Dairy Industry

Simon Hart Excerpts

Wednesday 5th November 2014 Westminster Hall

[Simon Hart (Carmarthen West and South Pembrokeshire) (Con)]

I welcome the Minister to Westminster Hall for the third time in two days. He must be getting used to the warm welcome.

The debate is about one of the most important industries in the UK, the dairy industry, which affects every household in the land. Someone said to me recently, “If we’re lucky, we might need a doctor, an accountant or a lawyer once or twice a year, but we need a farmer three times a day.” That is the background to the debate. The industry has a huge impact on the local economy of constituencies around the land and the health of the industry has a far deeper effect than simply on agriculture. For example, the dairy industry has a huge knock-on effect on the tourism industry in my part of the world in west Wales. The whole UK landscape, in particular in our part of Wales, is heavily and positively influenced by the contribution of dairy farmers and other livestock farmers, often at their own expense.

Agriculture may be a devolved issue—the Minister will come to that—but world markets are not, nor is the role of the groceries code adjudicator or the dairy code of practice. The problem is a UK one, not simply a devolved matter for the Welsh Government. We bring the debate to Westminster Hall this afternoon on behalf of the dairy industry—our friends, our colleagues, our constituents who derive their living from it, our members of the Farmers Union of Wales, the National Farmers Union, the CLA or Country Land and Business Association and Farmers for Action, and many others, some of whom are not members of any union.

Fluctuating prices, tensions between farmers and processors, and criticism of retailers, especially supermarkets, are nothing new in agriculture, but I do not want the debate simply to be a long list of complaints. That is not the purpose of the exercise. We need to understand what is going on in the world market and the relationship between farmers and processors, which has been raised in the House and outside Parliament on many occasions.

[Bill Wiggin (North Herefordshire) (Con)]

My hon. Friend is quite right, and I am looking forward to the rest of his speech, but four pints of milk for 89p cannot be right. Something surely needs to be done.

[Simon Hart]

I will be coming to that in due course, but it is particularly galling for a producer to see that kind of offer in some retailers.

I also want to go into the role and powers of the groceries code adjudicator and the voluntary code of practice, which is subject to a review at the moment—or I think it is—and into the role of Government, if indeed they have a role at all, which I believe they do. What is completely unsustainable for the dairy industry, however, is the long-term prospect of having to sell its product for less than the cost of generating it in the first place, and the extraordinarily short notice that some producers get of significant price changes, about which they can do nothing but sit back and take the pain.

[Nia Griffith (Llanelli) (Lab)]

Does the hon. Gentleman agree that that is the very reason why we need the voluntary code to be strengthened—so that farmers cannot be shocked by sudden price drops by big purchasers? Will he ask the Minister to look again at the voluntary code and at making something much stronger?

[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.

[Neil Parish (Tiverton and Honiton) (Con)]

It is absolutely right for my hon. Friend to be having this debate. British dairy products and milk are the best in the world, and we need to promote them more. The dairy farmers are paying some £7 million a year in levy, but the money is not getting out there to promote milk properly. Milk, cheese, yoghurt and all other dairy products need to be promoted more. We need to get the money out to the industry to get milk promoted.

[Simon Hart]

I thank my hon. Friend for his intervention, but I might press on now and not take quite so many interventions, because I will cover many of the points that are being made. I fully accept, however, that people will wish to write their press releases soon, so I will try to be as generous as I can.

The industry recognises that overproduction is a problem and affects price. That is a given. The industry also recognises reduced demand as a result of changing buying habits in China and of Russian sanctions. As a consequence, we are in for what one newspaper described as a long period of low prices, without any indication of what those low prices might bottom out at or of how long is “long”. Analysts are already pointing to considerable uncertainty.

There are those, although not—I am glad to say—many of them, who think that all of that can be dealt with through efficiencies in farmers’ production methods. As we have touched on, however, the short notice that people get about their milk prices cannot necessarily be offset by instant cost reduction measures or alterations to milk production methods. Some such alterations might take one, two, three or even more years to take effect, while the price reduction has an instant effect, so that is a simplistic way of addressing the problem.

An additional problem, which I suspect many Members who represent more isolated parts of the UK feel, is that there are limits to the diversification programmes that farmers can enter into. It is not always possible for people to open a suite of holiday units or a farm shop, because they might be two or three miles off the beaten track, have significant planning problems to overcome or be on a tenanted holding, the landlord of which may have a different view of the sort of developments that can be undertaken.

[Guy Opperman (Hexham) (Con)]

I congratulate my hon. Friend on securing the debate. I represent the county with the smallest population, where the point that he is making is particularly apposite. Does he agree that it is utterly important for the Government to provide better guidance on how our co-operatives and producers can come together to get a better contractual relationship with the people who are buying their milk?

[Simon Hart]

I thank my hon. Friend for a contribution that I will add to my list of questions for the Minister. He has put his finger right on a problem that particularly affects the more isolated parts of rural Britain.

