Dairy Industry

Duke of Somerset Excerpts

Thursday 17th September 2015 Lords Chamber

[The Duke of Somerset (CB)]

My Lords, I, too, thank the noble Earl, Lord Shrewsbury, for initiating this timely Question for Short Debate. I declare an interest as an owner of agricultural land.

The background to this EU-wide farming crisis is well known and has been well rehearsed. However, maybe some repetition at this point would serve for a bit of emphasis. A price fall of from 25% to—some say—50% since last summer was caused by a fall of global commodity prices, the Russian import ban, less demand from China and the Middle East as their economies falter, and, above all, overproduction in the EU. According to the National Farmers’ Union, nearly 500 dairy farmers in England and Wales have quit production in the past 12 months or so.

The UK industry works in a global market and of its own free will. There is no right to a fair price. Over-production always means lower prices. However, that should not mean producers having to subsidise retailers at prices below the cost of production. Once a dairy farmer ceases, they hardly ever return to the industry. We should remember that most commodities are under extreme pressure and there is no easy answer. We heard that about half the milk produced is sold fresh through retailers. The rest is split roughly between cheese and yoghurt and powders. All this is affected by movements in international dairy markets, with farmers at the bottom of the supply chain.

Supermarkets are often demonised, and they should share risk and reward equitably. If they wish to sell four pints of milk for less than a pound, they should absorb that cost themselves and not get it from their suppliers. It follows, as we heard, that the work of the Groceries Code Adjudicator must be strengthened to stamp out unfair trading practices. Other helpful suggestions from our farming leaders include longer-term thinking to embrace points such as fixed-margin contracts, much better country-of-origin labelling, the development of an effective dairy futures market to manage volatility and timely payments to farmers for the work they have already undertaken. They should preferably be paid in the autumn, as before.

The majority of the €500 million package is for targeted aid taken from the super levy on over-quota producers. That would not come out of the wider EU budget and therefore seems a very sensible purse. However, it is essential that this payment is invested in a planned manner and not frittered away aimlessly. Alongside that is the proposal to bring forward some of the direct payments to 16 October. This will most likely be mired in cross-checking and fear of penalties from the authorities.

Nevertheless, some farmers remain amazingly optimistic. I hope that the implementation of some of these suggestions might justify this hope. Do the Government share this sentiment?