The debate is about one of the most important industries in the UK, the dairy industry, which affects every household in the land. Someone said to me recently, “If we’re lucky, we might need a doctor, an accountant or a lawyer once or twice a year, but we need a farmer three times a day.” That is the background to the debate. The industry has a huge impact on the local economy of constituencies around the land and the health of the industry has a far deeper effect than simply on agriculture. For example, the dairy industry has a huge knock-on effect on the tourism industry in my part of the world in west Wales. The whole UK landscape, in particular in our part of Wales, is heavily and positively influenced by the contribution of dairy farmers and other livestock farmers, often at their own expense.
Agriculture may be a devolved issue—the Minister will come to that—but world markets are not, nor is the role of the groceries code adjudicator or the dairy code of practice. The problem is a UK one, not simply a devolved matter for the Welsh Government. We bring the debate to Westminster Hall this afternoon on behalf of the dairy industry—our friends, our colleagues, our constituents who derive their living from it, our members of the Farmers Union of Wales, the National Farmers Union, the CLA or Country Land and Business Association and Farmers for Action, and many others, some of whom are not members of any union.
Fluctuating prices, tensions between farmers and processors, and criticism of retailers, especially supermarkets, are nothing new in agriculture, but I do not want the debate simply to be a long list of complaints. That is not the purpose of the exercise. We need to understand what is going on in the world market and the relationship between farmers and processors, which has been raised in the House and outside Parliament on many occasions.
My hon. Friend is quite right, and I am looking forward to the rest of his speech, but four pints of milk for 89p cannot be right. Something surely needs to be done.
I will be coming to that in due course, but it is particularly galling for a producer to see that kind of offer in some retailers.
I also want to go into the role and powers of the groceries code adjudicator and the voluntary code of practice, which is subject to a review at the moment—or I think it is—and into the role of Government, if indeed they have a role at all, which I believe they do. What is completely unsustainable for the dairy industry, however, is the long-term prospect of having to sell its product for less than the cost of generating it in the first place, and the extraordinarily short notice that some producers get of significant price changes, about which they can do nothing but sit back and take the pain.
Does the hon. Gentleman agree that that is the very reason why we need the voluntary code to be strengthened—so that farmers cannot be shocked by sudden price drops by big purchasers? Will he ask the Minister to look again at the voluntary code and at making something much stronger?
I thank the hon. Lady, who is a near neighbour. Yes, I will be making that point. The code and the adjudicator have been in place long enough now for some positive benefit to have been felt. The farming community has not yet convinced me, however, that the powers of the code and the adjudicator have been exercised as satisfactorily as they might have been.
Does my hon. Friend agree that it is intolerable that producers have to give the buyers of their milk more notice about a customer change than the buyer of the milk has to give about a change in price?
My hon. Friend makes a good point. Of course that is right, and it is why we need to look at the relationship between producer and processor and between processor and retailer.
My third point, which I was getting to, is that added confusion is provided by the fact that there are so many different contracts for so many different things, written in so many different ways, making it difficult to find any body of farmers of any significant number who have a consistent contractual relationship.
It is absolutely right for my hon. Friend to be having this debate. British dairy products and milk are the best in the world, and we need to promote them more. The dairy farmers are paying some £7 million a year in levy, but the money is not getting out there to promote milk properly. Milk, cheese, yoghurt and all other dairy products need to be promoted more. We need to get the money out to the industry to get milk promoted.
I thank my hon. Friend for his intervention, but I might press on now and not take quite so many interventions, because I will cover many of the points that are being made. I fully accept, however, that people will wish to write their press releases soon, so I will try to be as generous as I can.
The industry recognises that overproduction is a problem and affects price. That is a given. The industry also recognises reduced demand as a result of changing buying habits in China and of Russian sanctions. As a consequence, we are in for what one newspaper described as a long period of low prices, without any indication of what those low prices might bottom out at or of how long is “long”. Analysts are already pointing to considerable uncertainty.
There are those, although not—I am glad to say—many of them, who think that all of that can be dealt with through efficiencies in farmers’ production methods. As we have touched on, however, the short notice that people get about their milk prices cannot necessarily be offset by instant cost reduction measures or alterations to milk production methods. Some such alterations might take one, two, three or even more years to take effect, while the price reduction has an instant effect, so that is a simplistic way of addressing the problem.
An additional problem, which I suspect many Members who represent more isolated parts of the UK feel, is that there are limits to the diversification programmes that farmers can enter into. It is not always possible for people to open a suite of holiday units or a farm shop, because they might be two or three miles off the beaten track, have significant planning problems to overcome or be on a tenanted holding, the landlord of which may have a different view of the sort of developments that can be undertaken.
I congratulate my hon. Friend on securing the debate. I represent the county with the smallest population, where the point that he is making is particularly apposite. Does he agree that it is utterly important for the Government to provide better guidance on how our co-operatives and producers can come together to get a better contractual relationship with the people who are buying their milk?
I thank my hon. Friend for a contribution that I will add to my list of questions for the Minister. He has put his finger right on a problem that particularly affects the more isolated parts of rural Britain.
That all leads conveniently to the issue of supermarkets. The milk price public battleground always centres on the role of retailers, in particular the better known ones. Some 50% of British milk is not traded globally. We talk about global influences, but we must not forget that the other 50% of our milk is not traded globally and that its price is a straightforward consequence of the relationship between UK-based retailers and the processors. The retailers cannot escape criticism by blaming it on the Chinese or the Russians. A lot of the price is about straightforward UK contractual arrangements between two important parts of the chain.
What can the Government and the processors do? There are some long-term proposals and ideas. They are nothing new, and no one in the Chamber will be unaware of them. We must—this is an easy expression to use—continue to strive for and identify new markets. Of course—that is stating the bleeding obvious, some people might say. It cannot be done in a hurry, and it cannot necessarily be done by Government alone; it has to be done by a combination of processors and Government. Identifying and exploiting new markets is of course critical, but it will not solve the problem facing my constituents in the next few weeks.
I congratulate the hon. Gentleman on securing this vital debate on dairy prices. Is he aware that the Dairy Council in Northern Ireland, which is an offshoot of the UK Dairy Council, has been awarded two EU contracts for the export of milk and cheese from Northern Ireland to third-country markets including south-east Asia? Does he agree that that will be a good stimulus to the local economy and will help with milk prices in a world in which they, like beef prices, are slightly depressed?
The hon. Lady’s contribution is timely. One advantage of debates such as this is that we can bring to the attention of the public and decision makers examples of where things are working and ideas for best practice. I suspect that that anecdote will resonate with the Minister, and I hope he will deal with it specifically when he sums up.
The hon. Lady might be interested in my next point, which is about accessing more EU funding to promote dairy products. Again, that is slightly simplistic and will have to be a long-term goal, but I suspect that as a nation we are not accessing those funds quite as effectively as we might be for the dairy industry.
My third point, which is another long-term project, is that there should be greater collaboration between farmers. Even in my part of west Wales I speak to numerous dairy producers, all of whom, it seems, have some slightly differing arrangement with their processors. Having quite so many variations on a theme when it comes to marketing a product does not make for a particularly cohesive industry with real marketing clout.
I thank my hon. Friend for his generosity. When farmers are asked to open their accounts prior to the arrangement of their contracts, it is no surprise that they are laid bare to the vagaries in behaviour of the people with whom they sign contracts to sell their milk. If they have to expose every single tiny bit of profit, of course the contracts will be screwed right down to the deck.
