UK Dairy Sector

Jonathan Edwards Excerpts

Wednesday 20th April 2016 Westminster Hall

[Mr Williams]

Again, I completely concur with that comment. I think the hon. Gentleman secured a debate on the Groceries Code Adjudicator in this Chamber a few weeks or months ago, and he made that point very strongly then. He is quite right; we need the opportunity that this review presents.

I supported the creation of the adjudicator, as did my party, and I commend the cross-party efforts to create the adjudicator. Andrew George, the former Member for St Ives, and others, including the hon. Member for Ynys Môn—in fact, all parties in the House pioneered and put forward the case for the adjudicator, the creation of which was long in coming.

Like the hon. Member for York Outer (Julian Sturdy), farmers tell me that, yes, the adjudicator has the power to name and shame, and, yes, the adjudicator has the power to levy fines, but those powers are insufficient. The adjudicator needs to have the power to examine the whole of the supply chain from gate to plate, even if that requires legislative change. That would instil great confidence in many farmers who do not have a direct relationship with supermarkets through one of the admirable dedicated supply contracts.

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

rose—

[Mr Williams]

I give way to my neighbour from Carmarthen East and Dinefwr.

[Jonathan Edwards]

I am grateful to the hon. Gentleman for giving way, for securing this debate and for the passionate remarks he has made. Based on what he has just said, and based on the previous intervention, unless the Government act during that review and give the adjudicator some teeth, there will be a huge Government failure on the dairy industry.

[Mr Williams]

I totally concur with that. I think there is an emerging consensus. It took some time to give the adjudicator the capacity to levy fines. I think this is the next step, but it cannot come quickly enough for many of the farmers in Carmarthenshire, Ceredigion and elsewhere.

We are told that more dairy farmers are supplying supermarkets on a dedicated contract, which is true, and that many of those farmers receive more favourable milk prices, which is good, but only 4% of Welsh dairy farmers have a direct link with the supermarkets. I celebrate that 4%—I congratulate those farmers and those supermarkets on having better arrangements—but it is only 4% of Welsh farmers who can potentially be assisted by the Groceries Code Adjudicator if there are contractual breaches. The rest of them are on their own and there is a huge sense of vulnerability.

I will proceed as quickly as I can now; if the House will excuse me, I will not take any more interventions. I will talk about efficiency in the dairy sector. Of course, efficiency can help to reduce the cost of milk production, but to do so farmers need to have the money to invest, and that needs to be recognised in the price paid to farmers for their milk. The FUW says,

“Whilst... some retailers have made small in-roads in this area, it remains imperative that the prices paid to producers not only cover the cost of production, but also provide room for investment in order to allow the sector to innovate and remain competitive.”

I am yet to find a farmer who does not have an eye on the future and who is not prepared to plan or innovate. The issue for almost all those producers, and many of the larger ones, is that the financial constraints on them—some of those constraints are sometimes imposed by the banks, which are not always helpful; many of them are, but many of them are not—make it impossible for them to invest in the way that we want them to. If we expect farmers to invest, say, £100,000 to extend a milking parlour at a time of gravely low prices, that is a huge challenge and for many farmers it is not feasible.

Despite that, the industry has achieved many of the efficiencies expected of it. It is predicted that between 2015 and 2016 the industry will reduce the cost of production by 4.56 pence per litre. However, to go back to the international dimension to this situation, at the same time prices fell by 20%.

We need to look at processing capacity. In Wales, the fact is that we have had no substantive investment in processing facilities for 10 years, although the hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) may tell us a little good news if she catches your eye, Ms Ryan. There has been a loss of milk and cheese processing at a time of increasing supply. That needs to be addressed.

Briefly, I will endorse what the Environment, Food and Rural Affairs Committee said in the recommendations of its excellent report, “Farmgate prices”. One of the recommendations stated:

“Claims from national retailers that there are ‘sustainable economic reasons’”—

sustainable for whom, we ask—

“justifying price differentials have not been fully accepted by many farmers, and retailers must”—

I emphasise, “must”—

“do more to explain their reasoning and to ensure their prices adequately reflect the costs of production.”

The report talks about producer power in the marketplace. What is being done at the UK level—I would ask the same question to Ministers in Northern Ireland, Scotland and Wales—to encourage producer organisations? In Wales, there has been concern that the Assembly Government have not been forthcoming with the resources promised to the farming community to develop producer organisations.

The report highlighted that opportunities exist for imports to be displaced and for new products to appeal to UK and global consumers. The whole supply chain needs to invest in continued improvement and productivity. If that is an aspiration, it is a laudable one, and I know many farmers are attempting to respond to it.

The report also questioned the

“assurance from the retail sector that there is no link between the price at which supermarkets sell to their customers and the price supermarkets pay to farmers.”

The report said that “Progress is uneven”. I would say that the Committee is being rather generous in saying that it is “uneven”.

DEFRA and Agriculture Ministers in the devolved Governments need to encourage the use of more long-term contracts. That will help to provide predictable levels of income and ensure secure financial planning and investment decisions, regardless of the price in the supermarket. There needs to be clearer guidance from DEFRA so that customers know that they are buying British goods or—I would say this, wouldn’t I?—Welsh produce.

