Examination of Witness

Agriculture Bill – in a Public Bill Committee at 2:29 pm on 11th February 2020.

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Richard Self gave evidence.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton 3:01 pm, 11th February 2020

We will now hear oral evidence from Co-operatives UK, and we have until 3.30 pm. Welcome. Would you like to introduce yourself?

Richard Self:

I am Richard Self, agriculture manager with Co-operatives UK, supporting our farmer co-operatives up and down the country.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Q Are you broadly content with the powers in the Bill to modify the retained EU law on producer organisations in particular? Do you support the principle of moving away from the area-based subsidy payment we have now to a system of payment for public goods?

Richard Self:

We are broadly happy with the way the Bill is set out. The detail will come in secondary legislation for the areas of co-operation and collaboration that we are interested in. The main concern is around exemptions. The exemptions are currently very supportive of co-operatives, but there is some room in the Bill for that to be narrowed, and we need to ensure that the current exemptions are carried through to this new environment. We want to encourage our co-operatives, not discourage them.

On subsidy payments, we accept that. It will create a new environment and a new world for farmers to operate in. Again, co-operation and collaboration can help farmers become productive and efficient within that new world.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Q Coming back to exemptions, I think most are carried forward by the Bill. Specifically on dairy contracts, for example, co-operatives were excluded from the voluntary dairy code, but if we were to introduce a mandatory code under provisions in the Bill, they might not be. Will you explain why co-operatives are a special case that should be exempt from giving farmers clarity about how the milk price is calculated?

Richard Self:

It is an interesting area. I am not an expert on the dairy sector, but in milk co-operatives the first-stage processor is owned by the farmers. If that processor takes a high price, farmers will get that back at some stage; in another situation where they do not own the processor, they will not. Therefore, it inhibits them from reacting to the market, because ultimately in a situation where the farmer owns the processor, the benefits will eventually come back to the farmer because they own the business.

Photo of Daniel Zeichner Daniel Zeichner Labour, Cambridge

Q In general, will the Bill help producer organisations? What more could be done? Why have we not traditionally done better in UK agriculture?

Richard Self:

Producer organisations have done a good job, but I think some people would say they could do a better job if they were better organised. I think we could have made better use of them in the past—other countries have made very good use of their POs. One concern we have around POs is that they might be too narrow. We want to ensure that all types of co-operative have the chance to be a PO, and that extra hoops and barriers are not put in the way of existing co-operatives, making it more difficult for them to get to that PO status.

Photo of Daniel Zeichner Daniel Zeichner Labour, Cambridge

Q Why has the UK experience been different from that of other countries?

Richard Self:

Other countries have taken those funds that they get through being a PO, and the help with their technology, productivity and so on, but they have also changed their business models. What is important is to get the right business model in place, where you can add value, capture it and bring it back to the primary producer. I think what we have done is just take the money for the grants, if you like, as opposed to changing the business model and the way that the supply chain works.

Photo of Daniel Zeichner Daniel Zeichner Labour, Cambridge

Q Will the measures in the Bill make it more likely that we go down that route in future, do you think—or not?

Richard Self:

I think it can do. As I said, I think the detail will be in the secondary stage to this, and how that is built up, but the foundations are there. We can make that PO scheme work, as long as we are inclusive of all the different co-operative structures that we have got within that, and do not create extra barriers and hoops for people to jump through to get into the PO scheme.

Photo of Daniel Zeichner Daniel Zeichner Labour, Cambridge

Q Is there anything you would like to see in the Bill that would help that to happen?

Richard Self:

There is nothing specific that I would like to see. At this stage, it is about trying to keep it as wide as possible, so that we keep our options open and look at every stage of making the environment right for co-operatives to thrive and succeed.

The UK is well behind most other developed agricultural systems in its use of farmer co-operatives. France, Germany and the USA are all developing a number of co-operatives, while the number of our co-operatives is reducing. We need to change that balance around. Our market share of co-operatives, based on my most recent figures from a few years ago, is about 6%, compared with Germany’s 17%. I think France has something like 55% and Denmark somewhere over 60%. Their market share is much greater. The value added that those co-operatives bring is returned to the primary producer.