My hon. Friend is referring to the cost of production and the guarantee element of contracts between certain producers and supermarkets—I am trying not to name them. That is a unique feature. I am not aware of any other industry that has to expose its accounts to quite that degree of scrutiny. That of course means that the particular customer can set a price that is so marginally advantageous to the producer as to hamper their sustainability. In reality, that arrangement is not as good as it looks or sounds. Perhaps the supermarkets in question, which champion the arrangement and use it as a public relations tool, might emerge from the shadows after the debate and tell us whether they think it is an honourable and moral way forward.
Returning to the issue of producer organisations and what we could almost call collective bargaining between producer and retailers, does my hon. Friend think there is merit in the example of the Scottish Government, who are funding an organisation called Dairy Farmers Together to develop collective agreements between the diverse types of farms that he has mentioned, so that their bargaining power is increased?
The short answer is yes. This is a matter of the sustainability and the long-term health and vigour of the dairy industry, which at the moment is facing yet another crisis. I take on board my hon. Friend’s comments, and I will cheerfully pass the buck to the Minister so that we can hear what he has to say about that idea.
Before I sum up, I want to talk about a couple of short-term proposals that could have an instant and positive effect if the Government implemented them. The first is continued improvement of food labelling and procurement policies in the UK. Despite commitment after commitment and promise after promise over a long period, we are probably not where any of us would like to be with procurement and labelling policies. I hope the Minister will concede that we could do better. I know that is his own ambition and an ambition of the Government—I suspect it is an Opposition ambition as well—but there has never been a better time to stop talking and start delivering on procurement and labelling.
The Government should press ahead with implementing the Macdonald review and deregulation. Regulation is simply an added cost to farmers and there are not necessarily any positive benefits. There is layer upon layer of regulation, so the more we can strip away, without compromising food safety or animal welfare, the better.
The Government should continue with measures on the difficult and often controversial issue that we discussed in this Chamber only yesterday, namely wiping out bovine tuberculosis. TB still casts a huge cloud over the dairy farming industry in a few parts of the world, particularly west Wales. I do not want to make a cheap political shot, as that is something that hon. Members will know I am not prone to do, but one or two Members were in here yesterday shedding what seemed to be crocodile tears for the dairy industry over an issue that affects relatively few—albeit a significant few—dairy farmers. Where are those Members today? If they are that committed to the dairy industry, why are they not here today to talk about a subject that affects every dairy farmer and every household? I suspect I know the answer, which is that they are not the slightest bit concerned about dairy farmers; they are concerned about badgers. I do not mind that, but they should at least be honest about it.
I congratulate my hon. Friend on securing a really important debate for our dairy industry. He is absolutely right to focus on short-term measures, which he has set out articulately. Does he agree that we also have to tackle the long-term problems? In the UK dairy industry, those problems stem from the fact that over half the milk produced goes into the fresh liquid market. The Government can help by allowing farmers to diversify into other schemes. I know that it is not always easy, and that some producers and farms do not have the capability, but we have to tackle the problem: we are over-supplying the fresh milk market.
That point is accepted by the farming unions, but as my hon. Friend rightly points out, offsetting those difficulties through diversification schemes is often easier said than done. The uncertainty of the future of dairy farming gives rise to the issue of whether farmers can obtain the necessary funding to enter diversification schemes or more adventurous marketing schemes on the back of a dangerously fluctuating short-term horizon. However, I take on board his well made point.
Some solutions have been put forward by the retailers themselves, so there are silver linings to one or two clouds that we have referred to. To cite ideas from one particular retailer—I am trying to avoid naming individual companies, so that I am not bombarded with rebuttals and the like when I leave the Chamber—those solutions include working with processors to create greater transparency in the supply chain, and enabling farmers to see how prices are set in order to create better trust within the supply chain. That is a new way of working that has not been seen before in the industry, and it will create benefits for farmers, consumers and the industry. For example, the price paid to farmers will be worked out every three months, based on a rolling average of indexed butter and milk powder prices. Those commodity prices are publicly quoted, and in each case there is a futures market, allowing farmers to look ahead and hedge or protect themselves against price movements. That will allow dairy farmers better to predict milk prices and plan accordingly.
That idea comes from an e-mail from somebody who took the trouble to contact me recently. However, if I may use a rather clumsy analogy, it aligns what we are discussing with the principle of a fixed-term mortgage. If the industry is prepared to enter into an arrangement in which it can play the futures market, we can have contracts that are perhaps fixed for a longer period. If contracts can be fixed both between retailer and processor and between processor and farmer, we will be able to look at one-year or two-year contracts, or perhaps—maybe I am being over-optimistic—even further ahead than that.
Yes, of course, there are risks. There are risks to each person in the chain, but surely we can inject a degree of certainly into the industry to eliminate the risks and the downside from which people are suffering, which affects not just farmers, but everyone who relies on farmers in some shape or form.
It is a promising way forward if the retailers are beginning to recognise that there is a need for a transparent contract system based on being able to look ahead and take an average price over a future period. There would then at least be recognition that we are looking at the end of the unacceptable practice of simply sending a text message to a producer to downscale their milk price in two or three weeks.
I assure the hon. Gentleman that there is no press release attached to my intervention. He has got to the nub of a constructive proposal, but at present the groceries code adjudicator is limited in what she can do. Improving the adjudicator’s powers and the code would enhance the solution that the hon. Gentleman is constructively proposing: a direct relationship between the retailer and the producer of the goods coming into the supermarkets.
The hon. Gentleman plays nicely into the completion of my contribution. I want to quote from a farmer in my constituency, not a particularly large farmer and certainly not a militant one, but someone who has worked hard on his holding for a long time and reinvested every penny in his business:
“The important bit, and the message which we are struggling to get across, is the” groceries code adjudicator
“needs to use her powers to investigate the relationship between the Retailers & the Processors. If the Adjudicator would look at the paper trail between the likes of” x and y,
“she would find millions of pounds, which could result in a minimum of 3p per litre back to the producer. This would turn the job round immediately as it would go to the nonaligned producers. If this was followed up & she had the guts, it would open up the biggest can of worms ever in the dairy industry. The problem is the Retailers & Processors will fight this all the way because it's their extra profit that is cleverly hidden.”
That sounds provocative and it was written with passion, but it highlights a belief and a feeling that is probably replicated throughout the UK dairy industry. We now have an opportunity to correct that, thanks, dare I say it, to the price crisis that most farmers are experiencing. We have a chance to correct it with Government, retailer and processor action, and through greater awareness and willingness to accommodate changes from the producers.
I hope that other hon. Members will produce their own anecdotes and views, so that the Minister can form a view that he can put to us at the end of the debate and that will, above all, encourage all those who are struggling, but on whom we rely to secure a longer-term sustainable business for the benefit of UK agriculture.
Order. Because of the number of Members wishing to speak, with the authority of the Chairman of Ways and Means, I am imposing a time limit of five minutes on speeches. I remind Members that interventions should be short. Depending on how many Members wish to speak, I may later reduce the time limit.
Diolch, Mrs Riordan. It is a pleasure to serve under your chairmanship. I start by congratulating Simon Hart on securing this debate. I associate myself with many of his comments.
