Dairy Industry

Roger Williams Excerpts

Wednesday 4th February 2015 Westminster Hall

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I congratulate the hon. Member for Ribble Valley (Mr Evans) on securing the debate and I commend the Environment, Food and Rural Affairs Committee on its report, which provides a helpful backdrop to the proceedings. There seems to be much consensus from industry, stakeholders and others that the present low prices and market volatility are largely attributable to increased global production, lower demand than anticipated in China and the impact of Russian sanctions on EU imports.

There is also fairly widespread agreement that, in the longer term, the demand for dairy products worldwide is likely to rise and our producers could access growing international markets. In the meantime, however, as we have already heard, the situation is a lot less rosy. Farm-gate prices are below the cost of production, which is creating a critical situation for many dairy farmers, some of whom have been struggling to stay afloat for some years.

I have a sense of déjà vu, because back in 2012 we debated the crisis in the dairy industry here in Westminster Hall. At that time, I welcomed the introduction of what was then the new voluntary code of conduct, but I pointed out that farm-gate prices were still too low to be viable, and that, until the prices paid to producers exceeded the cost of production, we would not have a sustainable dairy industry. That essential issue, which is not fully addressed by either the voluntary code or the Groceries Code Adjudicator, still underpins the problems facing the dairy sector.

Most of Scotland’s milk production—92% of it—is for domestic UK markets, and primary producers, who have high input costs, are caught in and continually squeezed by over-concentrated supply chains. Dairy farmers point out that that those who supply Asda, Morrisons, Lidl, Aldi, Iceland and Waitrose receive substantially less than the cost of production for their milk. Asda’s suppliers say that they receive 56p for four pints against a production cost of 68p. Dairy producers cannot be expected to subsidise retailers in that way. In the long term, it is not in the interests of our food security or consumers to push dairy farmers out of business.

There has been some discussion about whether the voluntary code is operating as it should, whether the EU intervention price is too low and whether the powers of the Groceries Code Adjudicator should be extended. The voluntary code has been a positive move—as far as it goes—but it is not designed to tackle underlying structural problems. The dairy industry in north-east Scotland—what is left of it—illustrates well the limitations of the voluntary code in practice in that there is only one processor. That is the case in many parts of rural Scotland. The voluntary code can help in terms of conditions of contracts if stakeholders choose to adhere to it, but, if circumstances change, it is very weak in that there is often no other show in town. That lack of competition means that, in negotiations between producers and processors, one player holds all the cards. That highlights the underlying problems of a concentrated supply chain.

When legislation for the Groceries Code Adjudicator was going through Parliament back in 2012, I argued strongly that the restrictions on who could make representations to the adjudicator would place serious limitations on its effectiveness. I would definitely like to see the adjudicator being able to investigate complaints from parties other than direct suppliers. The situation we are discussing is a good example of where that would be beneficial. However, that would still address only the symptoms.

[Roger Williams (Brecon and Radnorshire) (LD)]

Will the hon. Lady give way?

[Dr Whiteford]

I will not allow an intervention. I apologise. The Government’s failure to empower the adjudicator to impose penalties on those in violation of the code is a real dereliction that I hope they will put right with all due haste. I do not want the adjudicator to be another useless quango. Given the time constraints, I will not say anything about the intervention price except that I hope that the Minister will raise that at EU level so that it is on the policy makers’ agenda.

To allow our dairy sector to sink and diminish without trace is short-sighted. We all recognise that there is a future for the sector in growing export markets. If we are smart, we could develop those markets for high quality, value added products. We have a strong traditional industry with a reputation for quality, excellent animal welfare and food standards and distinctive, unique regional products. Notwithstanding the current market issues, there are substantial and growing opportunities for our dairy industry and a clear role for Governments throughout the UK in supporting their development. However, while we are still selling milk below the cost of production, we will not have a sustainable industry.

--- Later in debate ---

[Sheryll Murray (South East Cornwall) (Con)]

Well done to my hon. Friend the Member for Ribble Valley (Mr Evans). My constituency has a large number of dairy farmers, some of whom have positive stories to tell. Others, however, have to contend with the ongoing problem of bovine TB, and the volatility of milk prices may be the final nail in the coffin for them.

I want to take the opportunity to congratulate some dairy farmers who have diversified and become processors. The gold award-winning champion Philip Stansfield formed the Cornish Cheese Company, which the Environment, Food and Rural Affairs Committee visited last year. The story of the young guy who produces Cornish gouda using his father’s cows is an example of a fantastic way of utilising the family milk to help with running costs. Bill Clarke and his wife, from Greymare farm near Lostwithiel, sold their cows in 2001 to concentrate on their processing business. They work only with Cornish farmers, of whom they have 23, all from within a 25-mile radius of their farm. They started from small beginnings, bottling milk from their own herd once the children were in bed. Their sons have now joined the business, which employs more than 100 people.

The story is not the same for all dairy farmers in south-east Cornwall, but it could be. I have recently been visited by a dairy farmer who is really concerned about his future. Having invested in new equipment, he fears that he will be unable to sustain his farm with such very low prices. He is fearful for his future.

I support the conclusions and recommendations of the Environment, Food and Rural Affairs Committee and the recommendations that have been made so well by my hon. Friend the Member for Ribble Valley. I want to see a vibrant and thriving dairy industry in south-east Cornwall, with both processors and producers.

[Roger Williams]

rose—

[Sir Roger Gale (in the Chair)]

As a word of early warning, Mr Farron is next. Mr Williams, you rose earlier and, because Sir William Cash has left, I can possibly squeeze you in at the end. I put you on notice.

--- Later in debate ---

[Roger Williams (Brecon and Radnorshire) (LD)]

I apologise to the House for arriving late. Other duties held me back. I am impressed with the understanding of the dairy industry that I have heard in this debate, which is partly due to the Environment, Food and Rural Affairs Committee report. I am pleased that a number of those recommendations have been enacted so soon.

I will concentrate my few remarks on the Groceries Code Adjudicator. I am pleased that she will shortly have the power to impose fines, because only fines really count to commercial organisations. Yes, naming and shaming is important, but fines are important, too. Reference has been made to extending the adjudicator’s powers to ensure that she can examine the whole length of the food chain. Very few farmers in my constituency trade directly with supermarkets, and most people who produce milk do not sell directly to a supermarket.

I am also concerned that the Groceries Code Adjudicator should be able proactively to examine situations where she, or possibly he in the future, believes there to be a failure of the marketplace. At the moment, she can act only on a complaint. As we have heard from my hon. Friend the Member for Argyll and Bute (Mr Reid), producers sometimes have only one customer. Such producers are therefore very cautious about making a complaint that may result in him or her being put on a blacklist and being unable to sell their product.

Thank you for this opportunity, Sir Roger. I look forward to hearing the closing remarks.