It is an early hour to be doing the milking, and I am grateful to the Minister of State for coming here to reply to this debate. I welcome this opportunity to discuss the problem of dairy farms in Scotland, a section comprising a quarter of the total agricultural output of the country and in which profits and confidence have been declining rapidly. This problem vitally affects my constituency of Dumfries. It has the third largest number of dairy farms in Scotland, and, with Galloway, is the largest milk producing area in Scotland, both in numbers of farms and in output in gallons.
Naturally, and very correctly, there is grave concern at the future of milk, and this is shared by farmers, farm workers, merchants and the creameries. Neither must it be forgetten that a profitable agriculture—and please note that I say "profitable" and not "prosperous", because all that farmers expect is a fair return on their capital—is of vital importance to a rural community. The shopkeepers in the towns, the engineers and tradesmen who supply the goods and services, soon feel the pinch if agriculture falls on hard times, and that moment is coming now.
There is no need to overstate the case—the strength and honesty of it are obvious to all, except, perhaps, to the party opposite. I want to bring out two themes the trend of production and the falling number of producers and the very serious loss of profitability. I shall use a few facts from the Scottish Milk Marketing Board, the National Farmers' Union of Scotland, and the West of Scotland Agricultural College. The Minister may well say that these are interested parties and, of course, they are, but it is difficult to find anyone who knows anything about milk who is not an interested party.
One exception might be the Department of Agriculture, and its Report published last month gives two interesting points about milk. In page 10 we read
of the falling incomes of dairy farmers, and in page 18 the Report states:
Total production of milk showed little change, while liquid sales continued to increase.
This is surely a climate which should enable the Government to help the dairy farmer.
Both the Chairman of the Scottish Milk Marketing Board and the Chairman of the Milk Committee of the N.F.U. of Scotland—two men who have done an immense amount for agriculture in Scotland and who are certainly acknowledged experts on milk production—have constantly given the Government warning about the future output of milk. Only last week, the Chairman of the Milk Committee of the N.F.U. of Scotland said:
The Minister might have to listen to an outcry from the public far more clamant than any yet heard from frustrated dairy farmers.
What are the trends? The Minister may make much of the fact that there has been a slight increase in milk production during recent months, but last year was a poor production year, with a bad harvest and a bad hay time, so it is not surprising that the figures are slightly better this year. But it is important to note that the rate of increase is declining sharply. This is particularly so in Scotland. Production in the Scottish Milk Marketing Board area in March, 1965, was 4 per cent. up on March, 1964, but in April the increase was only 2 per cent., and the Board is anticipating no increase at all in May. With the cold and wet weather we have been having in the last week or so in Scotland, I think that their forecast is likely to be correct. There seems to be no justification for the optimism shown by the Minister of Agriculture.
This falling trend will do nothing to correct the disappointing share of the United Kingdom butter and cheese market which producers command, and may eventually cause unemployment in the creameries of Scotland. The unsettled conditions of manufacturing are serious. Scottish butter and cheese has sometimes been unobtainable, and brand names lose their impact.
At the same time, this scarcity of British products has substantially increased dairy imports. This cannot please the Chancellor. There are now 68,000 tons of dairy products in store, compared with 39,000 tons a year ago. Perhaps the Minister will tell us why manufactured products are being curtailed through insufficient milk, yet imports that affect our balance of payments are being encouraged? I hope that the Minister will now accept that the trend is now downwards, and that, coupled with the rising population, it must cause concern. It will be rectified only by a fairer financial return and a restoration of confidence.
Let us take profits over the last six years. As I have been critical of my own party from time to time regarding its milk and hill farming policies, I am entitled to say what I want to say now on these problems.