The other advantage with co-operatives is that they make the markets less volatile. That is one of the things we are worried about in the future—volatile markets. A co-operative can help balance out that market to make it work well, so that there is less volatility in the price of goods—the primary produce. It also makes sure that the supply chains are fairer for the farmer because they are working together.

Photo of Robert Goodwill Robert Goodwill Conservative, Scarborough and Whitby

Q From what you have just said, it appears that the structure of UK agriculture, with larger units, does not lend itself particularly well to co-operatives; whereas, on the continent, you have lots of small farmers who, for example, never get a fertiliser salesman on their farm for the size of their operation.

Do you think that, under the old system as part of the European Union, we have in many ways been trying to squeeze a square peg into a round hole, and fit what is going on here into the way that we can access funds? How do you think in future we can actually produce a system to encourage co-operatives, of the sort that would maybe work in the UK, rather than trying to emulate those across the water?

Richard Self:

Generally, we have some very good co-operatives out there. The governance angle of co-operatives is the key thing. If we get that right, and get them well managed at the leadership level, that will help to address the sort of thing that we have had in the past.

We have large farmers in our country, compared with some of the others, but in fact it is the small farmers who do not tend to collaborate so much. I think the larger farmers tend to be very professional in what they are doing, and they are looking at this as a business arrangement, as opposed to the smaller farmers, who want to do things themselves. The evidence I have seen basically says that we need to target smaller farmers probably more than we do the larger farmers.

Photo of Danny Kruger Danny Kruger Conservative, Devizes

Q You have pretty much answered my question. Perhaps you could elaborate a bit more on how to do that. If it is a question of larger farmers naturally combining because they are more professional, as you imply, is it just a question of education and making clear the opportunities that are there? Information, not education, sorry—that was patronising.

Richard Self:

No; that was a good point. Education is good point. I looked at this last year. I looked at our universities and colleges, and they do not do anything on the co-operative business model and how it works round the world, and how farmers benefit from getting engaged. Last year, the Royal Agricultural University did some work for us. It highlighted the lack of understanding of how the business model works and brings benefit back to the farmers—it is about adding and capturing that value and bringing it back. Some farmers have said to me, “Is there any point in us adding value, because someone else captures it?”, whereas a co-operative makes sure that that value is brought back.

We need to educate—“inform” might be a better word in some ways. We do proper case studies and show how, around the world, co-operatives are used in such an effective way, and how their use continues to be developed as they go forward. We were doing quite a lot of work after the Curry Commission report. I was involved in Share to Grow initiatives to get production collaboration going, and we were making some good ground, but then 2008 happened and the cash—the support—stopped. Since then, progress has basically stopped. We have probably moved backwards, if anything, since then in terms of the level of collaboration and co-operation. External support is required to make this happen; it will not happen without that external support to carry it through.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Q One of the criticisms of the fruit-and-veg PO regime in particular was that, apart from being very litigious because of the way in which the legislation was drafted, support could only be given to predominantly marketing co-operatives—marketing had to be their primary function. Some groups such as the British Growers Association and others have said that that is wrong. Would you support an approach with support for co-operatives to come together to do research and development, or as buyer groups, but not necessarily marketing in the traditional sense?

Richard Self:

Obviously, marketing and consolidating products to make efficiencies in the supply chain are really important, but as we move forward, there are lots of other opportunities for co-operatives to get involved and for farmers to work together. Data is one—we talk about “big data”—and co-operatives are in an excellent position to harvest that data and to use it, not just for their benefit, but for the benefit of the whole supply chain. It will be important, going forward, that we have really efficient supply chains, so that we compete with external supply chains. Working with a co-operative at the centre of that, at the production level, is important both upstream and downstream. If we can have PO schemes that run across different areas and different sections of that supply chain, it would be good.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Q On the competition law side, what kind of exemptions or special provisions in law would you seek to enable the co-operative model to develop?

