Dairy Industry

Nigel Evans Excerpts

Wednesday 5th November 2014 Westminster Hall

[Mr Mark Williams (Ceredigion) (LD)]

It is a privilege to serve under your chairmanship, Mrs Riordan. I congratulate my hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) on securing this timely debate.

When I found out this debate was to take place, I spoke to farmers in my constituency. I hesitated to use the word “crisis”, but they reminded me that this is, indeed, a crisis, and we have heard of the experience in Northern Ireland. The price fluctuations might seem small, but when someone is running a small family farm, they are very frightening, and they can make the difference between survival and extinction.

In my intervention on my hon. Friend, I talked about the impact on the broader rural economy. There are 600 farms in my constituency. Most of them are on the uplands, but there are large parts of the county where taking away the small traditional family farms would have a huge impact on the viability of the broader rural community. We have heard about the increasing volatility and about the experience in Northern Ireland, and that is the experience in Wales as well—that is the case that the Farmers Union of Wales and National Farmers Union Cymru have put strongly to me.

I will not rehearse the figures, which we have heard from other Members, other than to say that the recent milk price cuts have wiped an estimated £800 million from the annual income of UK dairy farmers. We have heard about the reasons behind that: the increase in dairy production, over-supply globally, the turndown in global commodity prices, the slump in Chinese demand and the residual impact of the Russian ban.

[Mr Nigel Evans (Ribble Valley) (Con)]

The other reason is supermarkets trying to sell four pints for £1. While most consumers would welcome being able to buy milk so cheaply, they simply do not want to do that on the backs of the farmers who produce the milk. They would far prefer to see the supermarkets pay a decent price for the milk, and to pay a decent price for it themselves, than to get cheap milk on the backs of farmers.

[Mr Williams]

The hon. Gentleman also represents a rural constituency, and that is certainly the message from consumers in my constituency when they reflect on the prices supermarkets pay. I concur that that is what consumers would think if they understood the pressure such prices put on the family farm.

The Welsh Affairs Committee, of which I am a member, undertook a report into the dairy industry, which was published last autumn. We undertook our inquiry as a result of the major crisis in the summer of 2012, when retailers and processors announced sudden large price cuts. This is not, therefore, something new; it is a recurring theme, which needs to be addressed, and the Government have done that in part.

These issues are a particular concern in west Wales, where our dairy sector employs thousands of people and accounts for a third of all agricultural output. We therefore lobbied for a code, and the Government, including my hon. Friend the Member for Somerton and Frome (Mr Heath) when he was a member of the Government, introduced one.

The code has recently been subject to review by Mr Alex Fergusson. The review has revealed concerns in some parts of the industry that the code is not working to its full potential. Some processors have expressed legitimate worries that those who comply with it are at a competitive disadvantage. The code is thought to cover about 85% of the UK’s milk market, but a major weakness seems to be that it is not equally embraced by all. There is also concern that purchasers are cherry-picking elements of the code and that some producers will be left at a competitive disadvantage as a result. The FUW has also revealed that there are varying levels of confidence in the code among producers, with 9% being extremely pessimistic about it.

As in 2012, all parties in the dairy industry supply chain deserve fair contractual terms and conditions. The FUW said:

“Farmers should have a fair balance of power with their milk purchasers and contracts should be formed in such a way that milk prices will not be dropped without sufficient advance notice.

Elements of the code, such as shorter termination periods, the abolition of retrospective price adjustments and the inclusion of a market-based pricing formula will aid in shifting the balance of power back in the direction of the producer.”

That reflects the situation many farmers in my area are experiencing. Small businesses are unable to plan or invest for the future, to sustain the family farm or to attract youngsters to the industry.

The FUW says that systemic failures in the dairy supply chain mean that the price Welsh farmers receive for their milk is often less than market indicators would dictate, as Members have repeatedly said. Given that the code’s ability to work for all dairy producers is limited, and given that some processors have yet to adopt the code in its entirety, should we be looking at the benefits not of a voluntary agreement, but of legislation?

We have talked about the need to extend the groceries code adjudicator’s powers to include all aspects of the dairy supply chain and the dairy code. The hon. Member for Thirsk and Malton (Miss McIntosh), who chairs the Environment, Food and Rural Affairs Committee, was right to talk about that. There is a perception out there that the issue is dealt with by the groceries code adjudicator, and we need to address that.

Lastly, I would like to return to the point I made in an intervention on my hon. Friend the Member for Carmarthen West and South Pembrokeshire about producer organisations. I remember standing in a farmyard in the village of Tremain, near Cardigan in Ceredigion, at a meeting organised by the NFU at the height of the crisis in 2012. There was huge scepticism about whether farmers would be able, practically, to work together, given the diversity of the arrangements. We need to continue to address that issue, but we also need some Government assistance, as has been provided in Scotland, to ensure that we have properly constructed organisations that can negotiate from strength.

This is a timely, important debate, and the issue is critical for the wider rural community.