The latest figures from the West of Scotland College show a steadily increasing loss to dairy farming. On the smaller farms where the average herd is 30, allowing for the value of the work done by the farmer and his wife, in the last six years net results from carefully costed farms show these figures: a profit of £158, a profit of £230, a profit of £31, a loss of £12, a loss of £267 and a loss of £150 per annum. That is a most distressing state of affairs for the smaller farmers of Scotland. This year with the wage award—all farmers would gladly pay as much as they can afford to their loyal staffs—increases for fuel tax, Bank Rate, National Health contributions, Income Tax—if a profit is made on which tax is paid—electricity charges and the savage increase in tax for farm vans of 1 ton, which has gone up under the Budget by £6 15s. compared with only £2 15s. for private cars, there will be greater losses for the small and medium farms.
The Price Review White Paper brings out the fact that Scotland is adversely affected in comparison with England and Wales. In England and Wales farms of under 150 acres showed a profit in 1962–3 of £902 and in 1963–4 a profit of £964. This was before the allowance for the farmer and his wife. In the same years in Scotland the profit was £527 and £482, about half that of England and Wales. The differential deteriorated by £100 a year in those two years. Can the Minister explain why Scotland is in a worse position and lags behind England and Wales?
The Price Review shows that dairy farm incomes are falling and in Scotland they are falling much faster than in England and Wales. Why is this? All dairy farmers in Scotland would like to know why they are falling behind. Milk producers were, I believe, like the National Farmers' Union, hoping for 3d. a gallon this year. It is quite wrong for the Minister or the Under Secretary to say that they expected 6d. I should like the Minister to confirm that the National Farmers' Union did not ask for 6d. The award of ld., or 0·61d. in fact, will produce only £70 to £75 on each farm. The financial squeeze is inevitably reflected in the number of dairy herds in Scotland. In the year ended March, 1965, the Scottish Milk Marketing Board had a loss of 300 herds—nearly 5 per cent. compared with 3·8 per cent. in 1964 and 2.5 per cent. in 1963. This indicated an increasing trend away from milk production.
During the first three months of 1965 no fewer than 61 herds disappeared compared with 45 and 40 in the previous two years. I grant that existing farms are putting on more cows in an effort to halt diminishing returns, but the rate of decline is increasing, particularly among smaller farmers and most markedly in the east of Scotland where there is a slightly greater alternative. This rate would be quicker still but for the fact that the Government encourage no alternative. Hill men are equally hard up, and pigs, potatoes and grain receive disincentives. Where is the farmer to turn for profit if he leaves milk production? Dairymen are reluctant to dispose of valuable capital equipment. A pipeline milking system, a bulk tank or a parlour installation, may cost £2,000, and one-third of the Scottish Milk Marketing Board farms have bulk tanks. This is, I think, an example of how Scottish dairy farmers are prepared to provide the best possible equipment to produce the highest quality milk. But the incentive to install this new equipment is receding very fast indeed.
Another point that the Minister might clarify is the prominence that the Minister of Agriculture has given to the £11 million that milk producers will receive this year. One penny on milk equals £9 million. Anything extra will derive from an increase in the standard quantity carrying the full guaranteed price and can reach the farmers' pockets only through increased liquid sales, which will he done only by efforts through the Milk Marketing Boards in the three countries.
I now want to say a word on winter keep. Many farmers in various parts of Scotland, in the south-west, the northeast, the east and in Lanarkshire, have been unable to obtain winter keep because their dairy enterprise provides more than 40 per cent. of the farm output. I know that the Department of Agriculture and the Ministers themselves have bent over backwards to help these farmers. But one suggestion that I have heard—and which I pass on to the Minister to help him to allow the upland dairy farmers into the winter keep scheme—is that the dairy farmer should put all his dairy cows to a beef bull to produce beef stores which are so urgently wanted. If that were done, there might he some compromise to allow these upland dairy farmers, often producing milk in areas where it is needed for the liquid market, in small towns and so on, into the winter keep scheme.
To sum up, we have had a steadily falling Exchequer grant to agriculture. In 1962 it was £342 million, in 1963 £309 million, in 1964 £293 million, and this year we expect £269 million. Milk pays for itself yet the Government are doing their best to cause irreparable damage to the dairy industry. We have a situation in which milk costs less than lemonade. Farmers are going out of production fast and the Government are hammering agriculture with taxation and rising costs. There is a complete lack of desire to see the farmers' and farm workers' point of view either at meetings or, as far as I can see, at dinner parties at No. 10.
