Dairy Industry

Debate between Tessa Munt and George Eustice

Wednesday 4th February 2015 Westminster Hall

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

I begin by congratulating my hon. Friend the Member for Ribble Valley (Mr Evans) on securing this important debate. Given the sheer number of Members who have wanted to speak today, it is clear that he has touched a nerve and alighted on a serious problem, which is the current state of affairs in the dairy industry. I am well aware that many dairy farmers are suffering at the moment. Yesterday, I was in Cumbria and I met a group of dairy farmers there. Earlier this year, the issue dominated discussions at our regular farm resilience group, as it did at our meeting of the dairy supply chain forum last November, and we have another meeting next week with the Secretary of State to look further at the issues facing dairy farmers and to consider how we can help them.

It is fair to say that the dairy industry has had a rollercoaster ride in the last couple of years. In 2012, we were exactly where we are now, with prices on the floor; in fact, in many ways the situation then was worse, because feed prices were very high and dairy farmers were losing a lot of money. Then, last year—2013-14—we saw a very good year for dairy farmers. Prices were much higher, at around 30p to 35p per litre. feed costs came down, and the farm business survey showed that they had a good year last year. Since then, there has been a big increase in production in New Zealand, with production there up around 18% over the last year. Demand in China dropped off quite suddenly, as the Chinese had built up stockpiles of skimmed milk powder and came back out of the market. Production in Europe is up by 8% to 10%, and the Russian trade ban has aggravated things. As a result of all that, on the international auctions we have seen a very sharp decline in prices, which brings us to our current low level.

As a number of hon. Members have already alluded to, it is worth noting that there are differences between different farm businesses; different farmers face a wide range of costs. Yesterday, I visited a farmer who has Jersey cattle on an extensive grass-based system, and his costs of production were only around 22p per litre. It is not always about “inefficient” and “efficient” producers. Sometimes, efficient producers choose to run quite intensive systems, which means they have higher labour, feed and capital costs, and have to make more investment. Quite often, those producers find that they have higher production costs—for some of them, it costs 28p to 30p per litre—and if they are receiving low prices they are losing money.

The other element to bear in mind is that there is a big spread in the prices that farmers receive. At the top end, there are those farmers who are responsible for around 30% of UK liquid milk production and they are on cost-of-production contracts to the major supermarkets. Many of them are still receiving around 30p per litre for their milk. At the other end, there are those farmers who supply processors and consequently they are much more exposed to the international commodity markets, such as those supplying First Milk, which takes most of the milk production in Scotland, the north, the borders and Wales. At the moment, First Milk is able to pay farmers only around 20p per litre, so there is a big spread, both in terms of production costs and the prices farmers are paid.

I will point out, first of all, the things that we are doing in the short term. Immediately, we have to address farmers’ cash-flow challenges. Regarding those farmers who have not yet received their single farm payment—most farmers have received it, but some have not—we have told the Rural Payments Agency to absolutely prioritise dairy farmers, and particularly those supplying First Milk.

I had a meeting with the banks two weeks ago to encourage them to show forbearance to their business customers who are dairy farmers suffering difficulty at the moment, and I will continue to monitor the process as far as the banks are concerned.

We have urged Her Majesty’s Revenue and Customs to be sympathetic in its dealings with dairy farmers. Those dairy farmers who had a good year last year potentially face quite a large tax bill, which is due to be paid in June this year, and we need to show some forbearance to those farmers who will have just weathered a very difficult winter.

Finally DairyCo, which is part of the Agriculture and Horticulture Development Board, has set up a special unit to give financial advice to farmers to help them through these difficult times. Also, we will shortly open a new round of rural development programme schemes, which will have dedicated measures to try to help farmers to improve their productivity and reduce their costs.

In the medium term, there are other issues that we are looking to explore. First, there is exports, which was mentioned by a number of hon. Members. I completely agree that if we want to have a resilient industry for the long term, we have got to open new export markets. We have seen good progress in this area. In the past year, there has been 47% growth in exports to non-EU markets of our dairy products. In fact, our total dairy exports are now at their highest level ever, at £1.3 billion. A few weeks ago, the Secretary of State was in China where she had discussions with the Chinese about how we can open up these opportunities, and we will shortly receive a delegation from Brazil to consider the opportunities for dairy exports to that country.

Another key area that I have been working on with the National Farmers Union in particular is around market measures to deal with volatility. In the US, when quotas were removed, quite a sophisticated futures market was developed to help to manage volatility. Typically, US dairy farmers fix around 40% of their production at a fixed price, hedged in the futures market, and leave only 60% of their production to the vagaries of the market. That takes some of the extreme peaks and troughs in the market out of their income profile. We can learn lessons from that system and we are working on this issue with the NFU. There are embryonic markets in skimmed milk powder and butter, for instance, which are run by the London international financial futures and options exchange, and Eurex, and we would like to see whether we can develop that futures model further.

