[Dr. William McCrea in the Chair] — Dairy Farming

– in Westminster Hall at 12:00 am on 27 January 2010.

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Motion made, and Question proposed, That the sitting be now adjourned.-(Mark Tami.)

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons) 9:30, 27 January 2010

It is a pleasure to serve under your chairmanship, Dr. McCrea. It is good to see so many hon. Members join us for the first debate of the day, on the future of dairy farming in the UK. I know that a number of hon. Members want to make contributions, so I shall be as brief as I can and do a general skirt-through some of the issues.

The first Westminster Hall debate in my name, back in 2005, shortly after I was elected, was on this very issue. I am returning to it in the closing weeks of this Parliament because many of the challenges facing the dairy sector that prompted me to write to Mr. Speaker the first time round have not changed fundamentally. The industry still faces difficult and uncertain times. I accept that the picture is not entirely bleak and there are some positives to talk about, but dairy farmers across Britain and the EU have been through another horrible year.

The seriousness of the situation was recognised by a Welsh Assembly committee report on the future of dairy farming in Wales published shortly before Christmas. The European Union has also recognised the particular difficulties facing the dairy sector in the past year or so across the continent. Its work on the EU dairy market situation was debated upstairs in European Committee A on Monday night.

My starting point today is the same as it was for my first debate, in 2005. It is the simple belief that a vibrant, healthy dairy farming sector is vital to Wales and Britain, both for its importance to the rural economy in many parts of the country and for its contribution to national food security. It is good to see hon. Members present from all corners of the British isles, representing at least four different political parties.

Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

I thank the hon. Gentleman not only for initiating a very important debate, but for coming back to ensure that farmers have a voice in the House. It is good to speak under your chairmanship, Dr. McCrea. Dairy can play a major role in food security, as the hon. Gentleman just mentioned. The other issue is the need to ensure a long-term viable, sustainable future for farming, instead of farmers living on the edge, never quite knowing what the price will be. Does the hon. Gentleman agree that the issue is farm-gate prices as well as food security?

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

The hon. Gentleman, who is a doughty campaigner on behalf of the dairy sector in the UK, has summarised the key issues very well. The debate is about exactly those issues. It is about restoring confidence to the sector so that farmers can plan for a stable future, and seeing some profitability come back into the sector.

Photo of Lembit Öpik Lembit Öpik Liberal Democrat, Montgomeryshire

I, too, congratulate the very hard-working hon. Gentleman on achieving this debate. Adding to what Mr. Hoyle just said, does Mr. Crabb agree that the other consideration, which is more important now than it was five years ago, is the environmental one? My constituents in Montgomeryshire find it quite frustrating to look on to the hills and into the fields and see locally produced livestock-sheep and cattle-and then to observe that the supermarkets are full of produce that has come thousands of miles from the other side of the world. Surely that is bad environmental politics and very bad for our local economy as well.

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

I agree with the general thrust of the intervention. It is a good thing to be supporting local food, and in my local supermarkets I see an increasing amount of local produce on the shelves, but we need to see more of it. We need to give much more priority to local, home-grown produce.

Photo of David Simpson David Simpson Shadow Spokesperson (Education), Shadow Spokesperson (International Development), Shadow DUP Spokesperson (Business, Innovation and Skills)

I welcome you to the Chair, Dr. McCrea, and I congratulate Mr. Crabb on obtaining this very important debate. Does he agree that one difficulty that the dairy sector, along with other farming methods, has faced is that the legislation from Europe has hindered many farmers, who have been put to unnecessary expenditure? Then of course we have the difficulties with the banks at the moment.

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

There is no question but that one of the things that has eroded profitability in the dairy sector in recent years is the significant increase in production costs, and a large part of that increase has been driven by the increasing amount of regulation.

To return to my speech, I do not look on the decline in dairy farmers as a positive restructuring of an industry in transition and I do not believe that we in this place should be neutral about the forces shaping this important industry. One positive thing that came out of our debate in 2005 was the formation of the all-party group on dairy farmers. I pay tribute to my hon. Friend Daniel Kawczynski, who is present, for taking a lead on that and, with the assistance of the Royal Association of British Dairy Farmers, ensuring that there is a dedicated cross-party voice speaking up for the dairy sector in this place. When he is not authoring books on Colonel Gaddafi, my hon. Friend is being a powerful advocate on behalf of dairy farmers in his local area and across the UK.

Last month, a consortium of farming organisations, including the National Farmers Union, Farmers For Action, NFU Scotland, NFU Wales, the Farmers Union of Wales, Dairy Farmers of Scotland and the Royal Association of British Dairy Farmers, wrote to me and the other officers of the all-party group to alert us to the very difficult year that the dairy industry went through in 2009. My request to Mr. Speaker for today's debate was in part a response to that sobering letter that we received just before Christmas.

If we look back over the past five years, it is clear that the sector has been shaped by a number of events and trends. The volatile milk price hit healthy heights in 2007-08, but has since collapsed, leaving many farmers once again receiving a price for their milk that is well below their production costs and leaving them unable to plan investment in the new kit that they need to stay competitive. Bovine tuberculosis has continued its destructive spread through many dairy farming areas, decimating dairy herds in the process.

Photo of Oliver Letwin Oliver Letwin Shadow Minister without Portfolio

Does my hon. Friend agree that for those of us who have dairy farmers in TB hotspots, that has become one of the major issues now and we urgently need effective action from Government to eradicate the source of the problem?

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

I agree absolutely. I shall make some comments about bovine TB later, but it is clear that that disease is having a devastating impact on many farmers in many parts of the UK and we need urgent action.

Last year, we saw the collapse of the Dairy Farmers of Britain co-operative, which rocked the sector and left many farmers facing losses of tens of thousands of pounds each. That shook confidence across the board. Meanwhile, Britain's supermarkets have continued to expand and increase market share relative to other outlets for dairy products, and the question of their market power and strength within the supply chain persists.

Photo of Oliver Letwin Oliver Letwin Shadow Minister without Portfolio

My hon. Friend has touched on both points to which I hoped to draw his attention. Does he agree that in relation to the supermarkets, there is now an urgent need for an ombudsman properly to enforce the code?

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

I agree; that is a key point. I am pleased that the Government have finally responded positively to that recommendation by the Competition Commission. My party has been campaigning for that for some time, as have other parties. There is no question but that we need a serious neutral body that can look clearly at the way in which the supermarket supply chain is working, make recommendations and take remedies where appropriate.

On the point about supermarkets, we have also seen some positive trends in the past few years. I am thinking of the move by Tesco, Asda, Marks and Spencer, Waitrose and others towards direct contracts with milk suppliers, which has meant that some farmers are receiving an economic return for their production, although I accept that others who are outside those contracts are left struggling. We have seen continuing attempts by the major processors to create higher-value-added brands, which can achieve better prices for products, but set against that, we have seen the Food Standards Agency persist with its campaign against dairy products-its vilification of dairy products as part of its campaign against saturated fats.

Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

One supermarket that the hon. Gentleman did not mention is Booths Supermarkets in the north-west, which deals with local farmers. I do not know whether he has seen the same in his own area, but a new Asda supermarket is coming to Chorley. There is nothing wrong with that, as long as it plays its part. I have suggested to Asda that it ought to have a local purchasing agreement to buy local farm produce in order to reduce the number of food miles. Does the hon. Gentleman agree that that would be a good way forward and show that Asda, or whichever of the big supermarkets is involved, is playing its part to support our local community?

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

That is an excellent suggestion and I hope that Asda responds positively to the recommendation that the hon. Gentleman is putting to it.

The backdrop to the debate has been a changing one, and I shall describe some of the challenges in more detail in a few moments. First, however, I want to say a few words about my constituency, which is part of the great west Wales milk producing region, where dairy farming has been part of the fabric of economic and social life for generations. In that respect, we are not debating just an economic activity, but an activity that sustains the very social structure of rural life in Pembrokeshire and many other parts of the country.

What has happened in my constituency is a microcosm of what has been happening to the dairy sector right across the UK in recent years. Some of the dairy farmers in my constituency who briefed me before the 2005 debate are no longer producing milk; some have switched to beef farming, while others have quit the industry altogether. Still others have retired because their children did not see a viable future in dairy farming, and their farms have been sold or merged into much larger farming units. Pembrokeshire is also a key bovine TB hot spot, and a number of our large dairy herds have been devastated by the disease. In addition, several of my constituents were directly affected by the collapse of the Dairy Farmers of Britain co-operative.

