UK Dairy Sector

Rebecca Pow Excerpts

Wednesday 20th April 2016 Westminster Hall

[Mr Williams]

I agree with the hon. Gentleman. I refer him and the Minister to the report by the Environment, Food and Rural Affairs Committee. The hon. Gentleman has a fine pedigree in championing such issues. He set up the all-party dairy group in the last Parliament, and he initiated many of the 12 debates that I mentioned. I thank him for his contribution.

I mentioned rural communities. I reflect on the words of the farmer whom I spoke to on the streets of Aberystwyth last weekend, who told me that price fluctuations over the past five years have cost his business something like £100,000. That is a huge loss to the local economy, local businesses and the wider agricultural economy.

[Rebecca Pow (Taunton Deane) (Con)]

I commend the hon. Gentleman on securing this debate. I must register a slight interest, as my husband runs an agricultural auctioneering business; he runs the Sedgemoor market, which many Welsh farmers come to. He has reported to me that there is a knock-on effect. It is not only the farmers selling milk who are affected; it is the whole industry. The cost of a cow now is less than £1,000. People who rear cows to sell them to dairy farmers can hardly cover the costs of their business. The whole chain is affected, not just the end of it, and we absolutely must do something to address this situation.

[Mr Williams]

The hon. Lady is quite right, and she represents a rural area, as I do. For people who do not live in a rural area, it can sometimes be very hard to understand the extent to which the agricultural community and the agricultural economy are engrained in rural areas and every aspect of life in those areas. We have had a big debate in our area about the closure of village schools. If families working on dairy farms move away, that has a direct impact on the capacity of small schools to function. If young families leave a community, public services dwindle as a consequence, as well as the auctioneers and others involved in the supply chain for the agricultural industry, as she said.

The nature of my remarks so far has been negative, but I do not want this to be a wholly negative debate, because we have some immensely innovative farmers who want to stay in the industry and want the industry to thrive and prosper. However, my farmers tell me that they want us to speak out about the reality on the ground as they experience it.

Of course, not all the problems are home-made. There are serious global challenges for British agriculture that are not under our control. The farmers I have spoken to recognise the significant impact of global supply and demand on their businesses, and the difficulties for Government in changing that. There has been a fall in the global commodity price which, along with other factors such as the Russian ban and the reduced demand for milk from China and the middle east, has played a part in the current difficulties we face in Wales and in the UK as a whole.

For those farmers who have stayed in business and continued producing dairy, production has increased, but so has production around the world and it seems unlikely to slow down in the near future. There have been warnings. I will not dwell on them too much, but the Welsh Affairs Committee, of which I am a member, warned about the impact of the end of quota and the impact of the increase in Irish production, which the Farmers Union of Wales has been talking about since 2009; but we are where we are.

While there are positive signs that the global market for milk will continue to grow, the growth in production is higher than the growth in demand, which has a huge impact on the commodity price of milk. We live in a globalised world and at times that unfortunately means that small changes somewhere else in the world have a huge impact at home. There is action that can and must be taken to improve British dairy producers’ opportunities on the global market, such as having a strong and long-term dairy exports strategy; I emphasise that it should be strong and long-term. However, these global factors cannot always be predicted.

The domestic market remains important. Over half the milk produced in the UK is sold directly as fresh liquid milk through retailers and consumed here in the UK. This milk is mostly sold as skimmed or semi-skimmed milk, with much of the remaining milk being processed into products such as cheese, yoghurt, milk powders and butter. There are some very good companies using that milk. I think of Rachel’s in Aberystwyth in my constituency; its products can be bought in Portcullis House. They are excellent products that are made using local milk.

While many dairy products are in a very competitive global market, there has been huge criticism about the relationship between supermarkets and their suppliers, especially when it comes to the price that supermarkets pay for the milk that goes on their shelves. Milk, as a staple in many people’s shopping baskets, has for too long been at the forefront of the UK retail price war. However, rather than affecting the profits of the supermarkets, it seems that much of this cost-cutting has instead affected the price paid to dairy suppliers. Much of the milk that is produced was bought at a price lower than it cost to produce. That situation is simply not sustainable for my constituents who are farmers— or for any constituents in the farming communities represented in Westminster Hall today. The FUW said in 2015:

“It is not, and never has been, the job of the producer to fund supermarket price cuts or to enhance a retailer’s market share. Sacrificing producers to a retailer price war can only function to further break an already fractured supply chain”.

That is why I return to the point about the Groceries Code Adjudicator made by the hon. Member for Eddisbury (Antoinette Sandbach), and it is why many of us in this House supported the creation of the adjudicator.

--- Later in debate ---

[Ms Margaret Ritchie (South Down) (SDLP)]

I congratulate the hon. Member for Ceredigion (Mr Williams) on securing this incredibly important and hugely topical debate on our dairy sector. The dairy sector has a long and proud history in Britain and in Ireland, both north and south. In Northern Ireland, the dairy industry stretches back many generations. Members will agree that dairy products are so much a part of our everyday diet that it is easy to forget the huge skill and effort it takes for farmers to produce such world-class produce. In fact, the all-party group on dairy—I am one of its vice-chairs—recently produced a helpful document on the need for Government, schools and the wider industry to promote dairy as an essential part of our diet.

We have already heard about the challenges faced by the dairy sector in Britain. Unfortunately, the issues are even greater in Northern Ireland, where they are amplified by our reliance on the export market. Northern Ireland’s small population and proportionally larger dairy sector mean that our farmers must seek export markets for their produce, either in the south of Ireland, in Britain or further afield. That means that our farmers are the first to feel the impact of falls in the global dairy price or currency shocks. The situation is made worse by the lower prices Northern Irish farmers tend to get for their produce.

Despite producing dairy products that are as good as or better than products produced here in Britain—forgive me for being slightly parochial—Northern Irish farmers consistently suffer from lower average prices paid by national processors and retailers. In 2014, the average price for milk in Northern Ireland was 4.42p per litre less than the average price in Britain. In 2015, the price difference was even greater, reaching 5.34p per litre. Farmers are having to sell their milk for less than what it costs to produce. Anyone can see that that is unsustainable.

This is not just a matter for us Northern Ireland MPs or the Northern Ireland Executive in Belfast; regional dairy price inequality should concern every MP and Minister in Northern Ireland and Britain. Although we would say that Northern Ireland is the worst affected, there are many areas of England, Scotland and Wales where farmers are paid less than the cost of production. There is no doubt that that has dire implications for the long-term future of the industry. The Environment, Food and Rural Affairs Committee produced a very good report on farm-gate prices and made recommendations that I hope the Government will be able to implement.

[Rebecca Pow]

Perhaps a leaf might be taken out of the Northern Irish book, because I believe that the dairy companies of Northern Ireland successfully bid for an EU grant to help to promote the export of dairy products. Northern Ireland is obviously very successful at that, which is perhaps a good reason for remaining in Europe.

[Ms Ritchie]

I thank the hon. Lady for making that helpful point. She is on the same page as me in terms of retaining membership of the European Union.