We are keen to promote country-of-origin labelling. The UK was at the forefront of arguing for improved country-of-origin labelling on beef, lamb, pigs and poultry, and we should do the same on dairy products, so that we do not have Irish milk being imported to the UK and processed into cheese, before it is fobbed off as a product of the UK.

Procurement was mentioned by a number of hon. Members. Last year, we launched the Bonfield report, which was a new approach to procurement. It sets out a balanced scorecard. The uptake from schools and hospitals has been good in that respect, and we are keen to encourage further uptake.

[Tessa Munt (Wells) (LD)]

Will the Minister give way?

[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.

Oral Answers to Questions

Debate between Tessa Munt and George Eustice

Thursday 30th October 2014 Commons Chamber

[Tessa Munt (Wells) (LD)]

Thank you, Mr Speaker. Can the Secretary of State find out what has happened to the scheduling of payments for higher-level stewardship schemes for farmers in my environmentally sensitive part of Somerset? These have been contracted for a 10-year period but they seem to have been cut, delayed or changed without consultation or notice, and many farmers depend on them for their business.

[George Eustice]

I understand the hon. Lady’s point. An important part of the agri-environment scheme in the next few years will be to fund higher-level stewardship schemes to conclusion. If she has particular concerns, I am happy to discuss those with her. There has been some alignment on the start dates of some of the schemes, but I am not aware of any problems with schemes discontinuing.

Jam and Similar Products (England) Regulations 2003

Debate between Tessa Munt and George Eustice

Wednesday 30th October 2013 Westminster Hall

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

Thank you, Mr Owen. I also thank the hon. Member for Wells (Tessa Munt) for securing the debate, which has indeed gathered a bit of interest. The hon. Lady and I had a dry run of this discussion in the media this morning. I can understand her concerns about some elements of the proposed changes, but I feel that there is a degree of role reversal—as a Conservative who is sceptical about having the EU telling us what to do, I am all up for loosening regulations and letting markets decide, so to hear a Lib Dem taking such a strident position on the issue was surprising.

I come from a family involved in fruit farming. The jam industry is itself important, but having it as an outlet, a market, for the fruit industry is also important. One of the things that I learned, to my cost, while trying to grow strawberries is that a lot of things can go wrong in the fruit industry, whether bad weather, bruising of fruit or pallets of fruit tipping over, so having the jam industry market for some of the damaged fruit is very important. I ought to let the House know that my family’s business, Trevaskis Farm, makes jam for sale in small quantities through the farm shop. I have a little knowledge of the area through that.

To provide the context, the proposed changes to the regulations are part of DEFRA’s contribution to the Government’s red tape challenge initiative. The regulations were one of a number that were identified under the food and hospitality theme that could benefit from improvement and where potential savings could be delivered to businesses. The jam regulations were identified as an area in which we could consider changes that might provide businesses with greater flexibility and less restrictive rules.

One impetus behind the change was a request by some in the industry for the UK to consider taking up an optional derogation in the EU jam directive that permits—but, crucially, does not require—a sugar level lower than 60% to be set, which is something that a number of other member states have already done. The derogation allows member states to set a lower minimum sugar level for jam and similar products.

Organisations such as the Food Processors Association, an organisation that incorporates the United Kingdom Sweet Spreads Association and represents many in the jam industry, were keen for the Government to amend the regulations to ensure that the UK was on a more level footing with other major EU jam manufacturing countries, such as France and Germany.

[Tessa Munt]

The clue is in the title, the Sweet Spreads Association, and that is not jam. The Minister should come cooking with me—I do not know what else I can do, but suggest a master class in jam cookery in DEFRA. Let us have a go. Frankly, if people want to call something a fruit or sweet spread, they may, but they should not be calling that stuff jam.

[George Eustice]

All right. Since that original request, which was for a minimum permitted sugar level of 55%, others have requested that we consider lowering the minimum permitted level even further, to 50%, which would remove the so-called no man’s land that currently exists between sweet spread products, which are supposed to be below 50%, and jam products, which are supposed to be 60% or above.

After considering all the responses, we decided to reduce the minimum permitted sugar level for jam from 60% to 50%, but to retain the national provisions for fruit curds and mincemeat—an issue that the hon. Lady raised later in her speech. That will all be subject to the necessary clearances. The reduction in the minimum permitted sugar level to 50%, however, delivers the greatest flexibility to the industry as a whole, in a way that will not be detrimental to those who are in compliance with the existing regulations and can continue to make their jam as they do now.

The hon. Lady has expressed concerns about the possible impact on British jam, but I believe in the market—the market will dictate what does and does not sell. I mentioned earlier that my own family’s farm business produces small quantities of jam for sale through the farm shop. I took the liberty of talking last night to my mother, who is in charge of making the jams. She said that there has been a trend among consumers over the past 10 to 15 years to seek out products with lower sugar levels. They want products with more fruit and less sugar. We should not resist that, if there is a market demand for such products. They do not have to be the gunge or dreadful products that the hon. Lady mentioned —I assure her that the products sold in our farm shop are very good.