Richard Self:

I think that the existing competition law that we enjoy now—or did, under EU law—would be good to carry through. That is how I understand it, although I am not an expert in this area. The worry is that it might be narrower in the future, so that the onus comes to fall on the co-operative to show that it is not competing unfairly, whereas at the moment it can say, “We’re a co-operative,” and then someone else has to prove that it is competing unfairly. The problem with that is that co-operatives would have more risk and more uncertainty when they were trying to grow a particular business and so on. That is why we would like to keep it as it is at the moment.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Q Are you content with the—I think—30% market share provision? So no co-operative is allowed to go above that—certainly with dairy.

Richard Self:

I think that would be sensible. It would be a good aspiration for some areas.

Photo of Ruth Jones Ruth Jones Labour, Newport West

Q Mr Self, in the agri-food supply chain, how well does the Bill move the power base away from the major retailers towards the farmer?

Richard Self:

I am probably not qualified to say how well the Bill does in that sense, but I believe that if we can have a policy with an almost horizontal theme of collaboration and co-operation that runs through the environmental or production side of it, or anything else, it would be good to improve that. In particular, that strengthens up the position of the primary producer working in a co-operative, in terms of balancing out.

Some processors and suppliers are worried about this, if farmers get together. In some situations, they have—how should we say?—been proactively discouraging it, and we need to avoid that happening. It is to the benefit of the whole supply chain if it works with that co-operative—they can get economies of scale, help manage supply and demand, and use the branding of the co-operative, if you like, to get to the end consumer to show the traceability, the welfare and the quality of the product when working with a co-operative. There are win-win situations for both co-operatives and businesses up and down the supply chain if it is looked at the right way. They can see it as a threat to their profitability.

Photo of Sarah Dines Sarah Dines Conservative, Derbyshire Dales

WhatQ single change would you advocate if you had to prioritise a single change to the Bill, as currently drafted?

Richard Self:

I think the only thing I would change is to make sure that the exemptions are firmed up and protected over the next few years. We are worried about that, in terms of suddenly making it more risky for our co-operatives to develop.

Photo of Sarah Dines Sarah Dines Conservative, Derbyshire Dales

Q How long would that extension be?

Richard Self:

There is a two-year period on this. It could be managed more flexibly, so it would be good if that could be extended for two years.

Photo of Sarah Dines Sarah Dines Conservative, Derbyshire Dales

Q What would your choice be? Would it be five years, or four years?

Richard Self:

Five years would seem like a good period, but I do not have significant knowledge on that front.

Photo of Theo Clarke Theo Clarke Conservative, Stafford

Q I just want to pick up on the issue of transparency and fairness in supply chains. Would the fair dealing obligations in the Bill currently work with the existing groceries supply code of practice? I want to make sure that we have a consistent approach to fair dealing across the whole supply chain.

Richard Self:

I’m sorry; what would that be?

Photo of Theo Clarke Theo Clarke Conservative, Stafford

Q How do we ensure that the existing groceries supply code of practice is consistent, so that we have fair dealing across the whole supply chain?

Richard Self:

I probably do not know enough about that. The code does a good job in helping the process. Co-operatives are my area of expertise. It would be good if that included co-operation and collaboration as it would help redress some of the balance of fairness within the supply chain, but would be for the benefit of the whole supply chain if handled the right way.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Q I wanted to return to the issue of dairy contracts, and whether there should be a continuation of the special exemption for dairy co-operatives. What is the remedy for a farmer who finds himself trapped in a long-term contract in Arla, a huge pan-European co-operative, where he is not happy with the price he is getting or the way the organisation is being managed, but is unable to change either of them despite nominally having a share or stake in it? Should there be some rights for that individual member as well? Do the articles of association in co-operatives generally provide sufficient protection?

