Milk Production

Lord De Mauley Excerpts

Thursday 15th January 2015 Lords Chamber

[The Lord Bishop of St Albans]

To ask Her Majesty’s Government what steps they are taking to ensure the long-term sustainability of milk production in the United Kingdom.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, we share farmers’ concerns over the pressures on milk prices caused by the volatility of the global market and we are working closely with industry. It is important to remember that the long-term prospects are good, with exports at record levels. We are helping the dairy industry take advantage of opportunities such as opening new export markets and pushing for better country of origin labelling for British dairy products.

[The Lord Bishop of St Albans]

I thank the Minister for his Answer. Does he agree that, should we lose any of our capacity to produce milk due to the very low prices of imported milk at the moment, the nature of the dairy industry is such that you cannot quickly and efficiently turn it back on again when another shortage occurs—as there clearly will be at some point? What are Her Majesty’s Government doing to draw together dairy farmers, processors and, above all, retailers so that we can guarantee the long-term viability of our dairy industry and also ensure that the prices of milk reflect the costs of production?

[Lord De Mauley]

My Lords, to address the short-term problem, my honourable friend George Eustice, the farms Minister, yesterday held a farming resilience summit precisely so that this subject could be a central focus. Noble Lords may also have seen that DairyCo has offered advice and assistance to farmers in cash-flow planning and volatility management. Other actions in hand include investigating whether the seasonal cyclicality of prices lends itself to the use of futures markets to smooth the price curve, and we are putting pressure on the commissioner to accelerate the improvement of country-of-origin labelling.

[Lord Wigley (PC)]

Does the Minister accept that there is a need for long-term stability for the dairy sector to flourish, and that a price below 29 pence a litre at farm gate, which was the average price in November, is not sustainable? Does he accept that action needs to be taken? Does he believe that the steps to which he referred with regard to co-operation with our European partners in dairy matters on the question of labelling is enough to deliver what is needed for that stability?

[Lord De Mauley]

I certainly agree with the first half of what the noble Lord has said. I am not suggesting that the work on labelling is by any means the only tool. That is why, as I have said, we are looking at the use of futures markets, because there is evidence of a seasonal cyclicality of milk prices. At certain times of the year a crunch tends to be worse, and such crunches can be foreseen, so we want to smooth that curve. But crucial is our work on exports, and noble Lords will be interested to know that exports to non-EU markets of dairy products are up by 47% year on year.

[The Earl of Shrewsbury (Con)]

My Lords, is it not the case that one of the ways forward could be the model used by Tesco which has a margin-plus deal with farmers where at least farmers have an idea of what the future looks like and they get a decent price for their milk?

[Lord De Mauley]

Yes, my Lords. Certainly, innovative deals such as that are of real value to farmers. Sadly, not all farmers are able to negotiate those deals, but we are working with them, as I have said, on various ways to resolve the problem.

[Lord Curry of Kirkharle (CB)]

My Lords, as the Minister knows, I was at the summit yesterday hosted by his colleague George Eustice. While the long-term prospects for the dairy sector would appear to be good, what is also clear is that volatility is now an ongoing feature of global trading. I am concerned, as is the right reverend Prelate, about the long-term sustainability of the British dairy industry and the fact that we may lose market share. I understand that the Irish Government have introduced five-year tax averaging for businesses, which has existed in Denmark for a long time. Would the Minister consider approaching the Treasury to see whether that might be possible?

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[Lord De Mauley]

My Lords, I am very happy to take that back.

[Baroness Miller of Chilthorne Domer (LD)]

My Lords—

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[Lord Berkeley]

I am grateful to the noble Baroness. Does the Minister agree that one way of reducing the cost of production would be to introduce mega-dairies and very big units in the way that has been done for poultry and pigs? Does he have a view on that and what sort of size would the Government welcome?

[Lord De Mauley]

Certainly, my Lords, some producers are able to produce milk at a much lower rate—I met a farmer the other day who claimed to be producing milk in the mid-teens. We do not have strong views on the size of units of farms. What matters is stockmanship.

[Baroness Miller of Chilthorne Domer]

My Lords, does my noble friend agree that milk coming from grass-fed cows kept out of doors is of a superior nutritional quality? Further, will he say how important that is to the look of the countryside in all those areas dependent on tourism? Does he think that that would be answered by large industrial units?

[Lord De Mauley]

My Lords, there is a strong case for extensive farming. We see it in this country and some farmers are practising it very profitably. It depends to a large extent on the part of the country—on the rainfall, the quality of the grass and so forth. As I have said before, we think that there is a place for various different types of farming.

[Lord Trees (CB)]

My Lords, notwithstanding the voluntary codes by Tesco and so forth referred to earlier, which are to be commended, they apply only to a minority of dairy farmers. Is there not a case for extending the Groceries Code to primary producers of such vital products as milk? Most dairy farms are not protected under the code because they do not directly supply retailers; they supply processors.

[Lord De Mauley]

I have considered that point carefully, my Lords. The scope of the Groceries Code Adjudicator is based on a report from the Competition Commission, which found that the most significant problems in the area were experienced by direct suppliers to the UK’s 10 largest supermarkets. As a result, the Competition Commission recommended the creation of the GCA and limited its jurisdiction to the relationships between those 10 largest supermarkets and their direct suppliers. Any change to that would require primary legislation. It is a little premature to take the next step, because there is a mechanism in place for conducting a review and the first one of those is set for 31 March 2016.

[Baroness O'Cathain (Con)]

My Lords, the Question talks about the sustainability of the dairy industry. I am sure my noble friend is aware that the milk cheque is one of the most important ways of keeping agriculture going in this country. The number of dairy farmers has reduced from 30,000 about 15 years ago to 10,000 now. It seems that people are giving up. Can we impress this point on the Treasury, or whoever, and particularly on the retailers? Instead of having five private planes—in the case of one of our leading retailers—could not the retailers consider the future of agriculture in terms of the food supply to them in this country?

[Lord De Mauley]

My Lords, my noble friend, as always, puts her finger on a key part of the problem. I have outlined a number of measures that we are taking. I can also add to that the use of the RDP—the Rural Development Programme—to foster improvement of competitiveness and profitability, for example, by increased emphasis on value-added products, such as cheese and yoghurt. I think that is really important to our market. Once again I have to come back to you on the real importance of our work on exports.

[Baroness McIntosh of Hudnall (Lab)]

Does the Minister agree that cash flow, which he touched on in an earlier answer, is a critical matter, both for farmers and co-operatives? Can he say whether he feels that the banks are playing their part in sustaining the farming industry by supporting them through volatility in cash flow?

[Lord De Mauley]

The noble Baroness is absolutely right. Cash flow is crucial. You can be as profitable as you like, but if you have no money in the bank, you cannot pay the bills. The noble Baroness is alluding to the cash-flow problems that face not only farmers but co-operatives. First Milk is a co-operative, wholly owned by farmers, and it is in the interests of farmers that it should survive and thrive. Work such as that being done by Dairy UK, which I referred to earlier, on helping farmers with cash flow is really important. Some of the banks are doing similar work.