The Welsh dairy industry contributes about 10% of the milk produced in the UK, and Carmarthenshire is one of the places in Europe most ideally suited to producing milk, due to the plentiful resources of fresh grass. However, the long-term trends in the industry have not been particularly good. Since 1999, the number of dairy producers in Wales has fallen by 51.3%.
Recently, the price of milk has fallen below 27p a litre, with the cost of production being higher than that. First Milk has announced that it will cut its prices even further in December. In the Baltic states, the price of milk is down to 13p a litre; that shows the fall in milk prices throughout the EU and the world. Milk is a highly nutritious product and a vital component of any healthy diet, but in the supermarkets it is cheaper than water, so something is going wrong somewhere.
During the recess, I visited a local farm, Bremenda Uchaf at Llanarthney, in the middle of the Towy valley, with the Farmers Union of Wales to discuss the emerging situation in the dairy industry. As I said recently during Welsh questions, the most recent crisis has been caused by two main factors: another supermarket price war, in which dairy foods and milk in particular bear the brunt as they are gateway products; and reprisal Russian sanctions on EU food products. President Putin introduced a one-year ban in August, and CNN reported that it is worth £1.5 billion to the EU dairy sector. Demand for milk and other products, such as beef, has fallen significantly and over-supply in domestic and EU markets has depressed prices. I read in
The Guardian today that the situation in the eastern part of Ukraine is still highly volatile, so the sanctions may remain in place.
On the impact of sanctions from Russia, does the hon. Gentleman believe that the Government should act in the same way as the Polish Government, for example, who have encouraged people there to eat apples to stand up to Putin? Should we not encourage people to eat Welsh cheese to stand up to Putin?
I would certainly encourage people in Wales to eat Welsh cheese and to drink as much Welsh milk as possible. My daughter is on a pint a day, so I am doing my bit for the cause.
The industry also faces other long-term challenges, in particular the end of milk quotas next year. Competitors in Ireland are preparing for this by increasing milk production, and unless there are strategies in place to help Welsh farmers, we could have a long period of milk price instability. I fear that there is a lack of political direction at Welsh Government level. In a recent evidence session of the Welsh Affairs Committee, the new the Secretary of State for Environment, Food and Rural Affairs seemed to indicate to me that the current difficulties were likely to be short-term. I invite her to reconsider her position and to put in place interventionist measures to help the industry before we face another serious crisis, like the one we faced a few years ago.
I want to list a series of interventions that are needed, from the Department but primarily from the Welsh Government. We must ensure that all that can be done is done, and that no one in the supply chain is using the current downward price trend as a convenient excuse to make additional cuts to farm-gate prices. We need retailers who use milk as a loss leader to ensure that they fund those deals from their own profit margins and not from the pockets of farmers. It is vital that those retailers put transparent pricing mechanisms in place and ensure that suppliers are compliant with the voluntary code.
Put simply, milk being sold cheaply devalues the product in the eyes of consumers, and this could have long-term negative ramifications for the sector as a whole. It is extremely worrying to every dairy farmer to see milk being used as a battleground between retailers.
Before the hon. Gentleman continues his list of remedies for the problem, does he agree that a particular problem, which I am witnessing in Ceredigion, as I am sure he is in Carmarthenshire, is the inability of new entrants to join the industry? What we are experiencing is hardly an advertisement for people to invest in family farms and to keep them going, but it is essential to the fabric of rural Wales.
That point is especially pertinent to the dairy industry, because entering the market requires a huge investment in milk parlours, and without long-term stability, the investment is too high a risk.
Plaid Cymru has called for the voluntary dairy code to be made compulsory to protect the interests of dairy farmers. This is the first big test since the voluntary code came into being following the 2012 milk crisis. If the voluntary approach fails, we will need to move to a statutory code. Competence for that lies with the Welsh Government, and I would like the relevant Welsh Minister publicly to declare her willingness to intervene if necessary.
Plaid Cymru has long campaigned to change EU procurement rules to allow sub-state Governments to strengthen domestic supply chains. We have succeeded in achieving that, but the Labour Government in Wales have not taken advantage of it. They could use the rural development programme, but they are not doing so.
I would also like the Welsh Labour Government to consider creating a dedicated promotion body for Welsh dairy produce, like Hybu Cig Cymru, which promotes Welsh red meat. Given that global demand for dairy is likely to increase, and that one reason for the current difficulties is the loss of Russian markets as a result of sanctions, the dairy sector needs a dedicated body to look for new and emerging markets. While I am on this issue, I would like to ask the Minister to look at the red meat levy, which is paid when animals are slaughtered. Hybu Cig Cymru loses out on an estimated £1 million a year because the levy is collected where the animal is slaughtered. Many animals from Wales cross the border, and that money is lost to Wales and the Welsh farming industry.
Just before the hon. Gentleman moves away from that point, on the issue of the UK-wide promotion of the dairy industry, does he agree that what we would like to see—and should see—is the UK Government actively promoting our dairy industries across the United Kingdom internationally to try to counteract the problems, and particularly what is happening in Putin’s Russia?
The hon. Gentleman makes a valid intervention. There are huge opportunities in developing markets across the world that we should be hoping to access.
Returning to the Welsh levy, there is an issue of fairness here. The previous Minister, Mr Heath, promised to reform the system, and I am glad to see him in his place today. We need the UK Government to act to ensure that Welsh farmers and our promotion agencies receive the appropriate levy for Welsh produce. If a similar levy was introduced for the dairy sector, this issue would be even more pertinent, because the vast majority of Welsh milk is processed outside our country, regrettably. It is a brilliant food source that we should be doing everything at all political levels to support. Diolch yn fawr.
I welcome you to the Chair, Mrs Riordan, and the Minister to his place, and I congratulate my hon. Friend Simon Hart on securing this timely debate. Many dairy farmers in my area are tenant farmers, and they have been acutely affected by the downturn in price. They form the social fabric of the hills and are an integral part of the uplands.
My hon. Friend referred to the groceries code and the adjudicator; it is a commonly held belief that the groceries code applies to the dairy industry, but I point out to him that it does not. The Select Committee on Environment, Food and Rural Affairs is launching an inquiry at the end of the month, and we are asking for evidence, because there are those who would like to see the remit extended and a review of the remit. It is generally accepted that the groceries code has been working well, and that the adjudicator, created under the last Government but brought in by the present Government, is a great asset, and I absolutely accept that it must apply to the dairy chain. The Government, in their defence, will probably say that a change would open the sluice gates to other products, but I believe that there is a common interest in the Chamber today in such a change.
I beg to disagree with my hon. Friend; I believe that the groceries code adjudicator should extend to dairy farmers, but I would go further: I believe that there is a role for the Office of Fair Trading in reviewing increased collaboration on pricing and marketing, and on the whole agreement between farmers.
On a Select Committee visit to Denmark—I will declare an interest: I am half-Danish and very proud of that—we were hugely impressed by the amount of exports and marketing opportunities that there have been through its co-operative movement. Arla was one of the first and most successful dairy co-operatives, and we understand that there are now 1,000 producers in this country under Arla. I yield to no one in my admiration of British and north Yorkshire farmers, particularly those who work on the land in my area. They are fiercely independent and fiercely proud of their tradition, but we must do more to help them co-operate and understand that, if state-aid rules are not deemed to be broken in Denmark, we could apply the same collaboration and co-operative movement in this country.
