Dairy Industry

Thomas Docherty Excerpts

Thursday 13th September 2012 Westminster Hall

[Mr Charles Walker (in the Chair)]

A lot of hon. Members want to take part in the debate, so I will make myself immediately unpopular by saying that, outside the two opening speeches and the ministerial and shadow ministerial speeches at the end, you will have a six-minute limitation. You can take less time, but you will have six minutes. We will give you one injury time for one intervention.

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

It is a pleasure to serve under your chairmanship this afternoon, Mr Walker. To put a time limit on speeches was a courageous decision for someone who is currently running for office.

I welcome the new Minister to his post. He may know that the last Liberal Minister to hold the farming brief was Auberon Herbert, who was President of the Board of Agriculture between 1914 and 1915. However, that does not bode well for the current Minister because Herbert only held his post for one year and did not survive the forming of a coalition Government. None the less, I wish the Minister well in the post.

I am sure that hon. Members wish to pay tribute to the outgoing Agriculture Minister, the right hon. Member for South East Cambridgeshire (Mr Paice). While he and I may not always have agreed, he did his best and will be sadly missed by the farming industry and by members of the Environment and Rural Affairs Committee.

I pay tribute to the hon. Member for Tiverton and Honiton (Neil Parish). We served together on the Select Committee, and as many Members know, he is a mine of information on agriculture. He and I have combined on more than one occasion to ensure that our farmers’ voices have been heard in Parliament. He is a real champion of Devon farmers and regularly makes the case that Devon cream is far superior to Cornish cream. With your permission, Mr Walker, he will sum up at the end of the debate.

A number of important debates are taking place in the House today, and I appreciate that Members might not be able to stay for the whole of this debate. None the less, I thank everyone for coming along.

Members will know that despite the favourable market conditions, the UK dairy sector has been a source of dispute for a number of years. During the summer, the public campaign led by dairy farmers to protest against large cuts in milk prices captured the British public’s imagination. The profile generated by that campaign combined with the lobbying and overwhelming support from all parts of the House have resulted in some significant progress. Indeed, more than 70 parliamentarians went to the National Farmers Union’s dairy summit in July. Several retailers that were identified as not doing enough to support the dairy farmers took belated steps to address some of the unsustainable prices that they paid for their milk. That has helped processors either rescind or reverse the effects of their proposed August milk price cuts. Many of the same retailers have made commitments to address their long-term pricing models for liquid milk. That is very welcome.

In recent days, Arla Foods has committed itself to a 2.5p per litre rise, and today Müller-Wiseman has announced that it will raise its price to 29p per litre. Agreement has been reached between farming unions and Dairy UK on a voluntary code of practice for dairy contracts. However, the industry still suffers from systemic problems that need to be addressed. As the NFU has warned this week, if we do not take action, recent progress will be nothing more than a sticking-plaster solution.

The milk supply industry is not made up simply of producers and processors. Supermarkets also have an important role to play in ensuring fair prices. It is simplistic to portray all retailers as the villains of the piece; the situation is much more complex. Some retailers, such as Tesco and Sainsbury’s, have taken progressive steps in the liquid milk sector, with dedicated pools of producers, and they should be congratulated.

The cheese market remains much more challenging for farmers, however. I hope that one outcome of the code will be to increase transparency in the pricing of milk going to make cheese. Last year, the Select Committee took evidence from Tesco for our report on the dairy industry. We found dishonest its arguments on why it does not provide the same support for farmers who produce milk for the cheese market. It is ludicrous to suggest that there is not enough stability in demand for a workable contract for cheese.

The Select Committee was clear that if supermarkets such as Tesco continue to rip off farmers, the Government should be prepared to step in. Tesco is by no means the worst offender, and I am disappointed to have to report that we are repeatedly told that the Co-op provides the worst deal to dairy farmers. It is vital that customers and Co-op Members apply pressure to those retailers to provide a fairer share of the retail value to their suppliers.

The recent crisis was brought about by the reckless actions of Asda, which was selling milk at a loss-leading price of eight pints for £2, which is less than the price of bottled water. That in turn sparked a price war, which inevitably led to a cut in the price being paid to farmers. While supermarkets have seen quarter on quarter rises in their profits, many farmers have been pushed to the brink. Although I welcome moves by Morrisons, Asda and the Co-op belatedly to increase their price, they have a responsibility to ensure that we have a sustainable dairy industry now and in the future.

[Dan Rogerson (North Cornwall) (LD)]

I congratulate the hon. Gentleman on securing this debate. Although he has been making a good case, he made some rather strange assertions about cream, which we will brush over. Does he agree that when looking at how the price is passed on to the various people in the chain, the trends that have emerged are that the processors’ share seems to have been relatively static, the retailers’ share has grown and the farmers’ share has shrunk? Anything that we do to look at the relationship between the processor and the farmer must also take account of the relationship between the retailer and the processor.

[Thomas Docherty]

The hon. Gentleman is correct. I will touch on the role that the groceries code may play in that process in the future. I did not say that I necessarily agreed with the assertions about Devon, but they have been forcefully made on more than one occasion.

I say well done to those retailers who have belatedly got on board, but why did it take them so long? The actions of the House and the dairy industry forced the retailers to take those steps. Members on both sides of the House will look to the Minister to hold all elements of the supply chain to account. We all want the groceries code and the voluntary code to work, but it is vital that he takes the lead on pushing through these issues.

On the specific case of the adjudicator, the previous Government gained cross-party support for a supermarket ombudsman to ensure a fair deal for farmers and food producers from the major retailers. Following a Competition Commission inquiry in 2008, Labour introduced a new groceries supply code of practice in August 2009, which came into effect in February 2010. The Competition Commission also recommended the creation of an ombudsman to enforce and monitor the code of practice.

