Dairy Industry

Roger Williams Excerpts

Thursday 13th September 2012 Westminster Hall

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

I am pleased to serve under your chairmanship, Mr Walker. I thank my hon. Friend the Member for Dunfermline and West Fife (Thomas Docherty) for securing the debate.

It has been a difficult summer for the farming industry, and for farmers in general. It has been a challenging number of months for dairy farmers, and I welcome this parliamentary time to debate the issue. The dairy industry is critical to the farming community and the broader agricultural industry in my constituency of South Down, where different conditions appertain to how prices are set for the dairy industry.

I am more than aware of the problems that exist for English producers. I attended the recent rally in Methodist central hall where that case was put strongly. In fact, we took evidence in the Environment, Food and Rural Affairs Committee, under the chairmanship of the hon. Member for Thirsk and Malton (Miss McIntosh), on the issue. From that evidence session, it was quite clear that dairy farmers here were financially challenged and looking for a better deal.

However, I would like to take this opportunity to concentrate on issues encountered by dairy farmers in Northern Ireland, who face similar problems combined with other potentially more pressing difficulties and, as the Minister will know, a different operating regime whereby prices for milk are set by the auction system. Raw milk prices are more volatile in Northern Ireland when compared with prices for the same commodity here owing to the exposure of the Northern Ireland dairy industry to world commodity markets. Approximately 80% of milk production in Northern Ireland is exported in one form or another, the majority of which is sent outside the European Union. The price volatility of global commodity markets has contributed to milk prices that are still 3p per litre behind last year’s higher figure.

Like producers in England and Wales, the industry in Northern Ireland has suffered from the drought in America and Russia, combined with an extremely wet summer, all of which has had a decisive impact on silage-concentrate prices across the market, and the resulting milk production rise has been calculated at approximately 4p per pint. The extremely wet summer has further increased the reliance on more expensive imported food concentrates as local silage and hay supplies become depleted. This is likely to continue into autumn and winter. Such conditions have largely negated the recovery in prices witnessed in the last few weeks at the most recent milk auction in Northern Ireland. The milk price at the latest milk auction in Northern Ireland was between 25p and 26p, with the price falling as low as 22p back in June. Notably, despite the slight rally, this remains markedly lower than the cost of production, which can run 4p to 5p higher, and is 3p lower than the price this time last year.

That cost of production has risen because of the wet summer and rising feed prices, and the situation is exacerbated in Northern Ireland as so much of our milk is exported, which makes our industry particularly prone to outside pressures and volatility that are quickly reflected in the auction system. In fact, I understand that price volatility is likely to remain a feature of the dairy industry in Northern Ireland. New ways will have to be found to minimise its impact on the industry.

A parallel issue is the price reductions in milk offered by some small independent retailers, which can also leave farmers vulnerable to market conditions. Milk is often used as a loss leader, with prices being dropped to a level that is not sustainable for the industry. They can be significantly lower than the price of production. It is also notable that market research has shown that customers are willing to pay up to an additional 5p per litre to ensure that farmers get a fair deal, especially when that is explained in terms of the sustainability of the dairy industry.

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

The hon. Lady is making a powerful case. Is she as confused as I sometimes am by people insisting on fair trade coffee and tea, but not fair trade milk?

[Ms Ritchie]

I am with the dairy industry and with the hon. Gentleman on that issue. I live in the countryside and am well aware of how the situation affects not only dairy farmers, but those involved in beef and sheep production. They feel that they do not get a fair price at the farm gate. Farmers in Northern Ireland feel that they get a lower price than those in Britain.

In the light of all that, I note with interest the recent voluntary code of practice agreed between processors and non-aligned producers in England and Wales. In such a context, there is a need for a commitment by all sides to reach a similar agreement in Northern Ireland, where no such voluntary code of practice currently exists. I understand that the dairy industry in Northern Ireland decided to wait on the outcome of discussions in Britain before deciding whether the code would be appropriate to its circumstances, and that different industry groups will meet later this month to consider their position. However, I am in no doubt that the achievement of a resolution in Northern Ireland is particularly pressing, as farmers there are less likely to be aligned with large supermarkets.

All sides and interests in the situation must recognise that their relationship is symbiotic and we must find a path that ensures a fair settlement to guarantee the success of a staple native industry. In that respect, I hope for some collaborative governance in advance of the Groceries Code Adjudicator Bill, which I hope will have teeth. I hope it will have the regulatory power to deal with the issues in question. I urge the Minister, whom I welcome to his new post, to talk to the appropriate Minister in the devolved Administration in Northern Ireland about the need to give the Northern Ireland dairy industry a fair wind.

