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Dairy Farmers (Meetings)

Question Time — Scottish Executive — Environment and Rural Development – in the Scottish Parliament at 2:00 pm on 18th November 2004.

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Photo of Alasdair Morgan Alasdair Morgan Scottish National Party 2:00 pm, 18th November 2004

To ask the Scottish Executive what recent meetings it has had with representatives of dairy farmers. (S2O-4106)

Photo of Ross Finnie Ross Finnie Liberal Democrat

I met members of the NFU Scotland milk committee in October, and Allan Wilson met representatives of the industry on two occasions in April. Officials meet representatives of the sector particularly regularly, normally through the Scottish milk forum.

Photo of Alasdair Morgan Alasdair Morgan Scottish National Party

In view of that answer, the minister will be well aware of the recurring problem whereby dairy farmers have to sell their product at less than cost—at around 17p to 19p a litre—while other people in the industry make money and the shopper ends up paying around 45p to 50p a litre for the product. Leaving aside the fact that the whole problem stems from the actions of the Tory Government in the mid-1990s, will the minister say what he is doing—either personally or through talking to the Department of Trade and Industry or the Department for Environment, Food and Rural Affairs—to secure some sort of permanent solution to the problem, which keeps coming back?

Photo of Ross Finnie Ross Finnie Liberal Democrat

There are two connected points there, the first of which is the voluntary code that was agreed to by the supermarkets and the industry but which has no statutory underpinning. As the member rightly points out, the code was negotiated by the DTI with input from the Office of Fair Trading. There is no doubt that there is an enormous sense of disappointment that the code is not being operated properly. The Scottish Executive is taking up the matter to see whether there is another way of working that in conjunction with the industry.

The second point is permanent solutions. We have a fundamental difficulty with the milk industry in Scotland, in that far too much of it depends on the raw milk price; that would be true even if the 17p to 19p per litre price that was postulated by the member rose by another 2p per litre and got nearer to the Scottish industry's break-even point. That is what we are discussing with the industry.

I do not know how the Government can do it, but moves must be made towards creating more vertical integration so that we are less dependent on the raw milk price. We have said to NFUS and the milk committee that we will do everything we can to encourage those discussions, but the member will appreciate that it is not wholly within my powers to make that happen. The two key issues are the relationship or the chain between the supermarkets and the raw milk producers, and the dependency of those producers on the raw milk price.

Photo of Alex Fergusson Alex Fergusson Conservative

The minister will be aware of the comparatively benign conditions that exist in my constituency for dairy farmers. I am sure that he will therefore share my concern that, in recent weeks, a 200-cow herd and a 300-cow herd have ceased milk production. Those are efficient and modern units that are unable to make ends meet even in the most favourable conditions for dairy farming. Does the minister understand the anger that dairy farmers feel about the introduction of the national beef envelope because they will be contributing towards it but receiving no benefit from it? Will he consider reviewing the criteria so that beef calves from the dairy herd will qualify for support under the envelope?

Photo of Ross Finnie Ross Finnie Liberal Democrat

I understand fully the deep frustration of milk farmers who find themselves going out of business in the present conditions. However, I am bound to say that a 1p change in the price and in profit would have a much more material effect on those businesses than the national beef envelope will. I understand the argument and I am not dismissing it, but the real issue for milk producers is the fact that at the 17p to 19p figure that was quoted by Alasdair Morgan, the majority of our herds are not making money. It is essential for those businesses to bridge the 2p gap either by moving up the supply chain or, in the long term, by changing the relationship or the percentage by which they depend on the raw milk price.

Photo of George Lyon George Lyon Liberal Democrat

In the light of some of the answers that the minister has given, I would like to pursue the issue of the code of practice. Could the Government legislate in that area, or does that have to be ruled out because doing so would take the Executive into competition policy? Has the minister discussed the matter with DEFRA and will he clarify whether the statutory underpinning of the code of practice that the farmers sought when they lobbied Parliament is practical? Is it under discussion?

Photo of Ross Finnie Ross Finnie Liberal Democrat

The member is correct to say that the issue would take us into the territory of competition law. That is why the DTI was the sponsoring department for the initial agreement, which was overseen by the competition policy directorate.

The discussions that we are having with the industry and DEFRA indicate that it would not be productive for us to get into the area of competition law. Although what we believed to be an agreement was secured, that agreement does not appear to be being acted upon by the supermarket companies. The current discussions are aimed at trying to make that agreement effective.