This Government presented their Groceries Code Adjudicator Bill in the House of Lords before the summer recess. However, the Bill grants only limited power to the adjudicator to tackle the issues in the dairy industry. It will be limited to tackling the direct supply between the processor and the supermarket, or the farmer if they have a direct contract with the supermarket, and will not be able to deal with a three-party contract. I hope that the Minister will reflect on that and listen to the Select Committee’s cross-party advice.

[Mr William Cash (Stone) (Con)]

It would be highly desirable, would it not, if the milk that is used in the Houses of Parliament came from UK sources at a fair and sustainable price? Does the hon. Gentleman agree that if we gave a lead in the Houses of Parliament, it would send out a big message?

[Thomas Docherty]

The House of Commons Commission has urged the catering and retail services to ensure that we operate within the European rules—I am conscious that I am now setting off a whole new avenue for the hon. Gentleman—but perhaps the Minister will set out what steps he will take to ensure that all Departments buy their milk from British farmers.

The issue that we have faced time and again during this dispute is that retailers have argued that the cuts on farm-gate prices were being implemented by the milk processors and not by the retailers. The reality is that, as the hon. Member for North Cornwall (Dan Rogerson) mentioned earlier, the downward pressure has come from the supermarket shelves, and that pressure is passed on to the milk processors, who then pass it on to the producers.

We have urged Ministers in the Lords to keep open the option of extending the powers of the groceries code adjudicator. I hope that when the Bill comes to the House of Commons, the Minister will consider talking to his colleagues in the Department for Business, Innovation and Skills about the potential of extending the GCA’s powers if necessary.

In closing, I have a few questions to put to the Minister.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

Before the hon. Gentleman finishes, I hope that he will give us an indication of what the Labour party’s position is with regard to bovine tuberculosis, which of course is the other great threat to many of our dairy farmers.

[Thomas Docherty]

I do not speak for the Labour party; I think that my hon. Friend the Member for Ogmore (Huw Irranca-Davies) will have an opportunity to set out whatever issues he wishes to when he speaks, if he has time to do so.

I am conscious that other Members wish to speak, so I will conclude very briefly by asking the Minister some questions. If the voluntary code does not deliver, will he step in and consider regulatory action? Will he tell us when he expects the code to be published? I understand that it is waiting for clearance from the Office of Fair Trading, but I am sure that he will try to ensure that it is published as soon as possible, so when will that be? What assurance has his Department been given about the full implementation of the voluntary code by all milk processors? As the signatory to the code is Dairy UK and not all the players, how will the Department for Environment, Food and Rural Affairs ensure that all the processors play fair? When do the Government expect to bring forward a consultation on the dairy package? I would be grateful to him if he gave us an indication of some of those timings. Finally, when will the Government publish the framework that will underpin the establishment of producer organisations?

I am very conscious that a large number of Members wish to speak today; I am sure that this will be an excellent debate; and I commend everyone who is taking part.

--- Later in debate ---

[Mr Heath]

I think it can make a contribution. All of these things are cumulative, but we should encourage collaboration within our dairy industry because it would make a significant difference.

The biggest single factor, and many Members have talked about this, is the voluntary code of conduct. This is the dairy industry’s first code of practice on contracts and it is a significant step from the beginning of the chain. I congratulate the industry, and I congratulate my predecessor on bringing the industry together. The agreement on the code’s detail is potentially momentous and provides all parties with greater clarity on contractual terms and conditions, particularly on farm-gate prices. I hope the code will start to open trusting relationships between the parties, because they need each other. We cannot have war within a mutually dependent industry.

I have been asked many times what happens if the code does not work. That is the wrong question; I want to ask what happens when the code does work, because I am strongly optimistic that this is the best way forward for securing a sustainable arrangement. Under the EU dairy package, we have the option of legislating on contracts. I make it clear that I will seriously consider making contracts compulsory if the code fails to deliver the necessary changes. I have already announced that we will be consulting so that, if such changes are necessary, we can make swift progress. Having said that, it is vital that the industry gives the code its full support and the time needed to take effect.

I confirm that additional funds are being made available to dairy farmers. We are opening the skills and knowledge transfer framework specifically to provide workshop events for dairy farmers from late autumn this year. That should help dairy farmers identify and access emerging market opportunities such as exports; strengthen their position in the supply chain through more effective co-operation and collaboration; develop new products and add value; and establish benchmarking.

The £5 million rural economy grant scheme for high-quality projects in the dairy industry should continue that focus and add, in the new year, the development of a capital investment programme to target infrastructure projects. That is a significant advance in Government support to the industry, which should reap dividends.

[Thomas Docherty]

Will the Minister give way?

[Mr Heath]

I will, but this is possibly the last time.

[Thomas Docherty]

I am most grateful to the Minister. Will he clarify whether the two funds will be open only to English farmers or will all four nations be able to benefit?

[Mr Heath]

I am responsible only for farming in England. However, I have already contacted the analogous post holders in the devolved Administrations. I am keen to work with them to establish, as far as possible, common practice across the nations of the United Kingdom to ensure we do the best for our farmers.

I will continue the work of my right hon. Friend the Member for South East Cambridgeshire in the dairy supply chain forum, which is a crucial element in keeping a secure domestic market as a strong base from which to innovate, explore and expand the horizons. There are opportunities for replacing imported goods with British dairy products. I am glad that the hon. Member for Isle of Wight (Mr Turner) has done such work in his constituency.

There are clear openings for sending out British dairy products for the world to enjoy. I have already started that process. My right hon. Friend the Secretary of State and I are committed to opening those markets, which I hope will expand the interests and reach of the British dairy industry to all parts of the world, including emerging markets.