Dairy Industry

Guto Bebb Excerpts

Wednesday 5th November 2014 Westminster Hall

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Diolch, Mrs Riordan. It is a pleasure to serve under your chairmanship. I start by congratulating the hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart) on securing this debate. I associate myself with many of his comments.

The Welsh dairy industry contributes about 10% of the milk produced in the UK, and Carmarthenshire is one of the places in Europe most ideally suited to producing milk, due to the plentiful resources of fresh grass. However, the long-term trends in the industry have not been particularly good. Since 1999, the number of dairy producers in Wales has fallen by 51.3%.

Recently, the price of milk has fallen below 27p a litre, with the cost of production being higher than that. First Milk has announced that it will cut its prices even further in December. In the Baltic states, the price of milk is down to 13p a litre; that shows the fall in milk prices throughout the EU and the world. Milk is a highly nutritious product and a vital component of any healthy diet, but in the supermarkets it is cheaper than water, so something is going wrong somewhere.

During the recess, I visited a local farm, Bremenda Uchaf at Llanarthney, in the middle of the Towy valley, with the Farmers Union of Wales to discuss the emerging situation in the dairy industry. As I said recently during Welsh questions, the most recent crisis has been caused by two main factors: another supermarket price war, in which dairy foods and milk in particular bear the brunt as they are gateway products; and reprisal Russian sanctions on EU food products. President Putin introduced a one-year ban in August, and CNN reported that it is worth £1.5 billion to the EU dairy sector. Demand for milk and other products, such as beef, has fallen significantly and over-supply in domestic and EU markets has depressed prices. I read in The Guardian today that the situation in the eastern part of Ukraine is still highly volatile, so the sanctions may remain in place.

[Guto Bebb (Aberconwy) (Con)]

On the impact of sanctions from Russia, does the hon. Gentleman believe that the Government should act in the same way as the Polish Government, for example, who have encouraged people there to eat apples to stand up to Putin? Should we not encourage people to eat Welsh cheese to stand up to Putin?

[Jonathan Edwards]

I would certainly encourage people in Wales to eat Welsh cheese and to drink as much Welsh milk as possible. My daughter is on a pint a day, so I am doing my bit for the cause.

The industry also faces other long-term challenges, in particular the end of milk quotas next year. Competitors in Ireland are preparing for this by increasing milk production, and unless there are strategies in place to help Welsh farmers, we could have a long period of milk price instability. I fear that there is a lack of political direction at Welsh Government level. In a recent evidence session of the Welsh Affairs Committee, the new Secretary of State for Environment, Food and Rural Affairs seemed to indicate to me that the current difficulties were likely to be short-term. I invite her to reconsider her position and to put in place interventionist measures to help the industry before we face another serious crisis, like the one we faced a few years ago.

I want to list a series of interventions that are needed, from the Department but primarily from the Welsh Government. We must ensure that all that can be done is done, and that no one in the supply chain is using the current downward price trend as a convenient excuse to make additional cuts to farm-gate prices. We need retailers who use milk as a loss leader to ensure that they fund those deals from their own profit margins and not from the pockets of farmers. It is vital that those retailers put transparent pricing mechanisms in place and ensure that suppliers are compliant with the voluntary code.

Put simply, milk being sold cheaply devalues the product in the eyes of consumers, and this could have long-term negative ramifications for the sector as a whole. It is extremely worrying to every dairy farmer to see milk being used as a battleground between retailers.

--- Later in debate ---

[Guto Bebb (Aberconwy) (Con)]

I, too, congratulate my hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) on securing the debate. It is a pleasure to follow the hon. Member for Ynys Môn (Albert Owen). Most of my prepared speech will be thrown out the window in view of the change in the time limit, but most of the points have already been made, not least by the two Carmarthenshire Members, who have highlighted many of the issues facing the farming industry in Wales. The impact of the decline of the dairy industry is not only on farming communities and rural communities. In my part of north Wales, the fact that the average herd has gone from 40 to 125 cows means that there are fewer family farms, and there has been a direct impact on the Welsh language and Welsh communities as a result, so the issue is not just economic but cultural in our part of Wales.

I want to pick up the point about a price of 99p for 4 pints of milk. I was once asked on the radio what the price of milk was, and I responded by saying that it was possible to buy 4 pints of milk for £1 in a supermarket. I thought that I had done well in answering that question. Most politicians fail to get the answer right on the price of milk, but obviously, as a Member of Parliament for an agricultural area, I was then condemned by the two farming unions for buying my milk in a supermarket.

It is important that we make points such as the fact that milk and bread, for example, have for a long time been loss leaders. The key point is that the loss should be borne by the supermarkets. If they want to have a price war over the price of milk, they should bear the loss.

[Ian Lavery]

Is it not time that we looked at regulating supermarkets to protect the farmers and suppliers?

[Guto Bebb]

That is a fair point, but it should be pointed out that there are some supply chain initiatives that we should see as moves in the right direction. For example, Tesco, which is not a company associated with good practice most of the time, has an interesting supply chain for dairy farmers that takes into account the cost of production and the need to create a profit, but it represents only 5% of UK dairy farmers. However, it is an example of what can be done. I understand that another supermarket is going down that road, but I will not name another supermarket just in case people think that I am in the pocket of the supermarkets.

I want to make some key points in relation to the situation in Wales. We need to look at the long-term opportunities as well. The impact of the sanctions on Russia, for example, shows that we are working in a global market. I would like my hon. Friend the Minister to give me some assurances that the potential for a free trade agreement across the Atlantic will be an opportunity for Welsh farmers and British farmers to exploit. It is important to remember that we have a market in north America that could be identified as a possibility for Welsh farmers, but we need to have some progress on the transatlantic trade and investment partnership. When markets are closed to us, there is a direct impact on our communities.

Another issue that I want to touch on is the movement of funding from pillar one to pillar two. The situation in England is that 12% of the money from pillar one is moved to pillar two; in Wales, it is a more draconian 15%. What is key, if that money is moved to pillar two, is what can be done with that funding to encourage diversification and new opportunities for Welsh food producers. I am following the speech from the hon. Member for Ynys Môn, and Ynys Môn has done a fantastic job of promoting local produce. That example could be followed and, indeed, is being followed in other parts of Wales.

I will give one small example from my constituency. By utilising European money in a creative manner, we have created in my constituency the Welsh food centre in Bodnant. Among other things, it has bought the entire milk production of Gerallt Jones, of Tal-y-Cafn Uchaf farm, and created new markets by creating high-premium cheese, butter and cream products. We could take such opportunities with the money going to pillar two.

I will end my speech at this point in order to ensure that someone else can speak.