Dairy Industry

Debate between Roger Gale and George Eustice

Wednesday 4th February 2015 Westminster Hall

[George Eustice]

I cannot give way, as I want to cover as many points as possible. I agree with the point made about procurement, and we are making progress in that area.

A number of hon. Members mentioned the Groceries Code Adjudicator. I can confirm that a week ago the order that establishes the ability to levy fines was laid. It is subject to an affirmative resolution process, so it will now go through Committees in both Houses, but that will happen during this Parliament.

A number of hon. Members talked about the extension of the groceries code. We are considering that. Last year, I considered whether we should place the dairy supply chain code on a statutory basis, but because there is existing EU legislation in this area—a Common Market organisation regulation that establishes the grounds of such codes—we would end up with a weaker code if we put it on a statutory footing, because we would not be able to stipulate that farmers could walk away at three months’ notice. Therefore, while we had a contingency plan to put the dairy supply chain code on a statutory footing if it collapsed, we would have ended up, as I say, with a code that was weaker, so there are limitations to doing that.

When it comes to the powers of the GCA, we have to realise that they are not reliant on complaints. They already have full powers to investigate

“if there are reasonable grounds to suspect”

that the code has been broken. So, those measures are already in place. In fact, when I met Christine Tacon recently to discuss this matter, she said that one of the biggest things she is trying to encourage is better training of processors and those dealing with supermarkets to ensure that they use the code effectively and say to supermarkets, “You’ll understand that I can’t accept what you are asking me to accept, because it would be in breach of the code,” and to do so in a way that ensures everybody abides by the code. That is how we can help those further down the supply chain, because one of the issues is that it might sometimes be easier for processors to take the hit from the supermarket and pass it on to farmers. We need to ensure that they hold their retail customers to the code.

A number of hon. Members mentioned intervention prices. I have to say that Commissioner Hogan thought that that would be the wrong way to go when it was discussed at the Agriculture and Fisheries Council last week. One of the difficulties we would have is that other farmers in the UK would have to pick up the cost of such action through crisis measures, and we would tend to find that other European countries would benefit most, because although we have low prices here, other European countries have even lower prices. Also, the history of such schemes tends to be that the UK pays while others benefit, so we have to be concerned about that. However, we have the milk market observatory at EU level, and other crisis measures, particularly to mitigate the effects of the Russian ban, have been considered.

Hon. Members mentioned the EU school milk scheme. I will say, briefly, that we access that scheme, although it is not a very generous scheme; we have to top it up a lot, but we do use it. When it comes to the number of dairy farmers, there has been consolidation over many years, but production in the UK is now at a 10-year high. So, although we have fewer dairy farmers, total dairy production in the UK is still higher than it has been for a decade.

I will finish on a brighter note, by saying that the long-term prospects for this industry are good. We are seeing a 2.5% rise in demand per year, and the UK is well placed to take new opportunities in markets. We should also note that most analysts are now predicting a recovery of milk prices—farm-gate milk prices—later this year. The last three Fonterra global dairy trade auctions have shown a recovery in skimmed milk powder prices on the global market; in fact, they are up 15% since the beginning of the year. As I said, it will take time for that to feed through to farm-gate prices, but most analysts now expect that we will see a recovery in farm-gate milk prices from the summer onwards and that could be quite a strong recovery, if the early indications on the international auction in recent days are anything to go by.

[Sir Roger Gale (in the Chair)]

I thank all Members for their forbearance this morning. It has been difficult, but the House has conducted itself impeccably.