That all leads conveniently to the issue of supermarkets. The milk price public battleground always centres on the role of retailers, in particular the better known ones. Some 50% of British milk is not traded globally. We talk about global influences, but we must not forget that the other 50% of our milk is not traded globally and that its price is a straightforward consequence of the relationship between UK-based retailers and the processors. The retailers cannot escape criticism by blaming it on the Chinese or the Russians. A lot of the price is about straightforward UK contractual arrangements between two important parts of the chain.

What can the Government and the processors do? There are some long-term proposals and ideas. They are nothing new, and no one in the Chamber will be unaware of them. We must—this is an easy expression to use—continue to strive for and identify new markets. Of course—that is stating the bleeding obvious, some people might say. It cannot be done in a hurry, and it cannot necessarily be done by Government alone; it has to be done by a combination of processors and Government. Identifying and exploiting new markets is of course critical, but it will not solve the problem facing my constituents in the next few weeks.

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

I congratulate the hon. Gentleman on securing this vital debate on dairy prices. Is he aware that the Dairy Council in Northern Ireland, which is an offshoot of the UK Dairy Council, has been awarded two EU contracts for the export of milk and cheese from Northern Ireland to third-country markets including south-east Asia? Does he agree that that will be a good stimulus to the local economy and will help with milk prices in a world in which they, like beef prices, are slightly depressed?

[Simon Hart]

The hon. Lady’s contribution is timely. One advantage of debates such as this is that we can bring to the attention of the public and decision makers examples of where things are working and ideas for best practice. I suspect that that anecdote will resonate with the Minister, and I hope he will deal with it specifically when he sums up.

The hon. Lady might be interested in my next point, which is about accessing more EU funding to promote dairy products. Again, that is slightly simplistic and will have to be a long-term goal, but I suspect that as a nation we are not accessing those funds quite as effectively as we might be for the dairy industry.

My third point, which is another long-term project, is that there should be greater collaboration between farmers. Even in my part of west Wales I speak to numerous dairy producers, all of whom, it seems, have some slightly differing arrangement with their processors. Having quite so many variations on a theme when it comes to marketing a product does not make for a particularly cohesive industry with real marketing clout.

[Tessa Munt (Wells) (LD)]

Will my hon. Friend give way?

[Simon Hart]

I am not getting on too well with not taking interventions, am I? I will give up, so I happily give way.

[Tessa Munt]

I thank my hon. Friend for his generosity. When farmers are asked to open their accounts prior to the arrangement of their contracts, it is no surprise that they are laid bare to the vagaries in behaviour of the people with whom they sign contracts to sell their milk. If they have to expose every single tiny bit of profit, of course the contracts will be screwed right down to the deck.

[Simon Hart]

My hon. Friend is referring to the cost of production and the guarantee element of contracts between certain producers and supermarkets—I am trying not to name them. That is a unique feature. I am not aware of any other industry that has to expose its accounts to quite that degree of scrutiny. That of course means that the particular customer can set a price that is so marginally advantageous to the producer as to hamper their sustainability. In reality, that arrangement is not as good as it looks or sounds. Perhaps the supermarkets in question, which champion the arrangement and use it as a public relations tool, might emerge from the shadows after the debate and tell us whether they think it is an honourable and moral way forward.

[Mr Mark Williams (Ceredigion) (LD)]

Returning to the issue of producer organisations and what we could almost call collective bargaining between producers and retailers, does my hon. Friend think there is merit in the example of the Scottish Government, who are funding an organisation called Dairy Farmers Together to develop collective agreements between the diverse types of farms that he has mentioned, so that their bargaining power is increased?

[Simon Hart]

The short answer is yes. This is a matter of the sustainability and the long-term health and vigour of the dairy industry, which at the moment is facing yet another crisis. I take on board my hon. Friend’s comments, and I will cheerfully pass the buck to the Minister so that we can hear what he has to say about that idea.

Before I sum up, I want to talk about a couple of short-term proposals that could have an instant and positive effect if the Government implemented them. The first is continued improvement of food labelling and procurement policies in the UK. Despite commitment after commitment and promise after promise over a long period, we are probably not where any of us would like to be with procurement and labelling policies. I hope the Minister will concede that we could do better. I know that is his own ambition and an ambition of the Government—I suspect it is an Opposition ambition as well—but there has never been a better time to stop talking and start delivering on procurement and labelling.

The Government should press ahead with implementing the Macdonald review and deregulation. Regulation is simply an added cost to farmers and there are not necessarily any positive benefits. There is layer upon layer of regulation, so the more we can strip away, without compromising food safety or animal welfare, the better.

