Agricultural Sector (EUC Report)

Lord Grantchester Excerpts

Tuesday 22nd November 2016 Lords Chamber

[Lord Grantchester (Lab)]

My Lords, this is an excellent report and it has been an excellent debate, and I thank all contributors. I start by declaring my interest as a dairy farmer in receipt of EU funds, a past chairman of a farmers’ co-operative and a previous owner of a farm shop.

My experience in dairy farming could be characterised as periods of sporadic profitability interspersed with frequent challenges. There is disease, where I could name foot and mouth and the current spread of TB among others. There are political challenges, due to changes in deregulation and CAP support as well as the present Brexit uncertainty. There is severe weather, such as storms and climate change experiences over the past few winters. “Quite normal then”, I expect your Lordships are thinking.

The agricultural market could be characterised as one where the farmer generally has little influence in the supply chain, the market does not really work for anybody, cost and price in commodities are largely decoupled, world trade is distorted by differing support for agriculture by all Governments, and environmental and international developments drive wider and deeper challenges. Some of this analysis was mentioned by the noble Lord, Lord Trees, and I am grateful to him for drawing attention to the various smoothings in the volatility of returns over the years.

While no one is proposing a return to product price support, the result has been that the prices of agricultural produce have been driven down below costs of production, whereby direct income support through the BPS has become a larger and larger percentage of overall returns. This has not been conducive to investment. Where there have been periods of profit, this has often resulted in oversupply, initiating another downturn, sharp price reductions, another loss of good people and skills, poor levels of behaviour in the supply chain and further unfair shifting of business risk. This makes improving the ability of farm businesses to cope with unpredictable price and cost movements a key priority.

I thank the committee for this excellent and timely report, and thank the chairman, the noble Baroness, Lady Scott of Needham Market, for her comprehensive introduction to our debate. One significant conclusion is that adverse effects at farm level are caused more by unanticipated periods of sustained low prices than increases in levels of price volatility.

The UK’s decision to leave the EU will bring additional uncertainty to an already volatile marketplace. Following the vote, the weakening of the pound has supported farm output prices but risks the increase in costs of key inputs such as fertiliser which are themselves globally traded commodities. Inflation generally is likely to increase by 3% next year. Interestingly, the Agriculture and Horticulture Development Board has produced an analysis that examines five possible trading relationships between the EU and the UK.

The noble Baroness, Lady Parminter, spoke of the huge impact of tariffs following Brexit. I am grateful that the Government have announced that current levels of support will continue until 2020, as was also welcomed in the remarks by the noble Lord, Lord Selkirk of Douglas, while ongoing challenges in the level of support were highlighted by the noble Baroness, Lady Parminter. This support will provide a steady state, to a certain degree, allowing serious consideration of the issues raised in this report following the Brexit vote.

The report contributes by providing answers to the main challenge of designing a new architecture needed to replace the CAP and to provide shape to the Government’s 25-year strategy for agriculture. This challenge represents a unique opportunity to rethink the UK’s food system to make it fully responsive to the exacerbating predicaments of inadequate nutrition and unfairness in the supply chain, as well as to the environment and the impacts of food production on climate. This is highlighted in recommendation 14 of the report.

I congratulate the noble Baroness, Lady Byford, on becoming president of LEAF. I very much value the words of the noble Earl, Lord Kinnoull, and those of the noble Lord, Lord Selkirk, on the interlink between the environment and agriculture.

The UK certainly needs a comprehensive and coherent food and farming policy. The backdrop of a more sustainable agriculture will be provided by continuing to move from direct income support towards a better recognition of public goods being adequately valued and rewarded, as proposed by recommendation 15 and debated tonight between the noble Baronesses, Lady Byford and Lady Parminter.