On exports, my hon. Friend the Member for Carmarthen West and South Pembrokeshire set the scene well. We saw a 3p increase in price about two or three years ago, which was very welcome. We have now seen at least a 1p—and potentially up to a 2p or 3p—decrease. I understand that that is partly because of the global situation, partly because of Russian sanctions and partly because of the milk powder scenario in China, but every time the price goes up, people flock to milk production. We then get a glut of milk and two or three years later, the price goes down. There is a circular situation, and if we are not careful, we will have, at some stage in the long term, a potential food security issue.
Another hon. Friend set the scene for me to say that 40% of leftover liquid milk is used for butter and cheese. We produce Shepherds Purse and Wensleydale cheese in north Yorkshire, and Cheddar cheese is world-renowned. Liquid milk and milk products generally are some of the most nutritious products available. We should be doing more not only to generate growth in this country for this market, which is very popular, but to ensure that we are exporting as much as we possibly can.
There is a role for Government. I believe that what the Committee set out in our report in 2011 still pertains today: dairy farmers should be offered written contracts by processors that specify either the raw milk price or the principles underpinning the price, the volume and timing of deliveries, and the duration of the agreement. Unless such contracts are made compulsory, we will continue to be in this circular situation. That is a very good argument for looking at the voluntary code, as mentioned by Jonathan Edwards, whom I am delighted to follow. If we have a situation where the voluntary code is not deemed to be working, let us review it and see whether it should be made compulsory. Let us look at why the groceries code and the adjudicator’s remit does not extend to the role of the dairy industry. Let us look at having greater oversight by the Office of Fair Trading. Let us work with the European Commission and our partners, crucially, to underpin the labelling. If we can get the labelling right at an EU level, that would be a great way forward. Let us encourage all consumers to buy the red tractor product.
One of the key drivers in the creation of the groceries code adjudicator was to try to deal with some of the inequalities that dairy farmers had to deal with all the time. Does my hon. Friend feel it is incumbent on us to do everything we can to address that long-term issue?
I am delighted that my hon. Friend made that intervention. I hope that the Minister, having heard that, will listen to the arguments made by both my hon. Friend and me. I hope that as many people as possible will heed the message and hear the voices that have spoken this afternoon. I believe that we need a greater balance in the relationship between the dairy producer, the processor, and the retailer. Having a four-pint milk bottle sold for 89p is unsustainable. That certainly would not happen in China.
I shall end my arguments by congratulating my hon. Friend the Member for Carmarthen West and South Pembrokeshire, and by saying that I hope the Minister will review the recommendations in our 2011 report, which we stand by, and will review the groceries code adjudicator and the voluntary code, and encourage co-operatives. There must be a role either for the Competition and Markets Authority or, as I would argue, the Office of Fair Trading.
I congratulate Simon Hart on bringing this matter to Westminster Hall for our consideration. Every one of us in this room has an interest in the dairy industry, so it is important for us to put forward our case—in my case, for Northern Ireland.
The situation in Northern Ireland is different from the situation in the rest of the UK mainland, as I am sure the Minister is well aware. Agriculture is a devolved matter, but the industry is also different, because we export 85% of our dairy products, unlike the UK mainland. I have been contacted by many dairy farmers in my area who are directly involved in this, and by the Ulster
Farmers Union and Chris Osborne, who gave me some background to this. I represent the Strangford area and its farmers, and we probably have the sweetest milk and the best cheese in the whole United Kingdom. I say that without fear of anyone saying anything different—well, they might say something different, but the key is in the tastebuds.
Here and across the mainland, it seemed that I could not pass a red bus without someone showing off their milk moustache on the side of it, and back home, the latest campaign has dubbed milk “A force of nature”. Clearly, the campaign for milk across the United Kingdom is of great interest to each and every one of us. Some 75% of primary schools in Northern Ireland receive milk through the EU milk scheme, which shows, again, the importance of the dairy industry for us. In Northern Ireland, there are 3,425 dairy farms, almost 280,000 dairy cows, and 2,318 people involved in the dairy industry. Clearly, dairy is an important farming sector for us. Some 85% of our milk is exported. Pritchitts, in my constituency, exports to all areas of the world, including the middle east, the far east, the United States, Canada and across the United Kingdom. I am not sure whether it is because we have the greenest grass or the best pedigree stock, but our product is well received in all parts of the world.
The difference between the prices received by dairy farmers on the UK mainland and those in Northern Ireland is where our problem is. The decrease in prices is due to a combination of things, including expected market demand and the Russian embargo. In the past few years, Northern Ireland farmers, like farmers on the mainland, have invested heavily in pedigree stock and new dairy cows. They have also invested in the slurry lagoon systems they have to have in place. Those are expensive, and the repayments on them are very long term. That is all because of EU bureaucracy. Many Members—indeed, many of us in the room—will say that that is EU logic gone mad, but we are all none the less subservient to the EU’s rules.
In Northern Ireland, the Ulster Farmers Union milk price indicator, which was launched in May, is the only barometer of local prices available to local farmers. Given the exceptionally volatile market situation, there are noticeable price differences between Great Britain and Northern Ireland. In September, the difference was 5.36p per litre. When commodity prices are good, the gap tends to be narrower; it is wider when they are under pressure, as they currently are.
As things stand, farmers in Northern Ireland are likely to lose 5p per litre just in November. Although many are hopeful that prices have bottomed out, there are fresh concerns about the direction of cheese prices. Of course, not having the correct price for dairy products has an impact on other producers down the line and on the agri-food industry overall. At the moment, the biggest concern for the Ulster Farmers Union is the pressure that this market volatility will put on farm cash flows. Many farmers have large overdrafts, and the impact on their ability to pay them back is great.
Farmers on the UK mainland have held protests about price cuts, despite their farm-gate price continuing to be 5p per litre higher than that of their Northern Ireland counterparts—that is how the market is at this time. When the Minister responds, I hope, from a Northern Ireland perspective, that he will be able to tell us what discussions he has had with the Treasury about a tax break for local farmers, because the situation in Northern Ireland is dire, compared with that in the rest of the United Kingdom. We have to put a marker down for dairy farmers in Northern Ireland, and particularly those in Strangford, which is one of the major milk-producing areas in Northern Ireland. I look forward to the Minister’s response.
It is a privilege to serve under your chairmanship, Mrs Riordan. I congratulate my hon. Friend Simon Hart on securing this timely debate.
When I found out this debate was to take place, I spoke to farmers in my constituency. I hesitated to use the word “crisis”, but they reminded me that this is, indeed, a crisis, and we have heard of the experience in Northern Ireland. The price fluctuations might seem small, but when someone is running a small family farm, they are very frightening, and they can make the difference between survival and extinction.
In my intervention on my hon. Friend, I talked about the impact on the broader rural economy. There are 600 farms in my constituency. Most of them are on the uplands, but there are large parts of the county where taking away the small traditional family farms would have a huge impact on the viability of the broader rural community. We have heard about the increasing volatility and about the experience in Northern Ireland, and that is the experience in Wales as well—that is the case that the Farmers Union of Wales and National Farmers Union Cymru have put strongly to me.
I will not rehearse the figures, which we have heard from other Members, other than to say that the recent milk price cuts have wiped an estimated £800 million from the annual income of UK dairy farmers. We have heard about the reasons behind that: the increase in dairy production, over-supply globally, the turndown in global commodity prices, the slump in Chinese demand and the residual impact of the Russian ban.