Richard Self:

Obviously, there is a democratic process within the co-operatives in which you can vote people on who have a particular stance. The idea is to help control your own co-operative in doing what the membership wants. A co-operative should have a process in place whereby that can be fed into the co-operative to get the criteria right for that membership. The process of democracy within the co-operative should allow for that. I cannot comment on an individual case, but it is up to the members how they run their business. They should be able to set it up the way they want it.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Q I suppose the key question is: if the views and interests of a British minority, for instance, were compromised by the majority in a big pan-European cooperative because of a decision taken, should they not be able to exit with a set notice period, for instance, and have a clear mechanism for doing so?

Richard Self:

I would hope so, yes. But I am not an expert in the dairy industry, so I would need to investigate that further; we are happy to look into that. I have good contacts with our dairy co-operatives and can help feed that into the system.

Photo of Daniel Zeichner Daniel Zeichner Labour, Cambridge

Q Earlier, you touched on some of the opportunities around data. Will you amplify on that? What support might be needed to make the most of those opportunities?

Richard Self:

Increasingly, farmers will have better data on their anticipated crop yields, milk yields or whatever. They can collect that raw data, and farmers can trust their co-operative to handle it in the right way for them. That data is useful and is worth money to others in the supply chain. It is a question of how they can work together to maximise the use of that data for the benefit of the supply chains they are working in.

Photo of Daniel Zeichner Daniel Zeichner Labour, Cambridge

Q Is that an issue of scale, or an issue of co-operation?

Richard Self:

Obviously, the more data you have across an area—information on yields, or even perhaps on the supply side, on agrochemical use and the anticipated use of crop-protection products—the more it helps you to manage supply and demand going forward, which helps improve efficiency and productivity. Co-operatives are in a really strong place because they are working on behalf of their farmer members, and they can use that data in the right way to help the whole supply chain.

Photo of Fay Jones Fay Jones Conservative, Brecon and Radnorshire

Q I have a question about risk management. I had to step out of the room, so I apologise if this has been covered. Often, farmers are at the very end of the supply chain and bear all the risk. We have a good example with the beef price at the moment, which is down very heavily at farm gate level but not so much at retail level. Could there be more in the Bill to provide more risk management support in the event of market volatility?

Richard Self:

On risk management, the problem is that you put your crops in the ground or start to produce your animals well ahead, and you do not know what you will get for them. Mechanisms to control those risks against unforeseen events and so on are really important. If they could be built in, that would be very useful. Again, co-operatives have a role in that: you can pool your crops or your fertiliser payments to average out prices within a co-operative. That is the sort of thing that helps to manage risk. If you have a known price for a thing, or you get an average price over a period, you do not get hit hard if the price suddenly goes up or down.

Photo of Danny Kruger Danny Kruger Conservative, Devizes

Q That sounds very sensible. A huge advantage of a co-op system is that it can help its members share its red risk. It would be good for me, at another time, to understand more about the extent to which your members provide that kind of assurance mechanism for their members, but that is not my question. More abstractly, where do you think the opportunity is for a strengthened co-op movement in the regime that is to be introduced? Is it in enabling co-ops to partake in national and global markets, or in strengthening local production for local markets? I bet you are going to say both.

Richard Self:

I would say both.

Photo of Danny Kruger Danny Kruger Conservative, Devizes

Q Do you have a sense of where there is more opportunity? Are you part of the local, anti-food-miles movement, or do you say, “No, we can take part in the global economy”?

Richard Self:

I think there are some wins there for local things, but if we really want to make a difference, it has to be about getting a good market share of UK supply chains and then working with those groups to see how we can develop export markets around the world for high-value, high-welfare, quality products. There are some opportunities for that. It is a difficult area to get into—obviously, it is highly competitive—but with the story we have through our production methods and so on, we should be able to do that. Again, the point is that you need the right business model to add that value but then capture it back to the primary producer. The problem is that when a farmer produces something and it just goes off on a lorry and they do not know where it is going, they are price-takers and somebody else is capturing the value they have created. That is why we need to get the business model right for those groups.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

If there are no more questions, I thank Mr Self, and we will move on to the next panel.