However, the picture in my constituency is not entirely negative, and there are some positive things. I would point, for example, to the dairy processing plant in Haverfordwest, which is owned by First Milk. The co-operative uses the brand name The Pembrokeshire Cheese Company to create high-value-added cheese brands and will, I hope, create a better future for the local dairy farmers who supply it.

Photo of Lembit Öpik Lembit Öpik Liberal Democrat, Montgomeryshire

The hon. Gentleman mentioned the collapse of Dairy Farmers of Britain. Did he, like me, experience the outrage felt by farmers in his constituency, who basically acted in good faith and who were of the impression that the organisation was allowed to trade long after it had become insolvent? Many of my constituents lost tens of thousands of pounds as a result. Sadly, the same probably happened in the hon. Gentleman's constituency and in the constituencies of other colleagues.

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

The hon. Gentleman is right. Some troubling questions remain to be answered about Dairy Farmers of Britain, although it is important to say that the company is not entirely reflective of farming co-operatives and that we should keep faith with co-operatives, which are one vehicle for farmers to achieve a greater return on their product. The Environment, Food and Rural Affairs Committee is carrying out an investigation into what happened at Dairy Farmers of Britain, and some unanswered questions will need to be addressed.

My constituency has witnessed the outstanding success story of Laurence Harries, who farms near Cilgerran in the north of my constituency. His award-winning Daioni brand of flavoured organic milk drinks is appearing all over the UK and internationally. As I am sure you are aware, Dr. McCrea, Daioni is the Welsh word for goodness. Laurence Harries says that a few years ago he

"set up with a single tanker, a couple of lorries and a lot of wishful thinking".

Last year, he secured a deal to supply the academy and youth teams at Chelsea football club with Daioni milk drinks. He also supplies the Welsh rugby union. A year ago, I was on a Eurostar trip to Paris as part of a Conservative joint working group meeting with French parliamentarians from the Union for a Popular Movement, and the milk that we were served was Daioni organic milk from my constituency. Although it is a high-value, niche brand, it is an example of what can be achieved when good farming skills and excellent business acumen are combined. However, even Laurence Harries would admit that he is exceptional. For the larger number of milk producers in my constituency who supply the generic liquid milk market, the last few years have not been happy.

The dairy sector constitutes 18 per cent. of the agriculture industry in the UK and more than 30 per cent. of agricultural production in Wales. However, the falling number of dairy farmers and the decline in milk production are continuing across Wales and the UK, with a growing concentration of milk production in particular geographical areas. I have seen figures that suggest that the number of UK dairy farmers has halved since 1997, and the Welsh Assembly Government have estimated that 26 farmers leave the dairy industry on average every week. One in 10 farmers say that they will leave the industry within two years. Over the past five years in Wales, the number of producers has fallen by a third.

We are therefore seeing falling numbers of farmers, accompanied by falling numbers of dairy cattle, falling milk production and the closure of processing plants. UK milk production has fallen by 8 per cent. since 1997 and is now at its lowest level for more than 30 years, although Dairy UK, the trade body representing the dairy processing sector, takes an upbeat view and believes that production has now stabilised and may even be creeping up again.

Wales has seen a 7 per cent. fall in cattle numbers in the past five years, and more than 900 redundancies have been announced in the Welsh milk processing sector, resulting in major changes to regional processing capabilities. In his response, I am sure that the Minister will maintain that milk production volumes have remained broadly static in the past 10 years, but as far as I can see the trend has been downwards. I would therefore welcome his comments about where we stand on dairy imports and about what the trend is, particularly in the context of national food security.

Photo of David Simpson David Simpson Shadow Spokesperson (Education), Shadow Spokesperson (International Development), Shadow DUP Spokesperson (Business, Innovation and Skills)

There is a school of thought in the industry that believes that one way forward would be completely to remove subsidies to allow the market to deal with the issue by creating a level playing field across the whole of Europe and the UK. What is the hon. Gentleman's view?

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

Most of the farmers I speak to in my constituency say that, ideally, they would not want to be in the game of receiving subsidies; they want to compete in the marketplace and to be business people first and foremost, and that means receiving a fair price for their product. They want to receive a price that fairly reflects the economic value of their produce, but that is not happening. I am wary of saying that we should move quickly to remove all support for farmers, which would leave them desperately exposed in a difficult, volatile market, and we need to tread carefully. However, I reiterate that most of the farmers I speak to want to be business men first and foremost, not recipients of subsidies.

Photo of Oliver Letwin Oliver Letwin Shadow Minister without Portfolio

That touches on the vital question of decoupling subsidies from production in other EU countries. Does my hon. Friend agree that it is an urgent necessity that the Government put pressure on other EU countries to achieve that decoupling?

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

Yes. My right hon. Friend makes his point very effectively.

There can be little doubt that the fluctuating price of liquid milk and the increasing cost of milk production have contributed significantly to the lack of confidence in the dairy industry in recent years. We have seen milk prices move from a low in 2006, when the average dairy farmer was estimated to be losing almost 5p per litre, to a high in 2008, when prices soared by up to 40 per cent. However, in the last year, as I said, the price has fallen back dramatically. Today, the price paid for milk is once again falling below the cost of production for many farmers. At the same time, production costs have increased by 27 per cent. since 2006, undermining much of the confidence that the industry regained in 2007 as prices increased.

The think tank Open Europe has stated that the cost to farmers of UK regulation has more than tripled since the Department for Environment, Food and Rural Affairs was created in 2001. I would welcome the Minister's response to that point and his comments on how he sees the future of farm regulation and what can be done to minimise the additional production costs that farmers face as a result of regulation.

It is clear that this is not an isolated trend in the UK, and dairy farmers across Europe have faced challenging conditions. I spent part of last summer on a dairy farm in northern France, and the farmer and his family described a situation very similar to the one experienced by farmers in the UK. However, one difference in the French situation is that French agriculture receives huge political support across the board. No one can be a serious politician in France unless they are willing to stand time after time and speak up for French agriculture. Although hon. Members are well represented here, those present largely have significant dairy interests in their constituencies, and we need far more colleagues to speak up for farming who do not have dairy farms in their constituencies, but who nevertheless recognise the importance of dairy farming to the UK.

In answer to parliamentary questions over the past year, the Secretary of State has reiterated his opinion that the UK dairy industry is in a much better position than most of its European competitors. However, the Farmers Union of Wales has suggested to me that if it were not for the current exchange rate, farm-gate prices would be likely to be about 30 per cent. lower. Does the Minister therefore accept that the industry's saving grace this year has been the weakness of sterling, rather than a fundamental strengthening of the sector? I would also welcome his comments on what needs to be done to ensure that UK dairy farmers can weather the storms created by volatile milk prices but still plan and undertake long-term capital investments so that they can stay competitive.

Bovine tuberculosis is another area on which there has been a frustrating lack of progress in recent years. I have met farmers in my constituency whose cattle herds have been decimated by the disease. Indeed, two years ago I spent a Sunday with one of Pembrokeshire's leading dairy farmers, whose farm had just been hit by it. It was moving to see a strong man brought almost to tears by the decimation of his stock. It is not like losing a faulty batch of widgets on a production line. Farmers invest their lives in raising those animals, and they love them. When they must see a herd go off to be slaughtered, it is a moving and difficult thing. I recognise that that area of agriculture policy is devolved in Wales, and I take my hat off to the Welsh Assembly for taking some bold decisions in moving ahead with an eradication programme that includes a careful element of active wildlife management.

I have put the question before to Ministers, and ask it again today: why, given that the scientific evidence base on which Welsh Assembly Ministers operate is identical to the one available to DEFRA, do English Ministers still refuse to recognise a role for a targeted cull as part of the plan? The Welsh Assembly has the same evidence and is moving ahead. There is a pilot programme in my constituency.

Photo of Mark Pritchard Mark Pritchard Conservative, The Wrekin

I apologise, Dr. McCrea, for my late arrival. This is an important debate and my hon. Friend touches on a vital point, particularly for border counties such as Shropshire. Many farmers in the county are landowners on both English and Welsh sides of the border. It is puzzling and frustrating when there are advancements on the Welsh side of the border on the vital issue of TB, and not on the English side. We need progress quickly.