What is the Minister going to do to help Scottish dairy farmers? Can we have a special review? We hear not, but I hope that the Minister of State might give us a little hope tonight. The guaranteed price is utterly inadequate to match the Government pledges under the 1947 Act and at the election. In short, the Government are like a wheelbarrow. It is a useful implement but it has to be pushed, and I should like to start the pushing tonight.
The hon. Member for Dumfries (Mr. Monro) has made his case in not too moderate terms, and we ought to get the picture right to begin with. I certainly do not accept the hon. Member's accusations that we have done irreparable damage and that we are hammering agriculture. This might read quite well in the hon. Member's local Press, but it simply is not true.
When we consider the dairy industry, we have to remember that its problems are not new. They existed for many years during the lifetime of the previous Government. The present Government have been in office for only six months. During 12 years of Tory Government, up to last year, as both my right hon. Friend the Minister of Agriculture and my right hon. Friend the Secretary of State for Scotland have told the House, and the Secretary of State has told the hon. Member, the increase in the guaranteed price was only 2d.
According to my figures, that is roughly correct, so that the present Government have done half as much in six months to help the dairy industry, at least with the guaranteed price, as the previous Government did in 12 years. I have some of the figures, but I do not want to weary the House by quoting them. They have been given in the House before and what I have said is roughly correct.
I cannot altogether accept the hon. Member's picture of an industry suddenly changing from a prosperous industry to one that is in the midst of a grim depression. Of course there have been problems in the dairy industry, and they are not of recent creation. They have been going on for some time. Previous Governments—and the hon. Member for Edinburgh, West (Mr. Stodart) had something to do with this—tackled the problems in the way they thought fit. I will probably say something about that presently. I do not want simply to score political points, but I thought that I had better say that in view of what the hon. Member for Dumfries has said, so that we may get the picture right.
Was it not my hon. Friend's case that costs have risen in relation to price and that any change in price must be related to costs? The figures quoted from recent college costings indicate that costs have risen at a greatly increased rate in recent years, and particularly over the last six months. That was my hon. Friend's whole case.
They also went up during the previous 12 years. I have already given the figure of what hon. Members opposite did during those 12 years to meet that.
However, rather than score points, I should like to look at the present state of the industry and try to assess its future prospects. Clearly, the most important factor by which to judge the viability of the industry is the overall level of production. After the short-term decline in production during the past two years, all the evidence seems to indicate that production has again taken an upward turn.
Production in Scotland during the first four months of this year shows a fairly significant improvement on last year and this conforms to the pattern of production throughout the United Kingdom as a whole. Certainly, it does not suggest that the industry is falling away in grim decline. I understand that in their provisional pricing arrangements for the current year, the boards have allowed for a further increase in production.
Much has been made of the decline in the number of producers over recent years. This creates difficulties, particularly for the smaller producers. The burden of small-scale milk production, with all that it entails in times of long working hours, is bound to bear increasingly heavily upon this type of producer. Nevertheless, we believe that the help that we have given under the Small Farmer Scheme and which we will be giving by way of improved credit facilities and more co-operation will do much to assist. In the last few years there has been rationalisation and greater specialisation of production. By and large, dairy farmers are now operating in a much larger way of business, with all the economic advantages that go with that.
The average size of the dairy herd in Scotland has been increasing steadily for some time, although there are, of course, fairly wide variations from one part of the country to another. In 1955 the average size was only about 35 cows. Today it is nearly 45 cows per herd. Yields per cow have also been increasing as the result of improved management techniques, subject to seasonal factors. Last year the increase was substantial. Taking these factors together, we have the position where, despite the decline in the number of producers and a small, but probably temporary, fall in the size of the total milk herd, the general level of production is being maintained.
Most dairy farmers are, of course, much more interested in the size of their monthly milk cheques than in abstract forecasts of production levels. The industry is now in a healthier state in this respect than it was a few years ago, when production was expanding at a much faster rate. Taking the last two Review awards together, the guaranteed price has been increased by 10 per cent.