Concurrently with this, improving the competitiveness of agriculture within the marketplace, and capturing these returns, certainly needs to be addressed. This cannot be overstressed. I urge the Minister and the Government to consider this most carefully, and I draw attention to the recent report of the Agricultural Markets Task Force, set up by the Agriculture Commissioner, Phil Hogan, entitled Improving Market Outcomes: Enhancing the Position of Farmers in the Supply Chain. There is a strong need to assess relationships along the whole supply chain. Farmers should not be the main shock absorbers in the supply chain. Unfair trading practices have to be identified and targeted by an effective regulatory framework.

An example of this recently came in a letter, from the food processor Müller Wiseman, introducing a new supply contract with such an element. The European Commission report of 29 January 2016 on unfair business-to-business trading practice in the food supply chain states that,

“one party should not unduly or unfairly shift its own costs or entrepreneurial risks to the other party”.

Although it is not within the Minister’s department’s responsibilities, the extension of the groceries adjudicator role to being able to examine relationships along the whole supply chain could be vital and build on the very successful monitoring of the practices of the retail supermarkets. I look forward to the Government’s response, following the closure of the call for evidence on 10 January.

The supply chain also needs to look at value chain integration, with effective value-sharing mechanisms between each element along the supply chain, to establish a fairer link between producer prices and the added value accruing along the chain. The supply chain needs more diversity, innovation and incentives for improvement. I am glad that the noble Lord, Lord Teverson, in his remarks, drew attention to marketing and adding value.

Co-operation and competition law is another key area for the Government to consider. While the dairy farmers’ processors combined, following the severe crash in farm prices after foot and mouth, to raise the wholesale price to more sustainable levels, the competition authorities found suppliers guilty of combining against the interests of the consumer, who could have had lower prices. The Minister’s department needs to consider carefully the taskforce’s recommendation that,

“the Commission should unambiguously exempt joint selling … from competition law if carried out by a recognised producer organisation or association of producer organisations”.

A large element of all recent reports and recommendations—included here under recommendations 6, 7, 8 and 9—is the promotion of finance instruments to manage the risk and volatility of farmer pricing. The Government’s response is, quite rightly, to proceed most carefully following the anticipated report from EKOS Limited. Availability and expense could prove difficult, coupled to the added risk that is once again pushed on to the farmer. I share here the concerns expressed by the noble Earl, Lord Kinnoull.

Key elements of the report are contained in recommendations 11, 12 and 13, which concern research, training and benchmarking, which were highlighted in the remarks of the noble Baroness, Lady Byford, and the noble Earl, Lord Kinnoull, and data sharing and transfer, referred to by the noble Lords, Lord Trees and Lord Selkirk. The Government’s response is to be welcomed, especially in their commitment to fulfil a broadband universal service obligation by 2020, even though this falls somewhat short of ambition.

A key recommendation of the report is recommendation 3: that the Government,

“should consider how Rural Development funding can be used to accelerate structural change and create opportunities for new entrants into farming”.

The industry and some rural organisations have been slow to recognise this and rise to the challenge of providing advice and schemes to encourage and progress this development, although the noble Baroness, Lady Byford, mentioned some excellent schemes which are just beginning. The noble Lord, Lord Trees, also drew attention to an orderly exit process.

The greater challenges are to create pride and trust in the agricultural industry, to improve its perception and image for the public and to provide attractive career paths and increase the quality of the delivery model. I look forward to the ongoing dialogue over the challenges ahead and welcome the remarks of the noble Baroness, Lady Parminter, that this timetable may be adhered to by the Government. My one question to the Minister is: what are his key elements that are going to deliver change?

[Baroness Byford]

Before the noble Lord sits down, perhaps I could just correct him. Two noble Lords have mentioned as a fact that I am president of LEAF. I must have expressed myself badly: I have been president of LEAF for the last 10 years and very proud to have been so. I have just handed over to Her Royal Highness the Countess of Wessex, as I am moving on to become patron. I did not want this not to be corrected at some stage but did not like to interrupt either of the noble Lords.

[Lord Grantchester]

I thank the noble Baroness, Lady Byford, for correcting us. I always had the impression that she was closely involved with LEAF and I apologise for not realising that sooner.