Dairy Industry

Roger Williams Excerpts

Wednesday 5th November 2014 Westminster Hall

[Simon Hart]

I thank the hon. Lady, who is a near neighbour. Yes, I will be making that point. The code and the adjudicator have been in place long enough now for some positive benefit to have been felt. The farming community has not yet convinced me, however, that the powers of the code and the adjudicator have been exercised as satisfactorily as they might have been.

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

Does my hon. Friend agree that it is intolerable that producers have to give the buyers of their milk more notice about a customer change than the buyer of the milk has to give about a change in price?

[Simon Hart]

My hon. Friend makes a good point. Of course that is right, and it is why we need to look at the relationship between producer and processor and between processor and retailer.

My third point, which I was getting to, is that added confusion is provided by the fact that there are so many different contracts for so many different things, written in so many different ways, making it difficult to find any body of farmers of any significant number who have a consistent contractual relationship.

--- Later in debate ---

[Angela Smith]

That is clearly for the Minister to answer. I made the point earlier that we need to see effective, co-ordinated action from the UK Government in its relationship with Brussels to ensure that the UK dairy industry is properly served.

In June, the industry pulled together and launched a plan called “Leading the Way”, which states that an estimated 2.5% annual growth in global demand for dairy products over the next 10 years will boost UK dairy production through increased exports and import substitution. The hon. Member for Somerton and Frome (Mr Heath) made a point about marketing. My hon. Friend the Member for Ynys Môn (Albert Owen) talked about localism and the need to ensure that people properly understand that cheeses such as mozzarella are sometimes made in Wales. That is an important point, and a lot can be done on that score. In particular, more can be done to encourage British people to eat British cheese. My own favourite is Wensleydale, the great Yorkshire cheese that is produced in Hull.

[Roger Williams]

Will the hon. Lady give way?

[Angela Smith]

I will not give way, because I need to give the Minister time to respond. “Leading the Way” is an important vision for profitable growth for the UK dairy industry, based on economic, social and environmental sustainability. It focuses on the capacity of the dairy sector and the need for it to be competitive in a global context through scale, innovation and efficiency. What are the Government doing to support the industry at every level, and to improve the industry’s international competitiveness?

The industry’s voluntary code of best practice is another encouraging sign that the sector is addressing some of the structural issues of pricing mechanisms and transparency that need to be resolved. As several hon. Members have said, the dairy code provides a useful voluntary model to ensure that producers get a fair deal, and it avoids inflexible legislation and price fixing. However, it must be made to work and it must be rolled out across the dairy sector. Labour supports and encourages the dairy industry’s voluntary code of practice, which has been drawn up by Dairy UK and the NFU, and we believe that it should be adopted by the entire industry. It is absolutely right that milk producers should get improved bargaining power.

We should all welcome transparent contracts between producers and purchasers that set clear prices, which will add much-needed security. That is why the findings of the UK’s independent review of the voluntary code, which was undertaken by Alex Fergusson and recommended that the code be extended up through the supply chain, were encouraging. I commend the Environment, Food and Rural Affairs Committee and its Chair, the hon. Member for Thirsk and Malton (Miss McIntosh), for launching an inquiry into the matter, which is helpful and appropriate.

The hon. Lady recently wrote to the Secretary of State to seek the Government’s views on the potential for the statutory framework provided by the groceries code adjudicator to be extended to help to alleviate the current problems in the dairy industry. Labour, of course, supports the adjudicator, and my hon. Friend the Member for Ogmore was very much involved in getting the Groceries Code Adjudicator Act 2013 through the House. The adjudicator’s remit under the 2013 Act does not extend to the relationship between indirect suppliers, such as farmers, and retailers, nor does it apply to price setting. Labour would be open to exploring whether the adjudicator’s role should be extended to include the relationship between milk producers and milk processors.

To tackle the current crisis, we must take important steps domestically and at European level. We believe that retailers, processors and manufactures must work with dairy farmers to ensure a fair return for their product. They must recognise the cost of production and ensure investment and long-term viability.

What are the Government doing to address the structural imbalances that result in low farm-gate prices? What meetings has the Minister had with European colleagues to ensure that British farmers get a fairer price for the milk they produce? What additional EU measures will be taken to ensure the viability of the UK dairy sector? That point was made by the hon. Member for Montgomeryshire (Glyn Davies) in his intervention. Finally, what are the Government doing to take more proactive steps to promote investment in processing and reduce farmers’ production costs, including support for innovative research and development? Dairy farming plays an integral part in our rural economy, as it has for centuries. The Government must support the sector to overcome the short-term crisis and secure the long-term sustainability of the industry.

[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (George Eustice)]

I congratulate my hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) on securing this debate. The over-subscription of the debate, which has necessitated such a tight time limit on contributions, shows the importance of the dairy industry. Many cheese varieties have been mentioned, and the hon. Member for Somerton and Frome (Mr Heath) said that the best cheese is in the west country. I say that the cheese gets better the further west it is made. If people go all the way to Cornwall, they will find the best cheese.

Volatility is the new challenge facing the industry, and I will briefly describe what has happened, because we seem to have gone almost full circle in little more than two years. In June 2012, UK farm-gate milk prices fell to just over 26p a litre, and at that time feed prices were extremely high. The situation was incredibly difficult, and confidence was at rock bottom. Many of us will remember attending a meeting with the then Minister with responsibility for farming, my right hon. Friend the Member for South East Cambridgeshire (Sir James Paice), to highlight the issue and the crisis facing farming. However, we then experienced a much better period and something of a turnaround. Relationships in the supply chain improved drastically following the development of a new code of practice for dairy contracts. By November 2013, prices had gone up to 34.5p a litre. Demand started to grow in China, feed costs fell dramatically and our farmers responded by increasing production. UK milk production increased for the first time in 10 years.

The latest figures from the farm business survey published just last week show that, in the very positive 2013-14 financial year, the average farm business income on dairy farms increased by more than two thirds to more than £87,000 a year, which was driven by both increased prices and increased production. That was perhaps a record year, but as my hon. Friend the Member for South Dorset (Richard Drax) showed when he described the concerns of one of his constituents, many farmers will now feel that that seems a long time ago. Since then we have sadly seen another serious dip in prices, with the latest statistics from the Office for National Statistics showing that the average milk price in September 2014 was just over 30p a litre. Anecdotally, there are some examples of farmers accepting less than 30p a litre. Some projections show that the price could still go down further. In fact, we can probably expect to see another six months of relatively low prices.

[Roger Williams]

Dairy UK is concerned that some information issued by the Department of Health about the quality and healthiness of dairy products is not true. Will the Minister please talk to the Department of Health to address that concern?

[George Eustice]

That was an issue about a year ago. We had discussions with the Department of Health, and the Government changed some of the approaches in the advertising to which the hon. Gentleman refers.

There is some good news, in that the average price for forage crops remains low, and the price of protein concentrates continues to fall. The UK farm-gate milk price also remains a bit stronger than in some other European countries, notably Germany and Poland. Some of the Baltic states have been very exposed to the Russian ban. In Latvia, for instance, the average farm- gate price is now less than 20p a litre. Nevertheless, the sharp fall in prices has had a big impact on farmers, and confidence is low. As I said, we seem to have gone full circle.