The other reason is supermarkets trying to sell four pints for £1. While most consumers would welcome being able to buy milk so cheaply, they simply do not want to do that on the backs of the farmers who produce the milk. They would far prefer to see the supermarkets pay a decent price for the milk, and to pay a decent price for it themselves, than to get cheap milk on the backs of farmers.
The hon. Gentleman also represents a rural constituency, and that is certainly the message from consumers in my constituency when they reflect on the prices supermarkets pay. I concur that that is what consumers would think if they understood the pressure such prices put on the family farm.
The Welsh Affairs Committee, of which I am a member, undertook a report into the dairy industry, which was published last autumn. We undertook our inquiry as a result of the major crisis in the summer of 2012, when retailers and processors announced sudden large price cuts. This is not, therefore, something new; it is a recurring theme, which needs to be addressed, and the Government have done that in part.
These issues are a particular concern in west Wales, where our dairy sector employs thousands of people and accounts for a third of all agricultural output. We therefore lobbied for a code, and the Government, including my hon. Friend Mr Heath when he was a member of the Government, introduced one.
The code has recently been subject to review by Mr Alex Fergusson. The review has revealed concerns in some parts of the industry that the code is not working to its full potential. Some processors have expressed legitimate worries that those who comply with it are at a competitive disadvantage. The code is thought to cover about 85% of the UK’s milk market, but a major weakness seems to be that it is not equally embraced by all. There is also concern that purchasers are cherry-picking elements of the code and that some producers will be left at a competitive disadvantage as a result. The FUW has also revealed that there are varying levels of confidence in the code among producers, with 9% being extremely pessimistic about it.
As in 2012, all parties in the dairy industry supply chain deserve fair contractual terms and conditions. The FUW said:
“Farmers should have a fair balance of power with their milk purchasers and contracts should be formed in such a way that milk prices will not be dropped without sufficient advance notice.
Elements of the code, such as shorter termination periods, the abolition of retrospective price adjustments and the inclusion of a market-based pricing formula will aid in shifting the balance of power back in the direction of the producer.”
That reflects the situation many farmers in my area are experiencing. Small businesses are unable to plan or invest for the future, to sustain the family farm or to attract youngsters to the industry.
The FUW says that systemic failures in the dairy supply chain mean that the price Welsh farmers receive for their milk is often less than market indicators would dictate, as Members have repeatedly said. Given that the code’s ability to work for all dairy producers is limited, and given that some processors have yet to adopt the code in its entirety, should we be looking at the benefits not of a voluntary agreement, but of legislation?
We have talked about the need to extend the groceries code adjudicator’s powers to include all aspects of the dairy supply chain and the dairy code. Miss McIntosh, who chairs the Environment, Food and Rural Affairs Committee, was right to talk about that. There is a perception out there that the issue is dealt with by the groceries code adjudicator, and we need to address that.
Lastly, I would like to return to the point I made in an intervention on my hon. Friend the Member for Carmarthen West and South Pembrokeshire about producer organisations. I remember standing in a farmyard in the village of Tremain, near Cardigan in Ceredigion, at a meeting organised by the NFU at the height of the crisis in 2012. There was huge scepticism about whether farmers would be able, practically, to work together, given the diversity of the arrangements. We need to continue to address that issue, but we also need some Government assistance, as has been provided in Scotland, to ensure that we have properly constructed organisations that can negotiate from strength.
This is a timely, important debate, and the issue is critical for the wider rural community.
I congratulate Simon Hart on securing the debate. The current Parliament has been one of the most supportive of rural debates. More than many previous Parliaments, it has heard the voice of the primary producer, and it should be commended for that.
Many hon. Members have described how important the milk producing sector is to the economy. My constituency has one of the largest bottling plants, and United Dairy Farmers, one of the most successful farming co-ops, operates there producing yogurt, drinks, butter and other milk-based items. It is the backbone of the local economy and jobs, and it is important to support it. However, we must bear in mind in the debate the world pressures on milk produce—over-production of milk worldwide, and the closure of the Russian market to EU-produced milk. Also, Chinese imports are now half what they were two or three years ago. My constituency helped to provide some of the biggest quantities of whey to China. The market needs to be encouraged and expanded, but there is pressure on it. I should certainly appreciate it if the Government could do more about that.
One of the key issues seems to be the world market and the competition problems that we face. Many farmers tell me that they are concerned about the end of quotas leading to other countries taking losses and expanding hugely into countries such as Portugal, and completely undermining the market. Does he agree that that is one of the major concerns, if we are to tackle long-term prices?
There are a number of fundamental things that need to be tackled. I am going to say something that will probably be quite unpopular, but it is a fact: the consumer must be educated to understand that if they want to eat clean, green, traceable local produce, they will have to pay more for it. All sectors of the industry must support that message, educating children, housewives and consumers about the fact that if they want to fill their basket with local produce it will cost more. We should get away from the notion that we can have cheap mass quantities of foodstuffs; we can have cheap mass quantities of food-like stuffs—but not of food. We must be clear about it, but it is difficult to sell that message to the public, especially in times of austerity. However, we need to address it.
Northern Ireland is more reliant on exports than the rest of the UK, so the effect that the milk sector feels is of course much greater. Cheap imports are pressed on us by our neighbour, the Republic of Ireland, which aggressively sells its milk in Northern Ireland but also aggressively opposes the sale of ours in the Republic. The Government should give that strong scrutiny.
I want to leave two matters with the Government for consideration. UKRep should be encouraged to press in the EU for an increased level of intervention to take surplus off the market. If that were done it would be of considerable help to world prices and local UK prices. The Government must help companies to find new markets. That is easy to say and difficult to achieve, but significant action must be taken, and, as the Chairman of the Select Committee on Environment, Food and Rural Affairs, Miss McIntosh, said, pressure must be put on people to buy red tractor-marked goods and local goods. That means aggressive Government encouragement of the sale of those goods; and they can take it right to the line. Many European Community countries break the rules when they sell their local products. I want our Government to bend that line and be as proactive as they can in ensuring that British products are sold to as many British people as possible. The Government could also encourage DairyCo, a statutory body paid for by a farmers’ levy, to do its job, if they gave it more support.
It is a pleasure to join the debate. I congratulate Simon Hart. It is good at last to have a voice in the debate from the west country of England, where an awful lot of the finest dairy land in the country is. I shall not get into an argument about whether our milk and cheese is better than anyone else’s, because we know the answer to that in Somerset.
The point made by Jonathan Edwards about the undervaluing of milk is crucial. How can it be that I can go down to the Members’ Tea Room, in this very building, and buy a silly little bottle of water, without even bubbles in it—a pint of water for 85p; and Iceland supermarket can sell 4 pints of milk for 89p? Where is the logic in that? It is outrageous that milk is undervalued to that extent.
There are clearly issues of over-supply and reduction in world demand, but the fact remains that the issue is the relationships between producers, processors, retailers and consumers. We need a supply chain that is fair at every level. I hoped that a voluntary code would achieve that, but at the moment, after appearing to work well, it is failing to do so. We need to look at it again. Is statutory imposition the answer? That has its drawbacks. Making the voluntary code statutory would limit its scope, but perhaps we have to think about that. I certainly agree that the groceries code adjudicator should be able to look at supply chain relationships, rather than simply the producer-to-retailer relationship; that would bring the dairy industry into its ambit.