Why does the hon. Gentleman want to take the last two Reviews together? Is it not true that since the last Price Review costs to the dairy farmer have increased, including the licence duty for vehicles? Why does he want to take the two Reviews together?
We are taking a number of factors concerning the industry in the last year or so, so that we get a picture of what is taking place within the industry. One cannot get a picture of the industry by saying, "This is happening today". Only by looking at a period of time can one get a clear picture. I said, taking into account the prices in the industry, that the guaranteed price has been increased by 10 per cent.
Last year the increase in the guaranteed price, combined with the fall in the amount of milk going into the less remunerative manufacturing market and also some improvement in manufacturing prices generally, resulted in a significant increase in the producer's price and a recovery in dairy farm incomes. For example, producers in the area of the main Scottish Board received, on average over the year, about 3s. 1¼d. a gallon, compared with 2s. 11d. in the preceding year and 2s. 10d. in 1962–63. I regret having to go back to previous years, but this is the only way to get a picture of what is happening. Last year's price was the highest producer price yet paid by the board.
Although the board has provided for some further increase in production this year, which means some dilution of the Review award of 1d. a gallon, the producer's return should be still higher than last year. All this demonstrates the advantages to the producer of a more stable rate of growth in the industry.
I said that the producer's return should be still higher than last year. I am trying to answer some of the questions I was asked. I do not know whether or not hon. Gentlemen opposite want to hear my answers. Since they raised this matter I imagine that they want a reply. If they will just hold their horses I will do my best to answer their questions.
I had just said that all that demonstrates the advantages to the producer of a more stable rate of growth in the industry. I understand that the boards themselves do not want to see any dramatic increase in production. We for our part have to try to fix the guaranteed price on a level which will achieve broadly the proper balance of production. The hon. Gentleman may not agree but the evidence seems to suggest that we seem to be getting this just about right.
Again, if one looks at dairy cow prices, there does not seem to be any evidence of any serious sense of frustration in the industry. Both Ayrshire and Friesian cow prices are buoyant, and were a good deal higher last month than they were in the corresponding period of last year, so those who bought last month did not apparently take the view of the industry which has been expressed by hon. Gentlemen opposite tonight.
Prices were much higher. They were not marginally higher, but substantially higher.
We must continue to look to the dairy herd to fulfil its subsidiary function of supplementing our beef supply. What seemed to be one of the rather more depressing statistics contained in the excellent survey of the milk industry carried out by the Scottish board was the number of calves sold slink—100,000 a year—and I hope the hon. Gentleman will agree that the measures we have introduced at the recent review, including the alterations to the Calf Subsidy Scheme, will serve as some incentive to producers to rear more calves for beef production.
The hon. Gentleman asked about the Winter Keep Scheme. I do not want to convey the impression that there is any ready-made answer to this problem. In fact, I remember a speech made by the hon. Member for Edinburgh, West, when he was Joint Under-Secretary of State for Scotland, when he vigorously defended the exclusion of upland dairy farmers from the Winter Keep Scheme. I remember the long reports in the Scotsman. I read them, as I always read whatever the hon. Gentleman says or writes, with avid interest. The Government announced, however, in the Annual Review, their intention to conduct an urgent review of the more fundamental problems of the hill and upland areas, and this review is going on at the moment. The question of the position of the upland dairies under the Winter Keep Scheme is bound to come up, but we cannot at the moment say what the outcome of our consideration will be. The Scottish N.F.U. will, of course, be consulted about this for its views in due course.
The hon. Gentleman raised the question of the possible risk of a shortage of milk for the liquid market in the autumn and winter months when production tends to be at its lowest level. These fears are not justified by the facts. Taking Scottish production by itself—and that is what we are talking about tonight—the actual reserve of milk available for the liquid market is of the order of 100 million gallons, or about 70 per cent. of liquid requirements. Even in the months of lowest production the reserve did not fall below about 35 per cent. at any time during the last two years when production was running at a rather lower level than in earlier years. Even if one talks in terms of the United Kingdom liquid market—