Photo of Jim Fitzpatrick Jim Fitzpatrick Minister of State (Department for Environment, Food and Rural Affairs) (Farming and the Environment)

I shall say more about TB and do not want to take up the hon. Gentleman's time, but in response to that point I must say that the science is not conclusive that culling will eradicate TB. The Secretary of State made his decision on the basis of the scientific evidence. The eradication group that he has set up does not dismiss culling as a tool in the box, which might be used, but the evidence suggests that just culling creates a vacuum and draws the infection in, and does not eliminate it.

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

I am grateful for that and look forward with interest to the Minister's reply to the debate; but the Welsh Assembly does not believe that it is all about culling. No one argues that. Culling is part of a comprehensive strategy and the Assembly is proceeding in a careful and targeted way. I am not known for often praising the Assembly, but I salute it in this instance.

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government)

I pay tribute to the hon. Gentleman for securing the debate and for his work on behalf of the dairy industry. The evidence to which he has referred is evolving, and is it not true that the so-called perturbation effect that was predicted has not been demonstrated, as areas where the experiments were carried out have continued to be monitored? The effect has not materialised as was envisaged.

Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

To back up my hon. Friend, with reference to what the Minister said, the Ministry of Agriculture in France recently issued a statement that the reason bovine TB has practically been eradicated in France is the part culling of badgers.

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

That is also a useful intervention.

Sir David King, the former chief scientific adviser, was quoted in the Farmers Guardianlast week as saying that DEFRA's refusal to tackle the badger population was a "source of great exasperation". He went on to suggest that the TB epidemic could put an end to dairy farming unless the Government considered a cull of infected badgers. As I said, the Welsh Assembly is at last moving ahead with a programme that includes an element of active wildlife management. It is being piloted in the north part of my constituency and is a brave move.

One of the new emerging challenges for the Secretary of State is unquestionably what I regard as the unbalanced and distorted healthy food agenda being promoted from some quarters, which seeks to demonise dairy products. I am thinking principally of that increasingly powerful arm of Government, the Food Standards Agency. There was a time when I thought that the job of the FSA was to help to ensure that the hygiene and safety practices in the production and sale of food were of a sufficient standard to avoid the risk of illness or worse, but I see from its recent press releases, and from its website this morning, that it sees one of its main jobs as warning people away from dairy products, as part of its campaign against saturated fat. The website names those products: cheese, cream and ice cream. I see from a press release of the past few days that it wants us to abandon full fat milk. Frankly, many of my constituents do not want their taxes to be used to fund that kind of nonsense. Obesity in Britain is not caused by eating dairy products. In Westminster Hall this morning you can see, Dr. McCrea, a group of some of the healthiest parliamentarians. I see marathon runners, rugby players and fell runners: an incredibly healthy group. It is no accident that they are also some of the proudest and fiercest advocates and defenders of dairy products, the eating of which is part of a healthy lifestyle.

The dairy sector is being made a scapegoat by the Government because of their rank failure to tackle the more profound drivers of obesity in this country: the British obsession with getting drunk; the collapse of sport in schools; the end of cookery in schools, driven by the health and safety madness that has affected a generation of young people; and the proliferation of poorly regulated low quality fast food outlets in many town centres. I do not mean McDonald's, which has been good news for farmers in recent years, but the proliferation of low quality cheap fast food. Will the Minister join me in condemning the Food Standards Agency's misguided approach to dairy products? Does he agree that the Government must not give mixed signals to the dairy sector, sending Ministers to farming conferences one day, to speak up the British dairy sector, and channelling money to anti-dairy campaigns the next? Will he join my call for more sense from the Food Standards Agency?

I could say more about lack of investment in the sector, driven by a lack of confidence and certainty about the future, but I want to bring my remarks to a close to enable other hon. Members to contribute. I am sure that some of them will talk in more detail about the ombudsman. I support the creation of an ombudsman. The supply chain has been characterised by accusations and mutual mistrust, and we need somehow to get beyond that. There needs to be recognition of a partnership between farmer, processor and retailer, with common sense in the relationship. My hope is that the ombudsman will have enough powers and clear guidance to make that happen. However, I want to say a word of caution about what the ombudsman can achieve. I have talked to some farmers who believe that the ombudsman can somehow radically change the price they get for milk, and I think that view may be naive. Unless the Minister can correct me, I do not understand that it would be the job of the ombudsman to fix prices. I should welcome the Minister's remarks on how he sees the ombudsman's role in the dairy sector and with respect to milk prices.

I am grateful to have had this opportunity to raise concerns affecting the dairy sector in the UK and in particular my constituency. I am conscious that perhaps I have not covered all the issues, and optimistic that other hon. Members will fill in the gaps. I look forward to the Minister's giving us good news and reasons to be optimistic about the dairy sector in the years ahead.

Photo of William McCrea William McCrea Shadow DUP Leader of the House of Commons, Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Environment, Food and Rural Affairs)

Several hon. Members want to speak in the debate and I shall try to allow as many as possible to do so, but discipline will be in the hands of hon. Members.

Photo of David Drew David Drew Labour, Stroud 9:58, 27 January 2010

I shall be as brief as I can, Dr. McCrea, partly because so many hon. Members want to speak, and also because I must leave slightly before the end of the debate, as I have an important meeting about flooding to attend.

I congratulate Mr. Crabb. I do not agree entirely with all that he said-I shall explain why-but it is right to discuss dairy farming. I have taken an interest in dairy farming and the dairy industry for a long time, not least because the Severnside processing plant chimney is at the bottom of my garden; I cannot but be influenced by that important industry.

I want to make four quick points. First, I make a plea to my hon. Friend the Minister about what is happening in Gloucestershire at the moment, which is the epitome of some of the industry's problems. The county farm estate is actively debating the conflation of its dairy holdings from well over 20 to 11. In a previous life, I chaired the county farm estate's smallholdings group on the county council, and I have always been a great upholder of the belief that dairy farming is an important sector, as it allows people to start in agriculture who could not do so in any other way. It would be a tragedy to use the current problems as an opportunity to increase the size of holdings, as younger people would never be able to get into dairy farming. I hope that my hon. Friend the Minister will look, as a matter of urgency, at what is happening in Gloucestershire.

I have had two debates on the subject, and I have always upheld the importance of the county estate nationally, but this is another side of the debate. I totally oppose selling off what I think of as the county's family silver, but I also worry that we might shut out dairy farming in what, after all, are the country's milk fields. That needs to be considered. I hope that the Government have a view on the matter. They may say that it is up to local government, but we need the Government to take a strategic view.

My second point is about something that was mentioned by the hon. Member for Preseli Pembrokeshire-the common agricultural policy and how its reform might affect dairy farming. I have been a complete long-term critic of the CAP. I think that it has done more damage to the dairy industry than to any other sector of industry. Milk quotas should have been removed a long time ago. They are a huge disincentive in this country, and there is no excuse for them.

The problem with CAP is that a one-size-fits-all strategy does not work. We should be expanding our dairy industry rather than having to go cap in hand to Europe-forgive the pun-to try to maintain the current situation. The latter is not acceptable. It is about time that we were allowed to pull out of the CAP, if nothing else, because we need to rebuild our dairy industry.

My third point is about bovine TB-something on which we will disagree. The debate is so sterile. Yes, I have read the independent science group report, but to me the science is clear. Culling does not work. It is counter-productive. So I turn to what we are doing in my area and the vaccination strategy. The Select Committee on Environment, Food and Rural Affairs debated the matter long and hard.

I congratulate the Government, but I wish they would move more quickly. In every other area of animal disease, we are trying to find a vaccination strategy, yet with bovine TB, we go back to the old argument that if we cull one species that carries bovine TB, even though many others carry it, it will be a magic bullet. There is no magic bullet. It is a dreadful disease. I met someone from the farmers' stress network yesterday, and I know what damage it does to people's lives. It is a really awful disease, and we must get hold of it.

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government)

As a fellow member of the Select Committee, I remember those debates. I also recall that our report recommended that culling might be an effective tool. The evidential picture is evolving. I know that the hon. Gentleman cares a great deal about the industry, but does he agree that we ought to keep an open mind on these things, perhaps allowing culling to take place in some areas? It could make a huge contribution.

