Dairy Industry

Angela Smith Excerpts

Wednesday 5th November 2014 Westminster Hall

[Angela Smith (Penistone and Stocksbridge) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Riordan. I thank the hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart) for securing this important and thoughtful debate. I begin by conveying an apology from my hon. Friend the Member for Ogmore (Huw Irranca-Davies) who is currently on a shadow ministerial visit to Brussels, where he is discussing several topics, including the ongoing dairy crisis, with European counterparts. I assure Members that we take such matters very seriously and consider them to be of the greatest importance.

As has been made clear this afternoon, the recent situation in the dairy industry is extremely worrying for rural communities, tourism and the availability of local food. Britain has a long tradition of dairy farming, which is the country’s largest agricultural sector. The UK is Europe’s third largest producer of milk after Germany and France, and the industry employs more than 50,000 people and contributes £3.7 billion to the British economy. For that reason, the Government must respond to the current dairy crisis by co-ordinating action by European officials to support dairy farmers and restore confidence in the industry.

We need stability in the industry, but consecutive months of high domestic milk production, combined with the ban on dairy imports to Russia and falling returns from global commodity markets, have resulted in an overall fall in milk prices because the largest UK milk processors have reduced payments to farmers for raw liquid milk. Low global dairy commodity prices have been compounded by price wars between major retail outlets, which have used milk as a loss leader to attract customers. Several hon. Members have made that point.

Farmers for Action states that some farmers are selling milk for as little as 25p a litre, which is far below the market price. That results in farmers operating at a loss and not even covering production costs. Not only is that financially unsustainable, but it raises further questions about responsibility in our food supply chain. If the illusion is created that food is cheap, it may damage the agricultural industry and affect how the public view food. That is not at all helpful to achieving our aims. The Government must address long-standing structural imbalances of low profitability in the industry. Farm incomes are still falling, and many farmers have left the industry altogether. We currently have just over 10,000 dairy farmers in England and Wales, and that figure is down 4.1% on the previous year.

Although the dairy industry is not yet self-sufficient, we do not believe that its future is bleak. Population growth, increased wealth in developing nations and changes in dietary habits all point to greater long-term demand for dairy. The Government must ensure that the UK dairy industry is well placed to take advantage.

[Glyn Davies]

If there had not been such demand today and I had been able to make a speech, I would have liked to make the point that quotas come to an end next year. European countries will expand dramatically to take over the growing market that the shadow Minister is talking about. We need an assurance from the Minister that the instruments in Brussels will not be used to enable other countries to expand their industry at the expense of the British dairy industry.

[Angela Smith]

That is clearly for the Minister to answer. I made the point earlier that we need to see effective, co-ordinated action from the UK Government in its relationship with Brussels to ensure that the UK dairy industry is properly served.

In June, the industry pulled together and launched a plan called “Leading the Way”, which states that an estimated 2.5% annual growth in global demand for dairy products over the next 10 years will boost UK dairy production through increased exports and import substitution. The hon. Member for Somerton and Frome (Mr Heath) made a point about marketing. My hon. Friend the Member for Ynys Môn (Albert Owen) talked about localism and the need to ensure that people properly understand that cheeses such as mozzarella are sometimes made in Wales. That is an important point, and a lot can be done on that score. In particular, more can be done to encourage British people to eat British cheese. My own favourite is Wensleydale, the great Yorkshire cheese that is produced in Hull.

[Roger Williams]

Will the hon. Lady give way?

[Angela Smith]

I will not give way, because I need to give the Minister time to respond. “Leading the Way” is an important vision for profitable growth for the UK dairy industry, based on economic, social and environmental sustainability. It focuses on the capacity of the dairy sector and the need for it to be competitive in a global context through scale, innovation and efficiency. What are the Government doing to support the industry at every level, and to improve the industry’s international competitiveness?

The industry’s voluntary code of best practice is another encouraging sign that the sector is addressing some of the structural issues of pricing mechanisms and transparency that need to be resolved. As several hon. Members have said, the dairy code provides a useful voluntary model to ensure that producers get a fair deal, and it avoids inflexible legislation and price fixing. However, it must be made to work and it must be rolled out across the dairy sector. Labour supports and encourages the dairy industry’s voluntary code of practice, which has been drawn up by Dairy UK and the NFU, and we believe that it should be adopted by the entire industry. It is absolutely right that milk producers should get improved bargaining power.

We should all welcome transparent contracts between producers and purchasers that set clear prices, which will add much-needed security. That is why the findings of the UK’s independent review of the voluntary code, which was undertaken by Alex Fergusson and recommended that the code be extended up through the supply chain, were encouraging. I commend the Environment, Food and Rural Affairs Committee and its Chair, the hon. Member for Thirsk and Malton (Miss McIntosh), for launching an inquiry into the matter, which is helpful and appropriate.

The hon. Lady recently wrote to the Secretary of State to seek the Government’s views on the potential for the statutory framework provided by the groceries code adjudicator to be extended to help to alleviate the current problems in the dairy industry. Labour, of course, supports the adjudicator, and my hon. Friend the Member for Ogmore was very much involved in getting the Groceries Code Adjudicator Act 2013 through the House. The adjudicator’s remit under the 2013 Act does not extend to the relationship between indirect suppliers, such as farmers, and retailers, nor does it apply to price setting. Labour would be open to exploring whether the adjudicator’s role should be extended to include the relationship between milk producers and milk processors.

To tackle the current crisis, we must take important steps domestically and at European level. We believe that retailers, processors and manufactures must work with dairy farmers to ensure a fair return for their product. They must recognise the cost of production and ensure investment and long-term viability.

What are the Government doing to address the structural imbalances that result in low farm-gate prices? What meetings has the Minister had with European colleagues to ensure that British farmers get a fairer price for the milk they produce? What additional EU measures will be taken to ensure the viability of the UK dairy sector? That point was made by the hon. Member for Montgomeryshire (Glyn Davies) in his intervention. Finally, what are the Government doing to take more proactive steps to promote investment in processing and reduce farmers’ production costs, including support for innovative research and development? Dairy farming plays an integral part in our rural economy, as it has for centuries. The Government must support the sector to overcome the short-term crisis and secure the long-term sustainability of the industry.