Rural Economy

Lord Grantchester Excerpts

Wednesday 27th April 2016 Grand Committee

[Lord Grantchester (Lab)]

I thank the noble Baroness, Lady McIntosh, for her excellent introduction to this debate. I declare my interest as a dairy farmer in Cheshire.

Slightly hesitatingly, I have decided to speak today specifically to raise with the Minister his department’s announcement on the average farm gate price of milk for February 2016. The announcement led to an outcry from producers and industry organisations because Defra announced an increase in the milk price for February of an astonishing 10.8%—up by 2.4p to an average 25.57p per litre—when UK farm gate prices have been falling steadily since 2013. They are down 33% to a little above 23p, a price generally recognised to be below the cost of production.

I think I am on very safe ground to say that there has been no such increase. Reporting of this increase came about largely because the department appears to have bundled Arla’s annual 13th payment into the February milk price, despite the bonus accruing on milk produced for the whole of 2015 and regardless of the fact that less than half the money has actually been paid into farmers’ bank accounts as the rest went on paying AMCo farmers’ membership fee to join Arla.

When the industry is facing a crisis arguably much worse than the crisis in 2009, this announcement has given a highly contentious signal from the Government that there is an end to the crisis in the dairy supply chain and retailers. Will the Minister ask his department to reflect on what it is calling the 13th payment and how it is reflected in its reporting of average pricing? Will his department publish its methodology and open it to consultation?

I might question how his department arrives at a credible figure. There is a very complex jigsaw of pricing at the farm gate at present. Many dairy farmers have had their production supply capped so that any increase above the cap is paid at a B price several pence below the A price paid for the set quantity. Is the Minister confident that his department is able to analyse the complexities in the national milk supply and account for these effects in the average farm gate price? At a time when there is a general consensus that the agricultural sector in the rural economy is facing severe difficulties with many knock-on effects to allied trades, it is surprising that the department does not appear to reflect the true nature of the circumstances of one of its stakeholders—indeed, they could almost be called customers, if farmers could be described as such. The Minister’s clarification would be welcomed throughout the industry.

When the rural economy has such wide-ranging issues to address, I recognise that it is somewhat indulgent to bring up such a narrow matter.