[John Cummings in the Chair] — Agriculture (South-West)

Part of the debate – in Westminster Hall at 9:30 am on 20th January 2009.

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Photo of David Heath David Heath Shadow Leader of the House of Commons 9:30 am, 20th January 2009

That is the hon. Gentleman's view, but it will not necessarily be shared by many in the agriculture industry.

At the time, people said that biofuels were the reason why wheat prices suddenly escalated at such a fast rate. If that was the case, why on earth did we have a crash towards the end of the year when the price of wheat fell precipitately? It does not make sense unless we look at the actions of the market.

At the same time, we have had an increase in the price of milk—until very recently—and livestock. On the face of it, that is very good news for the producer. However, if we look at the other side of the equation—the input side—we can see that the costs have been very much inflated. Costs of feed, fertiliser and fuel are still higher than they were a year ago.

Farming generally has still been able to attract credit. That has been of great value to people running farm businesses. Up until now, they have been able to maintain their cash flow. At the same time—perhaps inevitably—we have had an increase in debt in the farming sector. Although that suggests that the farming industry is fairly healthy and that people are making investments, it also raises concerns about vulnerability in the future. The average dairy farm has a borrowing of about £210,000. That is sustainable only if the income is maintained, but it is not if credit lines cease and income is not maintained. I have a particular concern about tenant farmers. They do not always find the banks quite as sympathetic as those who are owners of their land.

I am concerned that we do not have sustainability in all senses of the word and stability, and that we still have degrees of volatility in the markets, which is evidenced by the fact that milk prices were cut by up to 2p a litre at the beginning of the year. That is not as a consequence of the market conditions, because there is still under-production of milk in this country, and the exchange rate for sterling against the euro is favourable. Therefore, under a free-market system, milk prices should be at a sustainably higher level. That begs the question about the fundamental relationship between the producer, the supermarkets and retailers, and the processors, which are squeezed in between.