Photo of David Drew David Drew Labour, Stroud

I accept what the hon. Gentleman says. However, I agreed to the report with gritted teeth; people know that I am a great compromiser, and I believed it important to have consensus.

The biggest problem is that we might give people the illusion that culling will work; if so, we will let them down. We must be honest. It is not going to work. There will be legal challenges in Wales, and it will take years to clear that out of the way. In any case, only a small part of Wales is experimenting with culling. We should not fool ourselves. The idea that it will be imposed on Shropshire, as the hon. Member for Preseli Pembrokeshire suggested, is an illusion. Let us be honest, and get on with finding a solution in the vaccination strategy. We should not go along cul-de-sacs that have been tried before and did not work.

I shall be careful how I phrase my last point, because the Select Committee is considering Dairy Farmers of Britain. It was wrong to see the failing of that organisation being attributed to its structure, its co-operative nature. Mistakes were made in its management, but its biggest mistake was to try to compete in the liquid market with the wrong production structure. If it had specialised, it would probably have had a greater chance of getting through its deep-seated capital problems.

I welcome the ombudsman, who was mentioned earlier. I pay tribute to Andrew George, who has driven the idea relentlessly, with some help from my hon. Friend Mr. Hoyle, myself and others. I pay credit to that campaign. The dairy industry has done badly because supermarkets, in particular, have used milk as a loss leader, playing all sorts of games with processors and especially with farmers.

Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

Because of my hon. Friend's knowledge, I invite him to comment on two quick points. The other thing that dairy farming needs is agricultural shows. What more can be done? Will the Government support them, to ensure that we get the Royal Lancs show back? It is a great way of ensuring that the public understand farming, particularly dairy farming.

My second query is about the spraying of nitrates and slurry. Should there be more flexibility to ensure that farmers have more time to do so?

Photo of David Drew David Drew Labour, Stroud

On the second point, my hon. Friend is talking about another mad EU regulation, but no one takes a blind bit of notice of it. On the first point, I agree with him entirely. I am in favour of shows. It is important that farmers should have the opportunity to show off the good things that they do. The problem nowadays is that few farmers go to shows because they are too busy. They face too many constraints, not the least of which is that their income is insufficient for them to spend time there.

We should support the ombudsman. A previous report found that one problem was the poisonous atmosphere in the dairy industry. It is the most difficult industry, as everybody distrusts everyone else. The different levels distrust each other; it is not competition within the segments of the sector, but a real dislike of some of the things that are going on.

I say to the Government that this country needs a clear strategy for dairy farming. There is no excuse for avoiding that. I would like to see the industry completely outside Europe, because the CAP has done immense damage. A strategy has to be brought forward to rebuild some of the relationships. I would like to see more co-operation; indeed, it was wrong to say that its co-operative structure caused problems for Dairy Farmers of Britain. If we can get on with that, we will have served our purpose and done what we should be doing. Our purpose is not simply to maintain that important sector but to build it for the future. That is what we need to see.

Photo of Mark Williams Mark Williams Shadow Minister (Innovation, Universities and Skills), Shadow Minister (Wales) 10:07, 27 January 2010

It is a pleasure to serve under your chairmanship, Dr. McCrea. I pay tribute to my constituency neighbour, Mr. Crabb, for securing this debate. The hon. Gentleman, Daniel Kawczynski and I have raised these issues on numerous occasions, and have ensured that, for the past five years, we have had an annual debate on agriculture in this Chamber.

As the hon. Member for Preseli Pembrokeshire said, some aspects of dairy farming are devolved. I shall endeavour to delve into the devolved settlement, but I want to focus on producers, suppliers and retailers and the relationship between them. That is the fundamental problem that our dairy industry faces.

I hesitate to use the word "crisis" as it is emotive, but figures on the long-term position of dairy farming in Wales show that it is in serious decline. In 1994, there were 5,300 dairy farmers. The number had fallen to 3,600 by 2004, and figures for December 2009 show that it has now fallen to 2,059. Those figures show that 60 per cent. of Welsh dairy farmers have left farming over the past 15 years, something that I think is reflected in England.

There was an important geographic message from the hon. Member for Preseli Pembrokeshire. He does not like the word "Dyfed". Neither do I; it is an old county term that describes our area. However, I will use it now because half of the dairy farmers of Wales are from Dyfed-from my constituency of Ceredigion, and from Carmarthenshire and Pembrokeshire.

We can wax lyrical about the social implications of the loss of the dairy sector, but it is a reality. We are talking not about isolated farms appended to big towns but about large areas of the rural economy being dependent on farmers and farming families. Losing those farms and those families has implications well beyond the production of milk. It affects village schools and the local economy more generally.

I concur with what Mr. Drew said about county starter farms and encouraging young entrants into the industry. We lost our farms in Ceredigion a long time ago. One of the dispiriting things about making farm visits and meeting the two farming unions in Wales is the constant repetition of questions. Five years ago, questions were asked about young farmers and how to attract people into the industry, and we are still facing the same problems. I have had some emotive discussions with farmers who want to pass on their farms to their children, but find that their children drift away and move into other areas, because there is perceived to be no future in the industry. At the end of the farming hustings in Ceridigion, we always ask the question, "If you had a child, would you encourage them to stay in the farming industry?" Many say, "In all honesty, with hand on heart, we could never make that recommendation given the state of the industry."

There have been some glimmers. I congratulate the Minister on ensuring that Wales has received a fair distribution of the £25 million EU rescue package, which, as far as I can tell, was calculated on the proportion of dairy cattle rather than on the Barnett formula, and I pay tribute to the Assembly Government for their role in that. I share a constituency with the Minister who has responsibility for rural affairs, and I pay tribute to her for the work that she has done. However, I should like some clarification on future emergency spending. If we need such spending again-I hope that we do not-will it be allocated according to relative need rather than population?

Photo of Jim Fitzpatrick Jim Fitzpatrick Minister of State (Department for Environment, Food and Rural Affairs) (Farming and the Environment)

We are currently consulting on how to distribute the €29.26 million, which is the UK's share. I am sure that the hon. Gentleman has already made a submission, but if he has not, he may want to reinforce that.

Photo of Mark Williams Mark Williams Shadow Minister (Innovation, Universities and Skills), Shadow Minister (Wales)

I thank the Minister for that. I am also taking consultation from the Welsh Assembly Government. There is sensitivity about the matter. During the foot and mouth scare in 2007, there was concern from the devolved Administrations about the extent to which DEFRA funding came to Scotland and Wales.

I am pleased that the Government have finally agreed to a supermarket ombudsman. I appreciate that such a matter is not directly within the Minister's portfolio, but it is crucial to the farming sector.

Photo of Alan Reid Alan Reid Shadow Minister (Northern Ireland), Shadow Minister (Scotland)

I agree with my hon. Friend that the ombudsman is vital. Does he not think that the Government should give powers to the ombudsman so that they can be proactive in carrying out investigations? It is no good just waiting for complaints to come in. Many people in the sector are concerned that if they make a complaint, their products could be boycotted, so it is important that the ombudsman has strong proactive powers.

Photo of Mark Williams Mark Williams Shadow Minister (Innovation, Universities and Skills), Shadow Minister (Wales)

I thank my hon. Friend for raising that matter. The hon. Member for Preseli Pembrokeshire made a fair point when he said that the ombudsman will not be the solution to all problems, but expectations are high. If this is to be an ombudsman without teeth, it will be costly lip service and will fail at the first hurdle.

We have a job of communication to do with our constituents. When Mr. and Mrs. Average go into a supermarket and purchase their milk for a couple of days, only a tiny share of that milk price actually finds its way to the producers. Prices may have gone up a bit, but they have still been low over the past couple of years. They have gone up from 18p a litre to 23p. People do not understand-the farmers understand-why a greater share of the price is not finding its way back to the farmer. This is about not just the supermarkets and the monopolistic control that they exercise, but the relationship with the processors, which needs to be considered as well. NFU Scotland says that there has been evidence of some upward movement on prices paid by processors, but given the increased profits of the likes of Wiseman's, Arla and Dairy Crest, it is disappointing that the rise has not been steeper. Figures from DairyCo show that, between February and October last year, the price of bulk cream rose from £750 a tonne to £1,700. It has slipped back now to £1,130. There is still a feeling that not enough of that money is finding its way back to the producers.

