry Gardens, and I spent many years in my 20s in Kent trying to deal with some of the challenges the industry faced. I believe that it has a strong future.

Question put and agreed to.