--- Later in debate ---

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

It is a great pleasure to take part in the debate. I should perhaps declare an interest, in that I am still involved in farming—though not in dairy farming for the last 50 years, and even then not on a scale that would have caused any over-production.

I thank the hon. Member for Dunfermline and West Fife (Thomas Docherty) and all the other members of the EFRA Committee for their contributions today and their work on this matter. I look back fondly at the time that I spent on that Committee, but if I remember correctly, we were also doing then the work that is being done at the moment.

I welcome the Minister to his place; as an MP, he has always had an interest in agricultural matters, and he comes from Somerset, which is right at the heart of the west country milk-producing region.

I pay tribute to the previous Minister, the right hon. Member for South East Cambridgeshire (Mr Paice), who has now moved away from his post. He had a long apprenticeship in Opposition and perhaps too short a time in power. He delivered for British agriculture and I know that farmers think the world of him. I was at the Methodist central hall meeting, which was probably one of angriest farmers meetings I have ever attended. I am a veteran of farmers’ demonstrations, but that one was exceptional. On that occasion, the right hon. Gentleman handled it very well. Only so much can be done at a political level, but politicians can work with the industry to change public perception and public opinion on such matters, which has certainly happened.

It was a year of unrest for those in the dairy sector. They are feeling the effects of the increase in the cost of inputs—fuel, fertiliser and other oil-based products—but unlike other agricultural sectors, such as red meat and cereals, they have seen the price of their commodity decreasing, whereas other sectors have seen some compensation in the form of increasing prices.

In terms of price, the supermarket industry looks on milk as one of those staple foods that consumers judge supermarkets on, and as such, it has always been the focus of price wars. Even this morning in Tesco, eight pints were still selling for £2. In some ways, I do not criticise the supermarkets selling the milk—they can sell it for what they want—but they should not penalise farmers in their competition with other supermarkets. We have very high animal welfare standards. The public demand it. If that is to continue, farmers have to get a decent price.

Naming and shaming has made a difference—some of the processors have certainly increased their prices. The former Minister told us in July that the voluntary code of practice was coming and was only “days away,” and I am pleased to say that it was announced at the Royal Welsh show. It was a great fillip to not only Welsh but UK dairy producers. I have looked at the voluntary code:

“It offers a number of benefits and protection to farmers, including: 30 days’ notice of cut to a farmer’s price or other significant change to contractual terms”.

When we compare that with the investment that farmers have made in their farms and milk producing businesses, what are we talking about? Thirty days. Farmers have invested for years and years, and the profitability of their business can be changed just like that. I welcome the voluntary code—it is a good start—but both the milk-processing sector and the supermarkets need to be committed to the total food chain. If people are going to invest in and produce milk and other products of the quality that they have produced in the past, they need confidence that the milk chain will be there and will give them a fair return.

Certain milk processers have told me that a reason for the reduction in milk prices was that the wholesale price of cream dropped from £1,800 a tonne to £1,200 a tonne. The last time I went to buy skimmed milk, they charged the same for the skimmed as they did for the full-cream. Some of the arguments that the milk processing companies have presented should be looked at again.

The milk industry has been the basis of British farming. We need to ensure that the supply chain is made firm and secure, so that people can continue to invest in it and consumers can benefit from it.

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[The Minister of State, Department for Environment, Food and Rural Affairs (Mr David Heath)]

I am grateful to the hon. Member for Ogmore (Huw Irranca-Davies) for his welcome, and for the welcome from other Members here today. I am grateful also to the Backbench Business Committee and to the hon. Member for Dunfermline and West Fife (Thomas Docherty) and my hon. Friend the Member for Tiverton and Honiton (Neil Parish) for making this extremely timely debate happen.

Before I go any further, I want to pay tribute to my predecessor, my right hon. Friend the Member for South East Cambridgeshire (Mr Paice), and, I hope, my personal friend. I have enormous respect for him. He did an excellent job for the agriculture industry during his tenure of this post, and I regret that I am able to take on the responsibilities only by his leaving them. Nevertheless, I thank him for everything he has achieved over the past two and a half years.