The purchasing power of supermarkets is a fundamental concern. Again, I welcome the announcement that the ombudsman issue is to move forward. Some supermarkets treat farmers more fairly than others and they should be rewarded for their support by not allowing others to cut corners, thereby restricting the ability of producers to make a living.

Some contracts are linked to production costs. Those are welcome and contribute to keeping farmers in business, but much more needs to be done. One of the first jobs of the ombudsman is to establish whether the price of milk has been kept artificially low, which is what we suspect.

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

Does the hon. Gentleman agree that the dedicated milk contracts that all the major retailers have are, by and large, a positive thing? They have not led to an across-the-board increase in farm-gate prices, as some of us had hoped, but they are good for the farmers. What would be positive now is for those dedicated contracts to expand into the cheese markets, so that we have dedicated cheese contracts as well. That would help many other farmers.

Photo of Mark Williams Mark Williams Shadow Minister (Innovation, Universities and Skills), Shadow Minister (Wales)

I agree. As the hon. Gentleman said, it is the scale of those contracts rather than the principle itself. He mentioned dedicated contracts in the cheese industry. We have present not only the chair of the all- party group on dairy farmers, but the chair of the all-party group on cheese, my hon. Friend Dan Rogerson, who has done a lot of work on promoting the cheese sector. Pembrokeshire, like Ceridigion, has many cheese producers who need support. It is in that spirit that the regulator is to be welcomed. I am glad that the Government have listened to our concerns. Organisations such as the Farmers' Union of Wales have been talking about a regulator for 10 years or more, and I am glad that it is now happening. I should also pay tribute to Albert Owen who, as promoter of the Grocery Market Ombudsman Bill, will be pursuing the matter as well. I would welcome assurances from the Minister that the code of practice will be legally binding and that the ombudsman will be given powers to sanction supermarkets when they transgress.

The issue of bovine TB is fundamental and needs to be addressed. It has been partially addressed, and I pay tribute to the Welsh Assembly Government for the brave, but immensely regrettable, decisions that they have taken.

There have been difficulties recently with milk collections, and getting milk to processors. The dire weather we have had recently has forced some farmers to throw away their milk. Moreover, there has been concern over Milk Link's decision to ban the use of plastic roadside containers when tankers are unable to reach the farms. That has been a real issue across much of rural Wales. Some disruption was understandable, but surely we should do everything we can to ensure the distribution of milk. Steel storage tanks being required by Milk Link are not affordable for many farmers, who are already operating on very tight margins. They do not have the money to invest in any capital infrastructure.

Lastly, let me turn to the point about healthy food. Like me, the hon. Member for Preseli Pembrokeshire has praised the Assembly Government for what they are trying to do on the cull. I am sure that he would also like to praise them for the initiative that they took on milk in schools. Reinstigating free milk in schools sends a powerful message to both parents and the sector about support. The Assembly Government may be in a stronger position to pursue that matter, but they have done it and done it well.

The dairy sector is undeniably in a difficult position. None the less, there are a few glimmers of hope out there. Processors have shown that profits can be made in the dairy industry, and we now have a promise of a body that can at least assist in ensuring that those profits are fairly distributed. We now need action to make that a reality, so that the constant stream of people leaving the industry, with all the effects on the rural economy, can be halted.

Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham 10:18, 27 January 2010

I pay tribute to my hon. Friend Mr. Crabb for securing the debate. He is one of the most active members of the all-party group.

When I was first elected in 2005, Mr. Jones, a dairy farmer near Shrewsbury, explained to me the seriousness of the situation facing the dairy sector. It was his lobbying that convinced me to go to see supermarket bosses. In my naivety, I thought that as an elected Member of Parliament I could demand to see the chief executives and haul them into the House of Commons to speak to them. Some of them did send representatives to speak to me and discuss my concerns, but they were very arrogant. They said that they were doing all that they could and that any regulation would be unviable. They tried to do all they could to deter me from pursuing the matter.

That is why I set up the all-party group on dairy farmers. That is the way we do things in the House of Commons: we work together on a cross-party basis to lobby Government on issues that are of importance to us and our constituents. I am very pleased to say that the all-party group on dairy farmers is one of the largest all-party groups in the House of Commons, with more than 120 Members of Parliament. The leader of my party, my right hon. Friend Mr. Cameron, is a member of the all-party group and should he be elected to the office of Prime Minister I will ensure that I keep reminding him of the fact that he joined the group. If any hon. Member here today has not joined the all-party group on dairy farmers, I would ask them to see me after the debate, to ensure that they join.

I very much welcome the report from the Conservative party, saying that, if we are elected to office, an ombudsman-regulator will be appointed to regulate the supermarkets. I will hold a Conservative Government to account on this issue and ensure that they make the appointment in a very speedy way. I will also ensure that, as Mark Williams has suggested, the ombudsman-regulator has proper teeth and specific guidelines, so that they can help dairy farmers in their discussions and negotiations with these all-powerful supermarkets.

The all-party group on dairy farmers issued a report in the autumn of 2006 and we presented it to the then Secretary of State for Environment, Food and Rural Affairs, who is now the Secretary of State for Foreign and Commonwealth Affairs, and to the then shadow Secretary of State for Environment, Food and Rural Affairs, my hon. Friend Mr. Ainsworth. The main thrust of that report was to seek to have a regulator or ombudsman for supermarkets. Our group has been pushing for that appointment for the past three years. Initially, I was told, "Impossible. You're never going to get a regulator for supermarkets. It's totally unrealistic, a pipe dream. Just forget about it." So it just shows that if someone perseveres, feels passionately about an issue, never accepts a no and keeps plugging away, ultimately-hopefully-success will come.

The all-party group on dairy farmers visited the European Parliament on a cross-party basis to meet the European Commissioner for Agriculture and Rural Development, Mrs. Fischer Boel. She said that she felt that part of the problem was that we had too many milk processors in the United Kingdom. She also said that a certain amount of consolidation within the United Kingdom market would not be a bad thing. I would like the Minister to note that she said that the European Union would not interfere if there were certain consolidation in the dairy sector. In her own country, Denmark, Arla has 80 per cent. of the milk processing. She said that that was one of the most important factors in Denmark; the strength of Arla in its discussions and negotiations with supermarkets. Therefore, that is something that I would like to promote.

My hon. Friend the Member for Preseli Pembrokeshire and others have spoken about bovine tuberculosis. Bovine TB is absolutely devastating in Shropshire and it has increased at a massive rate in the past few years. My hon. Friend talked about the emotion of this issue and that struck a chord with me. I have sat with some of the farmers in my constituency. I will mention one, Mr. Chris Bulmer of Snailbeach. We basically sat together at his kitchen table, having tea, and I have to say that we both got rather emotional about the issue of bovine TB. I am not prone to being overtly emotional with constituents, but this was an extremely emotional matter. People such as Mr. Bulmer live for their farms and their animals, and when they see the extraordinary suffering and wanton slaughter of their animals that has to go on, it is very upsetting.

One of the most difficult things that I have had to do in my constituency is speaking to the Shropshire Wildlife Trust, addressing 500 of its members. The first question to me was, "Well, Mr. Kawczynski you horrible chap, why do you want to kill all those lovely badgers?" Of course, the emblem of the Wildlife Trust movement is a badger and so passionate are the members of the Shropshire Wildlife Trust about badgers that they have even taken my wife and me to look at a badger sett in my constituency. They gave my daughter a cuddly badger soft toy, which I think was a bribe to encourage us to think nicely of badgers. The problem is that, although we all like badgers, badgers themselves suffer terribly as a result of this disease.

I have to say that the next Conservative Government must tackle this issue of badgers and I expect to see a limited cull of badgers, should a Conservative Government be elected to office. I make no bones about saying that, because I am absolutely convinced that culling must be part of the process of controlling badgers, no matter how controversial it is.

I just want to talk very briefly about the Rural Payments Agency. I must say that I am still trying to sort out problems with the RPA on behalf of various constituents. Some dairy farmers are still grappling with this issue, on top of bovine TB and the low prices they receive for their milk. I will mention to the Minister one of my constituents, Mr. Hamer of Longden, who is still having terrible problems with RPA payments and I very much hope that he can help Mr. Hamer with those problems.