Through the European school milk scheme, children over the age of five receive a subsidised portion of milk. Revisions to the scheme—I believe the UK Government abstained—were passed this month, which means that the UK will receive just under €10 million in aid per school year, which is the fourth highest allocation of any country in the EU. DEFRA is responsible for implementing that allocation. Will the Minister clarify whether the Government will continue to participate in the revised European school milk scheme? What plans do they have for consultation? Critically for this debate, what discussions has the Minister had with the dairy industry about how it can benefit from the scheme?

My final substantive point is on the voluntary dairy code of practice, which often gets ignored. There is concern over its brevity and the number of people it covers. My farmers tell me that the code has had little impact on the farm-gate price received by producers and is largely ineffectual in the midst of a market surplus. When the former Minister, Sir James Paice—Jim Paice—came to the Royal Welsh show in Builth Wells and announced the code, there was great excitement among the farming community. We were told at the time that, if there were concerns that the dairy code was not working effectively, the Government would leave open the potential for a statutory code of practice. How is the voluntary code being monitored? What consideration is being given to putting it on a statutory basis? For a long time, the FUW has called for the inclusion of market-related pricing formulas within dairy contracts, and I fully support that.

I could go on; it is a hugely wide subject. The remit of the debate was deliberately made as wide as possible to encourage contributions from Members from all parts of the UK and with different experiences, but there will be a commonality to many of the messages that we present to the Minister. There are two great industries left in Wales—steel and agriculture—and a growing small business sector, which we nurture. The steel industry is concentrated. We hope that the proposals for a management buy-out in Port Talbot yield results, because the impact of many thousands of people losing their jobs overnight would be catastrophic for Wales and the United Kingdom. However, a more sublime, devious decline of an industry is happening in Wales, and that is agriculture. The Committee report gives us some of the answers that need to be pursued. It is very important that the thousands of jobs in rural communities are sustained and protected. I do not dwell on the negatives, because I am reminded by the young farmers who come to my surgeries—I go to their meetings, and they want to stay in the industry—that they are the people we need to support and on whom our rural communities depend.

--- Later in debate ---

[Nick Smith (Blaenau Gwent) (Lab)]

I thank the hon. Member for Ceredigion (Mr Williams) for introducing the debate and the many colleagues who have intervened and made contributions this afternoon. Time is short, so I cannot mention everyone, but the hon. Gentleman certainly gave a great cri de coeur for dairy farmers throughout the country, as well as for the steel industry in Wales—I thank him for that.

With the global market in flux and farm-gate prices on the floor, the UK dairy industry is in danger. Some farmers are being paid less than the cost of producing the milk, which is unsustainable. Only last month, thousands of proud farmers felt that they had no other choice but to march on Whitehall and ask for change and for support. The Government must listen to that call. Bodies such as Dairy UK are saying there are no quick fixes, although the Government recognise that a package of support is needed to help save the industry from collapse. However, despite promising much in the face of pressure from the industry, there is still no sign of respite.

The Environment, Food and Rural Affairs Committee report listed many recommendations that I hope the Government will make good on. It talked about a futures market for dairy. Will the Minister make it clear when such a market will be established properly?

The British public have consistently proven that they back a “buy British” principle, but dairy in the UK still lacks country of origin labelling. The Farming Minister has been unable to get the EU to bring that forward, despite the EU approving similar branding on a vast swathe of other products. Meanwhile, he has written to supermarkets to encourage them to display the British flag on British dairy products. That code, however, is voluntary.

On exports, sector leaders such as Dairy UK have called for the development of new markets where we can showcase the quality of British products. It looks as if there may be good news on red meat and the USA this week, but will the Minister detail the results of talks with other countries about their importing our dairy products? All such suggestions are long-term goals, and that is understood, but where is the progress on those key issues?

The NFU and farmers have joined Labour in calling for the Groceries Code Adjudicator’s powers to be toughened up. The Environment, Food and Rural Affairs Committee has published a report calling on the Government to consider extending the GCA’s remit. The Committee wants it to incorporate both direct and indirect suppliers. Will the Minister confirm that those concerns will be taken into account when the GCA is reviewed later this year?

[Jonathan Edwards]

As the hon. Gentleman is aware, in Wales many of the powers relating to Government intervention are devolved and, to date, the Welsh Government have decided to pursue a voluntary code of practice in this sector. Does he agree that it is about time that the Welsh Government began to look at statutory intervention, and not just leave it on a voluntary basis?

[Nick Smith]

That may be helpful and I certainly think it is worth looking at.

The problem of delayed payments has come up too, with the high-profile failure of the Rural Payments Agency system this year. That money is a vital lifeline, given the struggles in the dairy marketplace, yet a Public Accounts Committee report revealed a payments fiasco. The Government must accept their part in a failing IT project that may have landed us with a £180 million annual fine from the EU. Money that could have gone to British agriculture will now be thrown away. The NFU says that that the RPA should be making 90% of payments by the end of December each year. Will the Minister give assurances that that target will be met in future years?

Finally, I welcome the deep analysis done by the NFU on the implications of a UK exit from the EU. The analysis showed that every Brexit scenario resulted in a large drop in income for farmers. Will the Minister join me in recognising that for dairy farmers, staying in the EU is vital for the trade and support that it provides to the industry?