Dairy Industry

Eilidh Whiteford Excerpts

Thursday 13th September 2012 Westminster Hall

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I, too, congratulate the hon. Member for Dunfermline and West Fife (Thomas Docherty) on securing the debate.

A belated announcement this morning from Robert Wiseman Dairies that it will increase the farm-gate price to 29p a litre, as well as use the new voluntary code of practice as a framework, is a timely reminder that the public scrutiny that we offer in the House remains a powerful tool to make processors and retailers who value their reputations behave more responsibly towards their suppliers and customers. I welcome the new voluntary code of practice for the dairy sector and the progress on pricing that we have seen in recent weeks, but we must not lose sight of the fact that 29p per litre is still less than the production cost, and until the prices paid to producers exceed the cost of production, we will not have a sustainable dairy industry.

As others have said, the problem is not new. There have been concerns about the way that the dairy supply chains operate for years, and it is worth bearing in mind—a point perhaps a little eclipsed today—that not only dairy farmers are squeezed by processors and retailers. The inspiring action of our dairy farmers over recent months may give a lead to other farmers and food producers, many of whom run small, family businesses. They find themselves caught in supply chains in which they have little negotiating power and in which a handful of large retailers and processors reap all the profit.

Earlier this summer, I joined dairy farmers from my constituency on the streets of Peterhead to highlight the intransigence of some retailers on paying a fair price for milk. We stood outside one supermarket that had a poster in the window advertising four pints for 99p. That encapsulated for me how milk prices have become completely dislocated from production costs or any market reality. Milk simply cannot be produced that cheaply if we want to ensure the welfare of the animals or that they are fed properly and if we want to maintain a viable business.

Farmers are angry, and it is heartbreaking for people who get up at 4.30 every morning to milk their cows to be working for nothing. They are seeing their livelihood and way of life destroyed, so that supermarkets can post multi-billion pound annual profits.

The dairy farmers in Banff and Buchan have little choice about where to send their milk for processing—most of it goes to Wiseman because there is no other large processor locally. That lack of competition compounds the inherent imbalance in the relationship between suppliers, processors and retailers. The suppliers are in an invidious position: they simply do not have enough negotiating muscle.

Perhaps the most egregious symptom of the prevailing regime is discretionary pricing: the ability of buyers to vary the terms of contracts without negotiation is unacceptable. I am glad that the new voluntary code of practice will tackle the issue, although I seek assurance from the Minister, whom I am happy to welcome to his new role, that the Government will look seriously at the introduction of legally binding measures, so that we are not debating this again in a few months’ time, next year or the year after.

The large supermarkets that dominate the retail market have the biggest share of responsibility. They have the margins, as others have said, and they need to take a long, hard look at their business models and to understand that sustainable sourcing is not only about environmental impact, but about the sustainability of the livelihoods and communities that depend on food production.

Earlier this summer, Tesco advertised for a buyer to operate in the Scottish islands. That advert let the cat out of the bag on how that company views its agricultural suppliers and goes about its business. The job advert asked for candidates who would

“achieve your savings/income target through the 4 ways of buying…Buy for less…Someone Else Pays…Use Less…Re-Engineer”.

For too long, scrutiny of the way in which large retailers push the costs and risks of food production down the supply chain has been inadequate. That is a global problem, not only a UK one. Tesco posted profits this year of £2.5 billion in the UK—apparently, its worst results in two decades—and yet it thinks that it is okay to squeeze margins from some of the most peripheral and marginally profitable producers, in the islands. That makes a complete mockery of any of its statements on corporate responsibility. It is incumbent on all hon. Members to highlight such instances because they are by no means isolated.

Many farmers are unwilling to speak out publicly about how they are treated by retailers, but privately they will catalogue the costs and pressures of doing business. We need greater transparency, and we need to be able to hold the retailers accountable. Too many supermarkets are still using business models that are completely unsustainable, and they are pushing producers out of business or to the brink of viability.

Whatever steps we take to mitigate the worst excesses of irresponsible corporate behaviour, we also need to address the underlying problems. A window of opportunity has been created by the actions of dairy farmers and the high profile that they have generated this summer, allowing Ministers to grasp the nettle of supply chains. I hope that the new Minister will seize that opportunity to bring transparency and fairness to the dairy pricing regime and take action to ensure fair prices for all our food producers caught in over-concentrated and uncompetitive supply chains.