Lastly, the all-party group on dairy farmers will be meeting shortly. Among those coming are representatives of the Farmers' Union of Wales, the Dairy Farmers of Scotland and the Royal Association of British Dairy Farmers. I must say that sometimes when we have these meetings, not enough Members of Parliament attend, because of their other commitments. So I will be sending every MP who has attended this debate notification of the next meeting of the all-party group on dairy farmers. As I have said, we have a lot of representatives of different farming organisations coming and I would be grateful if Members of Parliament who are here today attended the next meeting of the all-party group.

Photo of William McCrea William McCrea Shadow DUP Leader of the House of Commons, Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Environment, Food and Rural Affairs)

I will be commencing with the speeches from the Front-Bench spokesmen at approximately 10.30 am, but I want to call Roger Williams before then.

Photo of Roger Williams Roger Williams Opposition Whip (Commons), Shadow Secretary of State for Wales, Shadow Minister (Environment, Food and Rural Affairs) 10:26, 27 January 2010

Thank you, Dr. McCrea. I will try to be brief.

Much has already been said about the plight of dairy farmers. Indeed, in my own constituency, I think that we are down to fewer than 10 dairy farmers at the moment and that is in the biggest agricultural constituency in England and Wales. So we have suffered. However, one of the remaining herds in my constituency has 350 cows, showing the way that the industry has gone.

With all the farmers who have gone out of the industry, we are left with a small number of farmers, but they must be the most efficient farmers in the whole farming industry. Even so, they are struggling to survive with these milk prices. Therefore, we get some idea of the consequences of low commodity prices.

However, we should not be surprised about these difficulties. The point that I will make, which I do not think has been made by any other hon. Member, is that when we went into the single farm payment scheme it was on the basis that we would be competing not only within Europe but within the world on a commodity basis. The single farm payment was to compensate farmers for a drop in commodity prices. Not much liquid milk is traded, but huge amounts of dairy products, including generic cheddar cheese, are traded throughout the world. That has been the problem that has pulled down milk prices in Britain. We should consider the fact that milk production in Britain has only fallen from 13 billion litres to 12 billion litres, despite the number of people who have gone out of the dairy industry.

Of course, the reason that commodity prices have fallen is that we are doing away with intervention buying, which kept up prices within the European Union, we are doing away with import tariffs, which discouraged cheaper imports from being brought into the country, and we are doing away with export subsidies, which allowed surplus product in this country to be exported and dumped on the world market. So it is not surprising, in a way, that we have lower commodity prices.

Many important issues have been raised, such as the ombudsman, TB and various other issues. However, the really important question is this: what will the common agricultural policy look like in 2013? I do not think that anyone has really addressed that issue.

We know what the CAP should look like; it should give a commercial return to farmers and a guaranteed supply of products at reasonable prices to consumers. However, what does it look like in detail and in principle? The National Farmers Union has given us some indication. It has said that the future CAP, with regard to milk and other products, should be:

"a simple policy...market-oriented...geared towards competitiveness".

The final indication of what the CAP should look like-but not what it will actually be like-is that the NFU says it should be:

"fundamentally a common and an agricultural policy, predicated on a firm belief that the above aims are best achieved through a common policy framework with EU rather than national funding."

The NFU recommends no co-financing or co-funding but a straightforward common agricultural policy.

In the last 30 seconds available to me, I must say that the experience of the dairy industry, and indeed of some of the arable sector at the moment, is that with great dips in commodity prices, the farming community and industry still need direct payments. Yes, some payments are pillar 2 and fund public goods, but if we are to have a vibrant agricultural industry in this country, direct payments such as the single farm payment will be necessary if we are to survive in a cut-throat global competition for commodities.

Photo of Tim Farron Tim Farron Shadow Secretary of State (Environment) 10:30, 27 January 2010

It is a great pleasure to serve under your chairmanship, Dr. McCrea. I pay tribute to Mr. Crabb for securing this debate and starting it off so admirably, and for his commitment to the sector, not just in his own constituency but across the country. My hon. Friend Mr. Williams said more in four minutes than many of us are capable of saying in 40. If I just endorse everything that he said, I can knock about five minutes off my speech in order to allow others more time to wind up.

I was at the Castle Green hotel in Kendal two weekends ago for the Cumbria Young Farmers annual general meeting and jamboree. It was a wonderful evening and a great opportunity. I listened to all the speeches made and sat there with my notebook writing down all the jokes-as a Liberal Democrat, I am a keen recycler, and that extends to my speeches and jokes as well-but at some point during the evening, I realised that there was absolutely no context in which I would ever be able to use one of the jokes and get away with it.

Apart from having an entertaining and slightly off-colour sense of humour, the young farmers, a good proportion of whom were dairy farmers, demonstrated to me that however difficult and challenging life in the dairy sector has been and continues to be, there is nevertheless immense room for optimism. A new generation of young people are set to become the backbone of a dynamic, competitive and innovative dairy industry. However, the system is not making it easy for them. There is a huge risk that young dairy farmers' ambition, work ethic and talent will be stifled.

As we have heard from many hon. Members, these are immensely difficult times for dairy farmers. Since 1997, the number of dairy holdings has decreased by 50 per cent. and the number of dairy farmers by 35 per cent. In the past three years alone, liquid milk production has dropped by 7 per cent. That is 1 billion litres of lost production. Production levels in this country are at their lowest since the 1970s, despite the fact that the UK population is now 15 per cent. higher and demand is rising. We are losing milk production capacity because farmers are leaving the industry. Some go to the wall; some slip quietly into other work; many wait for retirement. As my hon. Friends have said, they will retire having actively encouraged their children to do anything but follow them.

Supply is tightening, yet the prices paid to farmers are pitiful. The estimated cost to the farmer of producing 1 litre of milk in October last year was 26p, and the average farm-gate price for liquid milk was 24p. The average farmer is making a loss on every litre produced. That is the average, but hundreds of dairy farmers, including dozens in my constituency, get less than 20p a litre. Many of us wander down one aisle in the supermarket and make ourselves feel good by buying fair trade coffee, but in the next aisle we buy milk that might be sourced locally but is anything but fairly traded.

The factors behind the decline in production capacity are complex; we have heard about many of them. Even over-production is blamed, but that is an insult to the intelligence of dairy farmers. Production in this country is declining and demand is rising. To prove a point, to compensate for the steady loss of UK producers, imports of liquid drinking milk rose from 87.7 million litres in 2007 to 134.1 million litres in 2008. There is no question of UK producers over-producing; in fact, they are under-producing.

Photo of Bill Cash Bill Cash Conservative, Stone

The hon. Gentleman and I took part in a debate initiated by the European Scrutiny Committee only a couple of days ago. Does he agree that the importance of reviving the whole dairy industry in the context of European legislation is essential and that we should ensure that dairy farmers in this country are not only protected but given an opportunity to engage in new milk contracts, as proposed by a series of Ministers?

Photo of Tim Farron Tim Farron Shadow Secretary of State (Environment)

The hon. Gentleman makes an important point. Undoubtedly, we need to protect our dairy farmers from unfairness in the market. I do not think that any dairy farmer wants a protectionist system, and I endorse the comments made by my hon. Friend the Member for Brecon and Radnorshire about reforming the common agricultural policy in that respect.

Last summer, the EU Agriculture Committee issued a report showing that farm-gate prices for a litre of milk had dropped 31 per cent. while the shelf price of milk had dropped by only 2 per cent. We also know that in the past decade, supermarket mark-ups-the proportion of the price of a litre of milk that goes into the supermarkets' pocket-have tripled. In consequence, farmers are leaving the industry.

One would think that the free market would not allow a situation in which buyers kill off their own suppliers or reduce their ability to reinvest in greater efficiency and productivity. To quote John Maynard Keynes,

"Markets can remain illogical far longer than you can stay solvent."

That has clearly been borne out within the dairy industry. In any case, an unfettered market is not a free market.

Dairy farmers are effectively forced to accept the prices that they are offered. Supermarkets' and processors' ability to abuse their market power legally must be curtailed. That is why we endorse the setting up of a supermarket ombudsman. I pay tribute to my hon. Friend Andrew George for leading on that issue for many years. We as a party championed it for a long time while being ridiculed by others, but it is good news that those others have come on board.

It is important that the supermarket ombudsman should, as my hon. Friend Mr. Reid said, be powerful and proactive, not supine and reactive. Hon. Members will know all about ombudsmen and will have had many reasons to make use of them on their constituents' behalf. Ombudsmen tend to be able only to react to complaints, to investigate only one tenth of complaints and to find in favour of the citizen in only one third of cases. That is not a model likely to strike fear or even respect into the hearts of the supermarkets.