What else can we do? First, the dairy industry needs to be ambitious. I do not like people saying, “Of course, we will be prey to all these imports.” We have a superb dairy industry and can beat off any competitors if we are sufficiently ambitious; but that means actively marketing dairy and dairy products, as we do, around the world. Anywhere I have been in the world, I have been able to find cheese from my constituency. We also need efficiency. There are marked differences in efficiency between dairy farmers, but it is no good shouting at those who are less efficient that they must invest, if they do not have the money to invest because they do not get a proper return on their product. We need to be able to support efficiency, and perhaps the Minister can give us his evaluation of the use of the £5 million dairy innovation fund, and tell us what more can be used.
The most important thing is for retailers, processors and producers to share the risk. Their relationship must be based on trust, and until that happens we will not have a sustainable dairy industry for the future.
It is a pleasure to follow Mr Heath. I pay tribute to him for the work that he did as a Minister, and in a previous Parliament when he worked with me on these issues. I congratulate Simon Hart on obtaining the debate. I assure him that I have not prepared a press release, or even written a speech, but I feel passionate about the subject. My first job and my brothers’ first jobs were working on dairy farms. The herds were small in those days, but it was great experience. Sadly, those farms have gone, for many different reasons, and the fields where they were are now full of horses. I love horses, but would prefer to see dairy cows there.
The farming industry has suffered for many years from external factors, which we have heard about today. More recently, high fuel and energy prices and expensive food stock have been added to by the Russian sanctions on the EU. I want to deal specifically with the price war in the supermarkets. I have long campaigned for a supermarket ombudsman, which was brought in as the groceries code adjudicator, but the current arrangement is lacking and needs to be strengthened. That is not a criticism. When we bring in legislation, we always find out later that it needs to be strengthened in response to issues such as the one we are considering.
Some supermarkets are devaluing a great British product. I want the red tractor on milk produce, but also the red dragon, so that people know about the local involvement, time and effort. Dairy farmers work damn hard. It is a tough job, throughout the year, and they cannot just diversify when the price moves up and down, because theirs is a long-term commitment. Producing the stock needed to produce dairy milk does not happen overnight, and it is not possible to cut back and switch on and off with demand.
We need greater localism and food labelling. The Minister has done some good work on food labelling, but it needs to go much further. In my constituency of Anglesey, for instance, local farmers supply a producer in the area.
Does my hon. Friend agree that there are also pressures on, for example, the baking industry, in that the prices of cakes and bread are being driven down, to the detriment of suppliers? Their situation is very similar to that of the suppliers in the dairy industry, and we must tackle the supermarkets on this issue.
Absolutely. The example that I was going to give is that of Glanbia Cheese, which produces mozzarella for pizzas across the world. That is produced in my area, yet credit is not given to the superb milk that comes from north-west Wales and from Anglesey. That is an important point—the problem feeds into other food industries. My hon. Friend is right to make the point about cakes and so on.
We need to stand up together for British dairy farming, and today’s debate has been very useful, because we are coming to good conclusions. We want to strengthen the groceries code adjudicator’s remit, so that it can look at this issue. We want to stand up for the farmers, who are working damn hard to produce a product that is increasing in importance. Yes, there are external factors, but we want to be proud to be Welsh and proud to be British when it comes to our milk and dairy industry. I feel that this debate will help to move things forward.
The issue is a recurring one, and there are no party political points to be made here. The dairy industry is a difficult one, and it needs long-term support from across the parties—I know that the Minister is listening carefully to what is being said by Members from all parties—because we want Welsh and British dairy farmers to be able to produce the fine product that our children need and that our children’s children will need in the future.
I, too, congratulate my hon. Friend Simon Hart on securing the debate. It is a pleasure to follow Albert Owen. Most of my prepared speech will be thrown out the window in view of the change in the time limit, but most of the points have already been made, not least by the two Carmarthenshire Members, who have highlighted many of the issues facing the farming industry in Wales. The impact of the decline of the dairy industry is not only on farming communities and rural communities. In my part of north Wales, the fact that the average herd has gone from 40 to 125 cows means that there are fewer family farms, and there has been a direct impact on the Welsh language and Welsh communities as a result, so the issue is not just economic but cultural in our part of Wales.
I want to pick up the point about a price of 99p for 4 pints of milk. I was once asked on the radio what the price of milk was, and I responded by saying that it was possible to buy 4 pints of milk for £1 in a supermarket. I thought that I had done well in answering that question. Most politicians fail to get the answer right on the price of milk, but obviously, as a Member of Parliament for an agricultural area, I was then condemned by the two farming unions for buying my milk in a supermarket.
It is important that we make points such the fact that milk and bread, for example, have for a long time been loss leaders. The key point is that the loss should be borne by the supermarkets. If they want to have a price war over the price of milk, they should bear the loss.
That is a fair point, but it should be pointed out that there are some supply chain initiatives that we should see as moves in the right direction. For example,
Tesco, which is not a company associated with good practice most of the time, has an interesting supply chain for dairy farmers that takes into account the cost of production and the need to create a profit, but it represents only 5% of UK dairy farmers. However, it is an example of what can be done. I understand that another supermarket is going down that road, but I will not name another supermarket just in case people think that I am in the pocket of the supermarkets.
I want to make some key points in relation to the situation in Wales. We need to look at the long-term opportunities as well. The impact of the sanctions on Russia, for example, shows that we are working in a global market. I would like my hon. Friend the Minister to give me some assurances that the potential for a free trade agreement across the Atlantic will be an opportunity for Welsh farmers and British farmers to exploit. It is important to remember that we have a market in north America that could be identified as a possibility for Welsh farmers, but we need to have some progress on the transatlantic trade and investment partnership. When markets are closed to us, there is a direct impact on our communities.
Another issue that I want to touch on is the movement of funding from pillar one to pillar two. The situation in England is that 12% of the money from pillar one is moved to pillar two; in Wales, it is a more draconian 15%. What is key, if that money is moved to pillar two, is what can be done with that funding to encourage diversification and new opportunities for Welsh food producers. I am following the speech from the hon. Member for Ynys Môn, and Ynys Môn has done a fantastic job of promoting local produce. That example could be followed and, indeed, is being followed in other parts of Wales.
I will give one small example from my constituency. By utilising European money in a creative manner, we have created in my constituency the Welsh food centre in Bodnant. Among other things, it has bought the entire milk production of Gerallt Jones, of Tal-y-Cafn Uchaf farm, and created new markets by creating high-premium cheese, butter and cream products. We could take such opportunities with the money going to pillar two.
I will end my speech at this point in order to ensure that someone else can speak.
I want to make a few swift points in the time available to me. First, it seems to me that much of the problem that we are all addressing today could be helped by a general elevation of farming in the priorities of Government. I would like to see a Secretary of State for Agriculture sitting in the Cabinet. It is time to see that innovation, which would send a clear message to the farming community throughout our constituencies—like my hon. Friend Mr Heath, I speak as a representative of a west of England constituency. The fields and pastures of Devonshire are synonymous with the finest dairy produce in the world. That community would like to see, if at all possible, a seat at the highest table being attributed to the ministerial representatives of farming and agriculture.
If we started to think about the dairy industry as a strategic industry that contributes to food security in this country, and an industry that should be spoken for at the highest table, in Cabinet, the message would be sent throughout the processing industry and the retail industry that the Government were at last attaching to the dairy industry, and the cattle and livestock industry as a whole, the priority that they deserved.