[Tessa Munt]

I have been contacted by diabetics and others who require products with a reduced sugar level and that is fine, but they are always accurately labelled on supermarket shelves and in farm shops as reduced-sugar jam. People know what they are buying. But if everything with a minimum sugar level of 50% and above can be called jam, there will be utter confusion about what is really jam and what is a fruit spread or whatever.

[George Eustice]

I understand that. The sugar content of a fruit spread is supposed to be below 50%, so we are removing that no man’s land between 50% and 60% and allowing products with a sugar content of below 60% but above 50% to be labelled as jam.

My hon. Friend pointed out that the 60:40 sugar-to-fruit ratio was recommended following research at the Long Ashton research station in Bristol in the 1920s. That was a long time ago and since then there have been technical advances and recipe experimentation. In the last few years, our market has included fruit spreads and jam with a sugar level of less than 60% with no increased spoilage reported. The reduction of the minimum requirement to 50% removes the current gap for products that fall into the 50% to 59% category. The flexibility delivered by the change will help to ensure that British jam manufacturers remain competitive because they will have the option to market their jam products with a higher fruit content on a level playing field with other member states.

It is worth reiterating that we are talking about a minimum permitted sugar level. That does not mean that existing manufacturers must work to the new minimum.

[George Eustice]

That is the case because these are minimum not maximum requirements. If there were a maximum requirement requiring all jams to have 50% sugar we would be having a totally different discussion. We are discussing minimum requirements and giving the industry flexibility. Those who want to develop products with a lower sugar level that they can market in Europe will be able to do so, and traditional jam manufacturers who want to retain a 60% level, are resistant to any change and do not accept that there have been changes in techniques or recipes may continue as at present and market their products as traditional jam with a premium in the market.

[Tessa Munt]

If the minimum level is set at 50%, all the organisations that are making jam with less than 60% sugar will be entitled under the regulations to call their products “jam”, not “reduced-sugar jam” or whatever else they are attempting to make. We need that clarity for the British public’s attachment to jam and what it means. I have bought stuff from supermarket shelves that is like mud—it has lost its colour, it is not the right texture and it is a completely different product. All those products will be entitled to be called jam.

[George Eustice]

I do not think it is in any company’s interest to market products that, to use my hon. Friend’s words, taste like mud. We must let the market decide. Makers of brands who passionately believe that a quality product must have 60% sugar will carry on with that. Nothing in the change will affect that. If my hon. Friend is right and brands with a lower sugar content will have an inferior product and if customers conclude that, as she suggested, they taste like mud, they will not buy it again. The market for that product will be small. In a free market economy, we should have a light-touch approach to regulation, and that has come out of the Government’s red-tape challenge. The market must decide. If my hon. Friend is right, the market for such products will be small.

Our changes will provide jam businesses with increased flexibility. We are keen to help small businesses that are trying to break into the market, and some exciting new products are coming on to the market based on the unique British Bramley apple. Jams made from it set more easily because of its high pectin content and do not need quite as much sugar. My hon. Friend said that the market for such products is small, but an internet search showed quite a number of products using Bramley apples as part of a mixed jam, such as Bramley and blackcurrant and Bramley and blackberry. There are exciting prospects for them, and there is nothing more British than the Bramley apply. We are almost unique in Europe in having specialist culinary apples rather than just generic apples. This is a good potential market for our excellent Bramley apples.

The regulations will be improved in respect of reduced-sugar jams. Since 2006, when new regulations on nutrition and health claims were introduced, there has been an overlap with the 2003 regulations that specify that a reduced-sugar jam must have a sugar content of between 25% and 50%. In contrast, the nutrition and health claims rules require all products labelled “reduced sugar” to have at least a 30% energy reduction compared with a standard product. To sort out this discrepancy, we are doing away with the specific rules for reduced-sugar jams so that they will need to comply only with the same rules as all other foods. That will provide improved clarity for the industry and consumers, and respondents to our consultation agreed it would be much simpler to work with one set of rules in this area.

We consulted on the proposed changes earlier in 2013 and received some useful contributions. One option that provoked strong opinions was in response to whether the UK’s national provisions for fruit curds and mincemeat—the sort in mince pies—were still useful or whether they could be removed. I can reassure my hon. Friend, who highlighted many concerns, that although she may not agree with our proposals to reduce the minimum sugar content of jam, we have acted on the evidence put to the Department and we will not change the regulations on fruit curds or mincemeat.

The main justifications cited were that curd and mincemeat standards help to maintain the production of these uniquely British products whose origins are firmly established and go back centuries. They are not part of other member states’ culinary culture and UK producers manufacture them to traditional recipes. The current rules reflect those practices.

The standards provide an important yardstick and their removal could result in a reduction in quality and could stimulate the introduction of products that are materially different from our current traditional curds and mincemeat products. So, as a direct result of the cogent arguments put forward in the consultation process, including a response from my hon. Friend’s constituent, Mrs Lloyd, we will retain unchanged the national provisions for fruit curds and mincemeat. That decision is positive and demonstrates the benefit of consultation to help to ensure that the final policy decision is fit for purpose.