We support a powerful supermarket regulator based on a model similar to Ofcom, with proactive investigative and enforcement powers, a remit to go out and look for trouble and the ability to stand up forcefully to those who abuse market power, with appropriate sanctions at its fingertips. Anything less might be counter-productive by providing supermarkets with the necessary political cover to continue exploiting dairy farmers and other producers.

Such exploitation was seen in its rawest and most appalling form after the tragic collapse of Dairy Farmers of Britain in May. Afterwards, some members of the co-operative were forced to accept as little as 10p a litre from buyers who simply took advantage. We have heard of the devastating losses involved. In my constituency, the average farmer lost £20,000 from their May milk cheque and perhaps £50,000 on their investment within the co-operative. The effects of that tragedy are still being felt and have caused unbearable financial and emotional strain among friends of mine who were struggling to get by even before the collapse.

We are pleased by the £25 million in emergency support from the European Union. We lobbied for it from the beginning, whereas the Government did not. We are concerned that that money should be spent appropriately. For example, some of it could be spent to support the co-operative movement. After the demise of Dairy Farmers of Britain, it would be easy for many farmers to conclude that their best bet is to go it alone. I am sure that all of us would agree that that is the wrong lesson to learn. The co-operative movement is an important element in providing farmers with the strength to compete powerfully within the marketplace.

In conclusion, abuse of market power is the main challenge to our dairy farming industry, but it is not the only challenge. Unnecessary regulation is also a huge problem. The extension of the European Union's nitrate vulnerable zones directive has caused and threatens to cause immense damage to farmers in general and dairy farmers in particular. That new directive will mean many farmers have to spend around £50,000 on a new slurry tank simply to comply with the measure, with absolutely no benefit to their business. That will be the straw that breaks the camel's back for many farms.

There are more challenges to come. The Government made an announcement this week on cost sharing, and the establishment of an animal disease levy will be cause for alarm for many dairy farmers in Cumbria and across the country. The proposal to charge farmers at a rate of £4.80 per cow to pay for the clean up of disease outbreaks, which in the case of the 2007 foot and mouth crisis was wholly the Government's fault, is unjust and extreme. Such a proposal will help to push even more dairy farmers out of business. We have heard about the Government's failure to tackle bovine TB, and I endorse those remarks. Some 29,000 cattle were slaughtered in England for TB control reasons just last year. Squeamishness over a controlled cull of badgers led to that mass slaughter of cattle, and a failure to deal with that disease is contributing towards making many farms non-viable.

The story of British dairy farming in recent years is one of market failure, and Government failure to tackle market failure, versus the staggeringly impressive resilience of an industry that is determined to succeed against the odds. That battle continues and my money is undoubtedly on dairy farmers to win. I suggest that it is time this House got off the fence and took their side.

Photo of Richard Benyon Richard Benyon Shadow Minister (Environment, Food and Rural Affairs) 10:41, 27 January 2010

It is a great pleasure to serve under your chairmanship, Dr. McCrea. Before I say any more, I refer hon. Members to my entry in the register. Until 14 months ago, I was the only dairy farmer in the House. I left dairy farming for many of the reasons discussed today-not least because of the effects of the nitrates vulnerable zone directive. I also left the industry because I did not invest in my business, for the very good reason that my unit costs of production were greater than the pence per litre I was receiving. That situation is replicated across the country and has led to a dramatic reduction in dairy farmers and the amount of milk we are producing. There is a range of other issues, including food security.

I pay great tribute to my hon. Friend Mr. Crabb for not only securing the debate but speaking passionately about the needs of this important sector of the farming community, which he represents-he has done so in the past and will continue to do so, whichever party is in government. I also pay tribute to hon. Members such as my hon. Friend Daniel Kawczynski, who have set up the all-party group on dairy farmers. They do great work and hon. Members from all parties who take part in that should feel proud that they have set up something really important.

As I said, since 1997, I have been one of 14,000 dairy farmers who are no longer dairy farmers-if hon. Members can follow that tautology. Since that time, milk production has fallen by more than 1 billion litres and the National Farmers Union has warned that Britain will lose its "critical mass" of milk suppliers. That is important, because when someone has left dairy farming, it is very hard to go back to it. If someone is growing sugar beet and they stop doing so, they can go back to it easily. In areas such as mine-the central south of England-we have lost slaughterhouses, a large amount of veterinary expertise, cattle markets and all the infrastructure that supports mixed farming units. One does not get that infrastructure back. Such a situation makes a dramatic difference to our landscape and our biodiversity. The issues relating to the subject go much further.

I also pay tribute to Mr. Drew, who made an important point about skills. We are losing skills across the farming industry, particularly in stock farming, and we make a great mistake if we do not understand the need to bring young people in and give them a career in a good industry.

According to DairyCo, if the increasing trend in the consumption of dairy products is extrapolated forward, annual consumption in 2030 could be in the region of 16 billion litres, which is some 23 per cent. greater than the current UK production level. Tim Farron makes a good point: to say there is overcapacity in this industry is completely wrong.

The price that dairy farmers receive for their milk has fluctuated between 15p and 28p a litre over the past 13 years, which has led to wide variations in profitability. The UK average farm-gate price has been consistently below the average for the EU15 throughout the past decade, which partly explains why dairy farmers have under-invested in their businesses compared with their European counterparts. In addition to the fall in prices paid to milk producers, during 2009, more than 1,800 dairy producers suffered significant financial losses. We have heard about the effects that the collapse of Dairy Farmers of Britain has had on many constituents of hon. Members in this Chamber.

The NFU estimates that an average supplying member lost in the range of £10,000 to £15,000 as a result of being left without pay for milk collected in May and up to 3 June. As well as low farm-gate prices, dairy farmers have had to manage rising input costs, which has left little spare for investment. As the hon. Member for Westmorland and Lonsdale pointed out, the unit cost of production of 26.5p per litre is significantly higher than the average milk price at the time of 24.5p per litre.

In 2009, DairyCo's farmer intentions survey revealed that only 18 per cent. of dairy farmers intend to increase milk production-down from 35 per cent.-with 13 per cent. intending to exit the industry within the next two years. An increase in production is forecast on some farms, but the reduction in the number of dairy farmers will result in a further fall in milk production next year. With demand for dairy products increasing and domestic supply declining, it is vital that the Government act to put the dairy industry on a secure and sustainable long-term footing.

I suggest to the Minister that there are five steps we need to take to improve the outlook for the dairy industry. I hope that he will have time to deal with them in his remarks. First, we have heard talk of supply chain fairness but, in recent years, the price for raw milk has dropped by 27 per cent. and the consumer price has risen by 11 per cent. Government documents on the dairy market state:

"On the whole, there is little connection between the price paid by the consumer for milk and the price paid to producers".

On Monday, there was a European Committee debate in which my hon. Friend Mr. Paice asked the Minister a question. I will repeat that question, because it needs a full answer from the Minister. He said

"Can the Minister tell us the Government's view about the relative market share within the UK, vis-à-vis the main processes, and the EU? Many people will find it astonishing that there are co-operative and other organisations in the EU with up to 80 or 90 per cent. of the domestic market, yet in this country, the OFT has frequently over the past decade, forced the break-up or restricted mergers and amalgamations to give equivalent market share."-[Official Report, European Committee A, 25 January 2010; c. 9.]

That is a really important matter. My hon. Friend the Member for Shrewsbury and Atcham talked about Arla in Denmark, which has an 80 per cent. share of the market in that country. We broke up Milk Marque when it had only 37 per cent., which has had a detrimental effect on the ability of producers to work together to get a fair deal.

We have heard about a need for proportionate regulation. That is so important. As I said, I have experience of the impact of the nitrates vulnerable zone directive. None of us wants impossible levels of nitrates to be in our water supply, but we know from the Government's figures that the changes imposed by the directive in respect of muck spreading will lead to a 1 per cent. drop in nitrate leaching. That has a massive cost-an impossible cost for some businesses-for the farming community.