I agree with right hon. and hon. Members about the methods and techniques that need to be adopted. We cannot do much about global commodity prices, but we can do quite a lot about the domestic market. We can strengthen the voluntary code, which is important, and we should be considering making it a compulsory code, as the Select Committee is. It is clear from the review by the MSP, Mr Fergusson, that that code could do a lot of good. We need it to be extended, and the Government need to fight and encourage people to adhere to it.
I would be failing in my duty if I did not also mention the crisis of bovine TB, which prevails throughout Devonshire and elsewhere. I hope that my hon. Friend the Minister will say something about the need to ensure that the TB eradication strategy is implemented in full. When I was a child, I was told that the animal kingdom was divided into two sorts of animals: the vertebrates and the invertebrates. As it is with the animal kingdom, so it is with Departments of State. I hope that the Minister will prove himself to be a member of a vertebrate Ministry that will discover its backbone.
I will make very few points, because most of the points have been made already, but it seems a great shame that the advantage of power is all held by the retailers and processors. One thing that I welcome is what has been done by Farmers For Action. Its protests have generated publicity. That sort of thing gets on to the news, and those protests have always proved peaceful and, certainly in my area, have taken place with the agreement of the police. I particularly welcome the move that Farmers For Action has made to produce stickers, posters and leaflets that it will distribute outside supermarkets so that the customers, who are the end of the line, can connect the dots and understand the difficulties faced by the producers, who are at the very beginning of the line. Asking farmers to plan when they are being offered prices that are well below the cost of production seems desperately unfair. I will leave it there, but I endorse everything else that has been said today.
I would be delighted to speak for the last few seconds. I thank my hon. Friend Simon Hart for securing the debate. I will briefly speak up for Mr Rob Vearncombe, a dairy farmer from Kimmeridge, which is a beautiful place in my constituency. As fast as I can, I will list the points that he wanted to make directly to the Minister and the Government.
First of all, Mr Vearncombe thinks that the recent milk price cuts will have a devastating effect on the dairy industry in the medium to long term. In the short term, he believes that the industry can ride the storm for six to eight months because of the higher prices that have been achieved. For a dairy farmer who produces 1 million litres a year from 125 cows, the fall in milk prices represents a loss of about £35,000 a year. Colleagues have already mentioned such vast figures, and I do not believe that the public understand that 1p off, or added to, the price of milk makes a vast difference to the bottom line for a farmer, particularly a small one.
There is a huge variation in how farmers produce milk. There are high-intensity systems, and there are low-intensity systems such as those common in New Zealand, and the public do not understand the cost implications of the different systems. The type of land is a large factor.
Mr Vearncombe says that variations in milk price have a dramatic effect on profitability. He claims that farms that are achieving 35p a litre have been “poached” by supermarkets to supply directly, with strings attached—
It is a pleasure to serve under your chairmanship, Mrs Riordan. I thank Simon Hart for securing this important and thoughtful debate. I begin by conveying an apology from my hon. Friend Huw Irranca-Davies who is currently on a shadow ministerial visit to Brussels, where he is discussing several topics, including the ongoing dairy crisis, with European counterparts. I assure Members that we take such matters very seriously and consider them to be of the greatest importance.
As has been made clear this afternoon, the recent situation in the dairy industry is extremely worrying for rural communities, tourism and the availability of local food. Britain has a long tradition of dairy farming, which is the country’s largest agricultural sector. The UK is Europe’s third largest producer of milk after Germany and France, and the industry employs more than 50,000 people and contributes £3.7 billion to the British economy. For that reason, the Government must respond to the current dairy crisis by co-ordinating action by European officials to support dairy farmers and restore confidence in the industry.
We need stability in the industry, but consecutive months of high domestic milk production, combined with the ban on dairy imports to Russia and falling returns from global commodity markets, have resulted in an overall fall in milk prices because the largest UK milk processors have reduced payments to farmers for raw liquid milk. Low global dairy commodity prices have been compounded by price wars between major retail outlets, which have used milk as a loss leader to attract customers. Several hon. Members have made that point.
Farmers for Action states that some farmers are selling milk for as little as 25p a litre, which is far below the market price. That results in farmers operating at a loss and not even covering production costs. Not only is that financially unsustainable, but it raises further questions about responsibility in our food supply chain. If the illusion is created that food is cheap, it may damage the agricultural industry and affect how the public view food. That is not at all helpful to achieving our aims. The Government must address long-standing structural imbalances of low profitability in the industry. Farm incomes are still falling, and many farmers have left the industry altogether. We currently have just over 10,000 dairy farmers in England and Wales, and that figure is down 4.1% on the previous year.
Although the dairy industry is not yet self-sufficient, we do not believe that its future is bleak. Population growth, increased wealth in developing nations and changes in dietary habits all point to greater long-term demand for dairy. The Government must ensure that the UK dairy industry is well placed to take advantage.
If there had not been such demand today and I had been able to make a speech, I would have liked to make the point that quotas come to an end next year. European countries will expand dramatically to take over the growing market that the shadow Minister is talking about. We need an assurance from the Minister that the instruments in Brussels will not be used to enable other countries to expand their industry at the expense of the British dairy industry.
That is clearly for the Minister to answer. I made the point earlier that we need to see effective, co-ordinated action from the UK Government in its relationship with Brussels to ensure that the UK dairy industry is properly served.
In June, the industry pulled together and launched a plan called “Leading the Way”, which states that an estimated 2.5% annual growth in global demand for dairy products over the next 10 years will boost UK dairy production through increased exports and import substitution. Mr Heath made a point about marketing. My hon. Friend Albert Owen talked about localism and the need to ensure that people properly understand that cheeses such as mozzarella are sometimes made in Wales. That is an important point, and a lot can be done on that score. In particular, more can be done to encourage British people to eat British cheese. My own favourite is Wensleydale, the great Yorkshire cheese that is produced in Hull.
I will not give way, because I need to give the Minister time to respond. “Leading the Way” is an important vision for profitable growth for the UK dairy industry, based on economic, social and environmental sustainability. It focuses on the capacity of the dairy sector and the need for it to be competitive in a global context through scale, innovation and efficiency. What are the Government doing to support the industry at every level, and to improve the industry’s international competitiveness?
The industry’s voluntary code of best practice is another encouraging sign that the sector is addressing some of the structural issues of pricing mechanisms and transparency that need to be resolved. As several hon. Members have said, the dairy code provides a useful voluntary model to ensure that producers get a fair deal, and it avoids inflexible legislation and price fixing. However, it must be made to work and it must be rolled out across the dairy sector. Labour supports and encourages the dairy industry’s voluntary code of practice, which has been drawn up by Dairy UK and the NFU, and we believe that it should be adopted by the entire industry. It is absolutely right that milk producers should get improved bargaining power.
We should all welcome transparent contracts between producers and purchasers that set clear prices, which will add much-needed security. That is why the findings of the UK’s independent review of the voluntary code, which were undertaken by Alex Fergusson and recommended that the code be extended up through the supply chain, were encouraging. I commend the Environment, Food and Rural Affairs Committee and its Chair, Miss McIntosh for launching an inquiry into the matter, which is helpful and appropriate.