This is a very important debate, as evidenced by the number of Members, from every corner of Great Britain and Northern Ireland, who have wished to contribute and are here representing the interests of dairy farmers in their constituencies. I want to say straight away that the dairy sector is hugely important to the United Kingdom, and to me. It is important to me because there are, arguably, more dairy cattle in my constituency than in any other constituency in the country. We make some of the greatest and best cheeses in not just the United Kingdom but the world, and I am not afraid to say so.

[Roger Williams]

Will the Minister give way?

[Mr Heath]

If my hon. Friend is going to argue about that statement, no, I will not.

--- Later in debate ---

[Roger Williams]

I am sure that now the Minister is in post he will be travelling right the way around the world. Will he commit to keeping a bit of Caerphilly in his briefcase, so that he can bring it out as an example of wonderful Welsh cheese?

[Mr Heath]

That will get me into some very interesting discussions with border officials in a lot of countries. I will take the concept of Caerphilly, Cheddar, Lancashire and Cheshire around the world with me, wherever I go.

The dairy sector is enormously important to the United Kingdom. It is the largest agricultural sector, and we should remember that it is worth £3.7 billion annually. It is iconic in our countryside, and is identifiably British. There are good things to say about the industry. We have some very advanced and efficient processing plants, particularly for fresh drinking milk, and in the past year there has been a lot of wider investment in processing, which shows real promise and confidence in the future. Yet, let us not get away from the fact that in the past two months we have seen rallies and protests. There was the meeting in Methodist Central hall, which I, too, was at, and there is genuine worry about the inequity between farm-gate prices and production costs. A significant proportion of farmers may struggle to make ends meet this year, particularly in the context of the price changes, but also because of the rising input costs and the monsoon conditions that many of us have had to survive this summer.

There is nothing new in much of that. I seem to have been dealing with the issue throughout my political career, and I have always been consistent regarding the matter. I am actually grateful to the hon. Member for Ogmore for mentioning some of the things that I have said in the past, because I have consistently said that we must have arrangements in the dairy sector that are fair to the farmers, to processors, to retailers and to consumers. Those are not incompatible objectives; they are all on a par. To be fair to at least one processor and retailer, the Co-operative has been mentioned several times. No, it did not do terribly well over the summer, but it has today announced that it is increasing milk prices to 30p a litre from 1 October. That is good news indeed.

Members have raised matters that are slightly away from the economic conditions of the dairy sector. They have talked about the improvements in the Rural Payments Agency, for which I am grateful, because it is absolutely right to say that the agency’s performance has improved. We have discussed TB eradication. Unfortunately, we are still none the wiser as to the position of the hon. Member for Ogmore and his party on that, but I am clear. I thought that my hon. Friend the Member for Totnes (Dr Wollaston) spoke more sense about TB eradication in her contribution than I have heard for a long time, and I am grateful to her for that. We also talked about the groceries code adjudicator, for which I certainly have argued for many years, and I am proud that we are now putting through the House the legislation that will make that a reality.

Let us return to the economic position. We import a quarter of our total dairy needs. We have a £1.2 billion trade deficit. There is a growing demand for food at the global level, and an opportunity to fulfil some of it. Milk quotas will be gone from 2015, but we are not restricted by them now. We have room to expand already, while other member states are held back until 2015 and they desperately want quotas removed now. We have a chance to get in first—otherwise we might lose out. That is why some of the things that my hon. Friends have talked about are so crucial to the future of the dairy industry—promoting the industry around the world, promoting exports and import substitution, and increasing the efficiency and competitiveness of our industry. They are all opportunities for the British dairy industry.

It is not my business to tell people how to run their farms, but we need to look at the vast range of production costs on dairy farms and see if we can learn from best practice, helping farmers to recognise the difference that efficiency and profitability can make, and the improvements that can be achieved on the farm. There are things that dairy farmers can do on their own. For instance, I encourage them to sign up for Dairy Pro. Dairy Pro is the industry’s first integrated continual professional development scheme, which provides training and development to improve both standards of business performance and recruitment and retention within the industry.

There are things that dairy farmers can do together. Several hon. Members have mentioned the EU dairy package, which increases the already significant potential for collaboration through producer organisations. The timetable has not yet been agreed by the European Council and European Parliament, but we do not expect any problems. We expect to be able to start consulting in October, and we hope the legislation will bring the package into effect in spring 2013. I hope dairy farmers recognise the wider benefits that producer organisations may offer. Such organisations are not only about negotiating prices. A well organised producer organisation can make a significant difference to the success of its members by sharing best practice, increasing efficiency and competitiveness and opening up new markets.