We need effective action on disease. Much has been said about TB but, of course, Johne's disease is also having a large impact on production. On TB, the Minister was wrong to say in his intervention that those of us who support a limited cull consider that to be a silver bullet and that is all we talk about; we are talking about a cull as part of a much wider approach. The hon. Member for Stroud talked about vaccination but, frankly, it will be 2014 before an oral Bacillus Calmette Guérin is available. What state will the dairy sector be in in many areas of this country by then? It is vital that the Government grasp the nettle and get a grip of the TB issue.

That point was poignantly made on "Countryfile," which is a programme that sometimes irritates me because it considers the matter through the prism of a rather more urban view. There is a man called Adam on that programme, of Adam's farm, and he showed precisely the frustration, depression and anxiety caused during TB testing.

We need a stronger focus on research and development. When R and D is so fundamental to the immense challenge of increasing food production while conserving our natural resources, it is critical that we get the most from our world-class science base. That will require the Government to do everything they can to help our universities, institutes and scientists to maximise their contribution to strengthening food security, both here and across the world. They need to do that by equipping farmers with the tools necessary to produce more and impact less. Smart solutions must be found to translate research more effectively into practical use at farm level, so that yields and quality in all sectors improve. I do not have time to go into details, but I would very much like to take that point up further with the Minister.

My final point is on honest labelling. We have heard much about that in the debate and we have been talking about it for a long time, so I hope that the Government can come on board and understand the problem. More than 408,000 tonnes of cheese are imported into this country, and imports of cheese have increased by 60 per cent. in the past 10 years. There is real concern among dairy organisations, such as the Royal Association of British Dairy Farmers, that the ability to put dairy products on our shelves without telling the consumer where they come from is not fair on our farmers.

There is much more that I would like to say on the subject, as it is one that is close to my heart. I can assure hon. Members that if we are in government in a few weeks time we will take the plight of the British dairy farmer to heart.

Photo of Jim Fitzpatrick Jim Fitzpatrick Minister of State (Department for Environment, Food and Rural Affairs) (Farming and the Environment) 10:51, 27 January 2010

It is a pleasure to see you preside over the debate today, Dr. McCrea. I begin by congratulating Mr. Crabb on securing the debate and on his excellent opening speech. I agree, as clearly many colleagues do, with much of what he said, although not all of it. The only thing that spoilt his speech was his reference to Chelsea FC-I do not know why he wanted to go there, but it was entirely up to him, as it is his debate.

It is clear from the three debates that I have attended in Parliament on the subject within the past week that the future of our dairy industry, and of our food industry more generally, is a prominent issue on the parliamentary agenda, and rightly so. I have listened carefully to the comments raised during the debate. Despite some of the concerns expressed, I believe that the sector can and does have a positive future and that it will play its part as an important and valuable element of the agricultural sector and the food chain, contributing to both the economy, rural areas and the wider environment. I think that the underlying tone of the majority of the contributions made today agrees with that optimism and positivism, despite the concerns that have been raised.

I recognise that the medium-term challenges facing the UK and EU dairy industries are real. I meet with the NFU and other groups regularly to talk through concerns. Yesterday, I attended a meeting with the board of Dairy UK, at which we had a lengthy discussion and I responded to questions on a range of matters. As colleagues will know, I also chair the Dairy Supply Chain Forum, where all the stakeholders play a full part.

We need to take a long, hard look at the dairy sector. It is clear that the substantial sums of money the EU has allocated to dairy farmers in the past year alone are unsustainable. The health check, the economic recovery plan, market management and the dairy fund have contributed billions of euros to dairy support, but those funds are not the answer to the sector's difficulties, as many colleagues have said. The EU dairy sector needs to be leaner and more competitive to benefit to the full from the opportunities of a globalised market and to withstand its shocks.

We need to help the sector as prices rise to compete without support. With that in mind, we look forward to continued discussions in the high-level group, which was set up by the European Agriculture Council and the European Commission, and to further reform of the common agricultural policy subsequently. The high-level group process offers an opportunity to inform the direction of travel towards further reform, rather than away from it.

I will try to respond to some of the points raised in the debate. The hon. Member for Preseli Pembrokeshire referred to the declining number of UK dairy farmers. It is clear that there is a natural consolidation in numbers. We are moving towards having fewer farmers, as has been clearly outlined, and larger dairy farms, but that is a move towards greater efficiency. The number of UK dairy farmers is falling more slowly than the number of our competitors in Europe, as has been outlined.

The hon. Gentleman also raised the issue of TB, and the Government recognise the seriousness, the disaster and the tragedy that that represents for herds, farmers and farming. There is also an economic impact on the UK taxpayer because of compensation costs. The hon. Members for Shrewsbury and Atcham (Daniel Kawczynski) and for Newbury (Mr. Benyon) referred to the emotional aspect of that problem. I saw the piece on "Countryfile" about Adam's farm and recognise that it is a huge issue. I will come back to that in due course.

The hon. Member for Preseli Pembrokeshire also raised the question of Dairy Farmers of Britain. Clearly, as my hon. Friend Mr. Drew mentioned, the Environment, Food and Rural Affairs Committee is looking at that and will come forward with its report. It is taking evidence from all those involved, including Ministers.

David Simpson, in an intervention, expressed his view on subsidies. The UK strongly supports the end of quotas by 2015, and we lobby hard against market distortions. We lost the argument, and I know that there was some disagreement about the €300 million and whether that was a good or bad thing. We argued against the money being devoted to dairy farming because we thought it would further distort the market and not help the UK dairy industry, although obviously it was supported by the majority of member states at the Agriculture Council. As I said in my intervention, we are consulting on the share-outs of the €29 million allocated to the UK.

With regard to the question that the hon. Member for Preseli Pembrokeshire asked on the burden of EU regulation, our aim is to keep the administrative burdens to a minimum. That is a key part of our negotiations at EU level and considerations during all of our policy development, as I am sure he knows. He mentioned unhealthy diets and remarked that there is a range of causes, from alcohol and a lack of exercise to poor food choices, and I do not disagree. I do disagree, however, with his accusation that the Government are not addressing those problems. We might have different conclusions on what the priorities should be and what emphasis should be given, but the Government are addressing all the issues he raised and will continue to press on that. I am more than happy to endorse the dairy industry and dairy products, and I said the same to Dairy UK yesterday. Indeed, my wife says that I have bread with my butter, rather than the other way round.

The hon. Member for Preseli Pembrokeshire asked about the trends on dairy and milk imports. The UK imports high-value products and exports low-value commodities as a rule, which leads to the distortion, and no one would deny that the exchange rate is having an impact. With regard to the Food Standards Agency, it is clearly DEFRA's role to promote agriculture and dairy, but the FSA has a responsibility to promote a healthy diet and eating well. We do not see those two aims as incompatible. We see dairy as an important element in a balanced, healthy diet, and we make sure that we get that message across as strongly as we can and as frequently as we can.

I will not return to the TB debate, if hon. Members will forgive me, because that matter has been aired well during the debate, and the same is true of Dairy Farmers of Britain. We covered the matter of the ombudsman in a debate last week. The vast majority welcome the advance of the ombudsman. The only Member I have heard speak against it is Philip Davies, who was alone in the Chamber last week on that. That demonstrates that, although there is not unanimity, there is overwhelming support for an ombudsman from all three Front Benches.

The hon. Member for Shrewsbury and Atcham mentioned the size and power of Arla, but we covered that point to an extent in the European Committee, so he will forgive me for not referring to it again. I congratulate him on the establishment of the all-party group on dairy farmers-I hope that that advert increases attendance at the next meeting.

Photo of Jim Fitzpatrick Jim Fitzpatrick Minister of State (Department for Environment, Food and Rural Affairs) (Farming and the Environment)

The hon. Gentleman will have to forgive me, as I have one minute left and will not get through my points if I give way.

Mark Williams asked about the UK's share of the €300 million, and we are consulting on that. The hon. Member for Shrewsbury and Atcham asked about RPA payments. Its performance over recent years has been far better than it has ever been. It now has 80 per cent. of the payments already out. If he wants to write to me on any specific problems, I will be happy to do what I can to look into them. The hon. Member for Newbury gave us the benefit of his personal experience as a former dairy farmer, adding significantly to the value of the debate. I answered some of the questions that have been raised in the debate on Monday.

In conclusion, the prospects for the sector, in the sector's view, are positive, but there are challenges. The Government are trying to help and will continue to do so. The sector is fundamentally sound, and the efficiency improvements, innovation and investments in new products mean that in the medium to long term the sector can do well.