The hon. Lady recently wrote to the Secretary of State to seek the Government’s views on the potential for the statutory framework provided by the groceries code adjudicator to be extended to help to alleviate the current problems in the dairy industry. Labour, of course, supports the adjudicator, and my hon. Friend the Member for Ogmore was very much involved in getting the Groceries Code Adjudicator Act 2013 through the House. The adjudicator’s remit under the 2013 Act does not extend to the relationship between indirect suppliers, such as farmers, and retailers, nor does it apply to price setting. Labour would be open to exploring whether the adjudicator’s role should be extended to include the relationship between milk producers and milk processors.
To tackle the current crisis, we must take important steps domestically and at European level. We believe that retailers, processors and manufactures must work with dairy farmers to ensure a fair return for their product. They must recognise the cost of production and ensure investment and long-term viability.
What are the Government doing to address the structural imbalances that result in low farm gate prices? What meetings has the Minister had with European colleagues to ensure that British farmers get a fairer price for the milk they produce? What additional EU measures will be taken to ensure the viability of the UK dairy sector? That point was made by Glyn Davies in his intervention. Finally, what are the Government doing to take more proactive steps to promote investment in processing and reduce farmers’ production costs, including support for innovative research and development? Dairy farming plays an integral part in our rural economy, as it has for centuries. The Government must support the sector to overcome the short-term crisis and secure the long-term sustainability of the industry.
I congratulate my hon. Friend Simon Hart on securing this debate. The over-subscription of the debate, which has necessitated such a tight time limit on contributions, shows the importance of the dairy industry. Many cheese varieties have been mentioned, and Mr Heath said that the best cheese is in the west country. I say that the cheese gets better the further west it is made. If people go all the way to Cornwall, they will find the best cheese.
Volatility is the new challenge facing the industry, and I will briefly describe what has happened, because we seem to have gone almost full circle in little more than two years. In June 2012, UK farm gate milk prices fell to just over 26p a litre, and at that time feed prices were extremely high. The situation was incredibly difficult, and confidence was at rock bottom. Many of us will remember attending a meeting with the then Minister with responsibility for farming, my right hon. Friend Sir James Paice, to highlight the issue and the crisis facing farming. However, we then experienced a much better period and something of a turnaround. Relationships in the supply chain improved drastically following the development of a new code of practice for dairy contracts. By November 2013, prices had gone up to 34.5p a litre. Demand started to grow in China, feed costs fell dramatically and our farmers responded by increasing production. UK milk production increased for the first time in 10 years.
The latest figures from the farm business survey published just last week show that, in the very positive 2013-14 financial year, the average farm business income on dairy farms increased by more than two thirds to more than £87,000 a year, which was driven by both increased prices and increased production. That was perhaps a record year, but as my hon. Friend Richard Drax showed when he described the concerns of one of his constituents, many farmers will now feel that that seems a long time ago. Since then we have sadly seen another serious dip in prices, with the latest statistics from the Office for National Statistics showing that the average milk price in September 2014 was just over 30p a litre. Anecdotally, there are some examples of farmers accepting less than 30p a litre. Some projections show that the price could still go down further. In fact, we can probably expect to see another six months of relatively low prices.
That was an issue about a year ago. We had discussions with the Department of Health, and the Government changed some of the approaches in the advertising to which the hon. Gentleman refers.
There is some good news, in that the average price for forage crops remains low, and the price of protein concentrates continues to fall. The UK farm gate milk price also remains a bit stronger than in some other European countries, notably Germany and Poland. Some of the Baltic states have been very exposed to the Russian ban. In Latvia, for instance, the average farm gate price is now less than 20p a litre. Nevertheless, the sharp fall in prices has had a big impact on farmers, and confidence is low. As I said, we seem to have gone full circle.
I thank the Minister for giving way, as I had hoped to speak in this debate. There was a meeting of Cheshire farmers yesterday, at which I am told frustration reigned. The main question they asked me to put to the Minister was this: what can the Government do to reassure dairy farmers that they have a viable future and so should invest in the future of their businesses?
My hon. Friend makes an important point, which I will address in a moment.
Volatility is, of course, a feature of global markets. The National Farmers Union is showing strong leadership in developing futures markets and other market mechanisms alongside industry partners. Every six months I chair a meeting of the dairy supply chain forum. The next meeting was due just before Christmas, and given the challenges that the industry is facing, I have brought that meeting forward to a little under two weeks’ time. One of the key issues I want to address in that meeting is whether we can do more to support the NFU to develop the mechanisms that help farmers to manage volatility.
Despite the current challenges, as many hon. Members have said, the long-term picture for our dairy industry is very positive. British farmers and dairy producers are producing a range of fantastic products. Over the next decade, global demand for dairy is expected to increase by around 2.5% a year. Earlier this summer, I attended the launch of the industry’s “Leading the Way” growth plan, which sets out some of the opportunities for the industry. We are supporting and encouraging dairy farmers and processors to develop their businesses on the back of growing demand, and over the past year exports of milk powder have grown by 65% to £152 million, and cheese exports are up by 12%.
As Ian Paisley said, there has been a particular problem in China, where demand has fallen, which has contributed to some of our difficulties with price. The Secretary of State for Environment, Food and Rural Affairs will be visiting China in December, and I am sure this will be one of the issues on her list. Substantial investments are being made in the UK dairy processing industry, which is testament to its long-term potential, including Arla’s new plant at Aylesbury and plans for the Davidstow creamery in Cornwall.
On the idea of encouraging producer organisations, we have given dairy farmers the opportunity to unite in producer organisations so that they have greater clout in the marketplace. In the past two years the Government have spent £5 million supporting that work. My hon.
Friend Glyn Davies spoke about quotas, and at virtually every Agricultural Council since January I have resisted calls from Germany, Austria and others to loosen the quota regime ahead of time. Earlier, they were concerned about the risk to them of the super-levy fine, and we have resisted those calls because we did not want to create additional pressure on the market. Many hon. Members have highlighted the dairy code, and Alex Fergusson has now concluded his review. He concluded that the code is working well and has made a positive difference, and 85% of production is currently covered by the code.
A number of people have talked about transparency in the contracting system, which is provided for in the code. Farmers essentially have an opportunity to walk away from a contract with three months’ notice, or if there is to be a clear and transparent basis on which the price is calculated, sometimes linked to production costs, it has to be clearly stated in the contract.
A number of Members asked whether the code should be put on a statutory footing. As the hon. Member for Somerton and Frome pointed out, there are drawbacks to that, because we probably would not be able to include a farmer’s right to walk away after three months. We would end up with a statutory code that is far weaker than the voluntary code.
Co-operatives have also been mentioned. One of the points that Alex Fergusson made in his report is that, although members tend to be very happy in co-operatives and tend to support that approach, he thinks that in some cases they could do more to leverage their power within a co-operative to ensure that they are getting a fair deal, which the farming industry might want to consider.
Many hon. Members, including my hon. Friend Miss McIntosh, have mentioned the groceries code adjudicator. It is important to recognise that the Department for Business, Innovation and Skills has committed to reviewing the groceries code adjudicator in 2016, but the dairy code is currently voluntary, and the latest report by Alex Fergusson concluded that it is working well. Farmers are not telling us that the code itself is a problem. The other thing we have to recognise is that the dairy code is most valuable to farmers when markets are tight and prices are rising; it is of less use to them at the moment when, frankly, we have an oversupply, with milk production up by about 10%. Finally, the other issues raised today concern whether retailers should be covered by the code, which the industry is considering because it was recommended by Alex Fergusson. The long-term future is bright for the industry, and we are doing all we can to address the immediate challenges.