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Dairy Industry

Oral Answers to Questions — Environment, Food and Rural Affairs – in the House of Commons at 11:30 am on 11th March 2004.

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Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 11:30 am, 11th March 2004

What the latest estimate is of the proportion of the retail price of dairy products sold in supermarkets that is received by farmers.

Photo of Alun Michael Alun Michael Minister of State (Rural Affairs), Department for Environment, Food and Rural Affairs

Given the range of products that contain milk, it is not practicable to estimate the proportion of supermarket prices that farmers receive for all dairy products. However, their share of the value of supermarket sales of fresh liquid whole milk is currently estimated at around 40 per cent.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I am grateful for that estimate, but does the Minister accept that farmers in my constituency and elsewhere are angered when they compare supermarket prices of their dairy products with the money that they received? Consumers would be angry, too, if they understood how little money goes to farmers. Will the Minister place an obligation upon stores above a certain size to display next to the dairy cabinet the percentage of the price of the milk that has gone to the farmer? Would that not name and shame?

Photo of Alun Michael Alun Michael Minister of State (Rural Affairs), Department for Environment, Food and Rural Affairs

The hon. Gentleman might wish to encourage the industry in that direction but I would be surprised if the prospect of greater regulation won much support. Price negotiations between producers and processors or between processors and supermarkets are a commercial matter, in which the Government cannot get involved as long as competition rules are respected. The profit margins on milk for supermarkets and middle-ground retailers have increased currently between 25 to 30 per cent. I referred earlier to research— the Competition Commission report in 2000 indicated that supermarket profit margins on dairy products were in line with overall grocery margins. As I indicated in an earlier response, it is a complex issue and there is no magic wand that will suddenly produce an end to the profit margin problems that the hon. Gentleman describes.

Photo of Mr Huw Edwards Mr Huw Edwards Labour, Monmouth

Can my right hon. Friend appreciate the concerns of my constituent, Mr. Brian Parry, who is the largest milk producer in Monmouthshire and who says that he cannot make a living from producing 5,000 litres of milk a day at 18p per litre? What efforts are being made to strengthen the code of practice for the supermarkets, and are other options being considered?

Photo of Alun Michael Alun Michael Minister of State (Rural Affairs), Department for Environment, Food and Rural Affairs

As I said earlier, we recognise the difficulties caused by low farm-gate prices for milk over the past few years and the challenges that the sector will face with the reform of the common agricultural policy. On the other hand, we have seen an increase in farm-gate prices, and I have already referred to the work under way with the industry in the forum chaired by Lord Whitty. We believe that there is a viable future for the industry but it requires action by the industry, as the KPMG report showed.

Photo of David Cameron David Cameron Deputy Chair, Conservative Party

Does the Minister agree that one way in which dairy and other farmers can capture a larger share of the value of their produce is through farmers' markets and farm shops? However, does he agree that there are still problems for those taking part in farmers' markets, and especially for those opening farm shops, in terms of the regulatory burdens? I am thinking in particular of Foxbury farm shop, near Brize Norton, in my constituency. When a farm shop starts to stock any other kind of produce, it can be hit by a very substantial rates bill. What will the Minister and his Department do specifically to ensure that farm shops and farmers' markets can continue to thrive, as they do in many parts of the country such as west Oxfordshire?

Photo of Alun Michael Alun Michael Minister of State (Rural Affairs), Department for Environment, Food and Rural Affairs

I accept that there are regulatory requirements for farmers and, indeed, for retail outlets, but many farmers are extremely successful in ensuring—exactly as the hon. Gentleman said—that there is a greater return for the primary producer. Farmers can do a range of things; marketing is part of that, with direct sales and the use of farmers' markets. I have also seen some good examples of farmers working together, getting their local produce into local hypermarkets and outselling national brands. There is much that the industry can do, and we are seeking to encourage those things.