The Government should continue with measures on the difficult and often controversial issue that we discussed in this Chamber only yesterday, namely wiping out bovine tuberculosis. TB still casts a huge cloud over the dairy farming industry in a few parts of the world, particularly west Wales. I do not want to make a cheap political shot, as that is something that hon. Members will know I am not prone to do, but one or two Members were in here yesterday shedding what seemed to be crocodile tears for the dairy industry over an issue that affects relatively few—albeit a significant few—dairy farmers. Where are those Members today? If they are that committed to the dairy industry, why are they not here today to talk about a subject that affects every dairy farmer and every household? I suspect I know the answer, which is that they are not the slightest bit concerned about dairy farmers; they are concerned about badgers. I do not mind that, but they should at least be honest about it.

[Julian Sturdy (York Outer) (Con)]

I congratulate my hon. Friend on securing a really important debate for our dairy industry. He is absolutely right to focus on short-term measures, which he has set out articulately. Does he agree that we also have to tackle the long-term problems? In the UK dairy industry, those problems stem from the fact that over half the milk produced goes into the fresh liquid market. The Government can help by allowing farmers to diversify into other schemes. I know that it is not always easy, and that some producers and farms do not have the capability, but we have to tackle the problem: we are over-supplying the fresh milk market.

[Simon Hart]

That point is accepted by the farming unions, but as my hon. Friend rightly points out, offsetting those difficulties through diversification schemes is often easier said than done. The uncertainty of the future of dairy farming gives rise to the issue of whether farmers can obtain the necessary funding to enter diversification schemes or more adventurous marketing schemes on the back of a dangerously fluctuating short-term horizon. However, I take on board his well made point.

Some solutions have been put forward by the retailers themselves, so there are silver linings to one or two clouds that we have referred to. To cite ideas from one particular retailer—I am trying to avoid naming individual companies, so that I am not bombarded with rebuttals and the like when I leave the Chamber—those solutions include working with processors to create greater transparency in the supply chain, and enabling farmers to see how prices are set in order to create better trust within the supply chain. That is a new way of working that has not been seen before in the industry, and it will create benefits for farmers, consumers and the industry. For example, the price paid to farmers will be worked out every three months, based on a rolling average of indexed butter and milk powder prices. Those commodity prices are publicly quoted, and in each case there is a futures market, allowing farmers to look ahead and hedge or protect themselves against price movements. That will allow dairy farmers better to predict milk prices and plan accordingly.

That idea comes from an e-mail from somebody who took the trouble to contact me recently. However, if I may use a rather clumsy analogy, it aligns what we are discussing with the principle of a fixed-term mortgage. If the industry is prepared to enter into an arrangement in which it can play the futures market, we can have contracts that are perhaps fixed for a longer period. If contracts can be fixed both between retailer and processor and between processor and farmer, we will be able to look at one-year or two-year contracts, or perhaps—maybe I am being over-optimistic—even further ahead than that.

Yes, of course, there are risks. There are risks to each person in the chain, but surely we can inject a degree of certainly into the industry to eliminate the risks and the downside from which people are suffering, which affects not just farmers, but everyone who relies on farmers in some shape or form.

It is a promising way forward if the retailers are beginning to recognise that there is a need for a transparent contract system based on being able to look ahead and take an average price over a future period. There would then at least be recognition that we are looking at the end of the unacceptable practice of simply sending a text message to a producer to downscale their milk price in two or three weeks.

[Andrew George (St Ives) (LD)]

I assure the hon. Gentleman that there is no press release attached to my intervention. He has got to the nub of a constructive proposal, but at present the groceries code adjudicator is limited in what she can do. Improving the adjudicator’s powers and the code would enhance the solution that the hon. Gentleman is constructively proposing: a direct relationship between the retailer and the producer of the goods coming into the supermarkets.

[Simon Hart]

The hon. Gentleman plays nicely into the completion of my contribution. I want to quote from a farmer in my constituency, not a particularly large farmer and certainly not a militant one, but someone who has worked hard on his holding for a long time and reinvested every penny in his business:

“The important bit, and the message which we are struggling to get across, is the”

groceries code adjudicator

“needs to use her powers to investigate the relationship between the Retailers & the Processors. If the Adjudicator would look at the paper trail between the likes of”

x and y,

“she would find millions of pounds, which could result in a minimum of 3p per litre back to the producer. This would turn the job round immediately as it would go to the nonaligned producers. If this was followed up & she had the guts, it would open up the biggest can of worms ever in the dairy industry. The problem is the Retailers & Processors will fight this all the way because it's their extra profit that is cleverly hidden.”

That sounds provocative and it was written with passion, but it highlights a belief and a feeling that is probably replicated throughout the UK dairy industry. We now have an opportunity to correct that, thanks, dare I say it, to the price crisis that most farmers are experiencing. We have a chance to correct it with Government, retailer and processor action, and through greater awareness and willingness to accommodate changes from the producers.

I hope that other hon. Members will produce their own anecdotes and views, so that the Minister can form a view that he can put to us at the end of the debate and that will, above all, encourage all those who are struggling, but on whom we rely to secure a longer-term sustainable business for the benefit of UK agriculture.

[Several hon. Members]

rose—