[Sir Roger Gale in the Chair] — Dairy Industry

– in Westminster Hall at 12:00 am on 4th February 2015.

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[Relevant document: Fifth Report from the Environment, Food and Rural Affairs Committee, Dairy Prices, HC 817.]

Motion made, and Question proposed, That the sitting be now adjourned.—(Gavin Barwell.)

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Full Member) 9:30 am, 4th February 2015

Good morning, ladies and gentlemen. It will not have escaped your notice that quite a lot of people want to take part in this debate. I am therefore immediately imposing a five-minute time limit on speeches, apart from the opening speech and the wind-ups. If Members stick to that sensibly, we may be able to get everybody in.

To facilitate matters, I will—perhaps exceptionally—read out the list of Members in the order in which I intend to call them, which is the order in which they submitted their name to the Speaker’s Office. There is no question of preference or seniority; it is simply how the names went in. On the Opposition Benches, we have Mr Shannon, Ms Ritchie, Dr Whiteford and Mr Owen; on the Government Benches we have, in this order, Glyn Davies, Nick Herbert, Miss McIntosh, Mr Ollerenshaw, Mrs Newton, Mr Kawczynski, Mr Julian Smith, Mr Reid, Mrs Murray, Mr Farron and Sir William Cash. I need to add Mr Parish to that list; he was chairing a meeting earlier.

That is the batting order. I am telling Members that because it may be that some will choose to intervene rather than make a speech. Those whose names I have not read out are not on the list at all. I hope that is clear.

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley 9:31 am, 4th February 2015

I am grateful for the opportunity to lead this debate on the dairy industry under your chairmanship, Sir Roger.

This is a time of deep uncertainty for many farmers, as they have seen huge volatility in the price that they receive for milk over the past three years. The dairy industry is vital for the United Kingdom, but I hope hon. Members will excuse me if I address the challenges facing the industry through the prism of my rural constituency, Ribble Valley. The industry is simply the backbone of the constituency. Some of the farmers to whom I spoke can trace their farms back several hundred years. Generations have worked the land and shaped its appearance and character.

From a food security point of view, the industry is simply essential. Its liquid market is strong; of course, we also have some of the most recognised cheeses in the world, particularly the tasty, crumbly, creamy and mature Lancashire cheeses that are made by some of the most famous family names and sold throughout the world. Milk is also processed into other commodities, including yoghurts, butter and powdered milk.

The by-product of the industry is amazing: rolling countryside that attracts a large number of tourists, providing income for bed and breakfasts, amazing hotels and companies that source food and beers, as well providing a large number of local jobs. Then there are the gastro pubs. There are far too many to mention, but we have the Campaign for Real Ale pub of the year, the Swan with Two Necks in Pendleton, and, just 2 miles away from there, the food pub of the year, the Freemasons at Wiswell. Originally I had planned to mention all the pubs, delicatessens, restaurants and amazing quality shops in my constituency, but my speech became a travelogue for Ribble Valley; that is what the dairy industry has done for my area. The Ribble Valley food trail is now firmly a part of why visitors come to the area, and those visitors keep small villages such as Rimington, Clitheroe, Longridge, Lostock Hall, Chipping, Waddington and Mitton alive.

The recent investment in local businesses runs to millions of pounds. The restaurants and hotels in the James’s Places group are found throughout the valley, representing big investments in the area. The Aspinall Arms in Mitton had just seen massive investment, as have the White Bull in Gisburn, which has reopened after being closed for over a year, and the Derby Arms in Longridge. My point is that without the backbone of the dairy industry the whole fabric of the area simply would not exist.

Anyone can see the pride and worth of the industry as they travel through the area, but it is especially clear at the agricultural shows, such as the Chipping show, the Hodder Valley show and the Longridge show. I am proud to say that the Royal Lancashire show will be part of the local calendar once again this year, on 7, 8 and 9 August. [Interruption.] My hon. Friend Sir William Cash has just pushed a note to me saying, “Don’t forget to mention the Shireburn Arms”—that is just down from Stonyhurst college, where he went to school.

My village of Pendleton is relatively small. It has three dairy farms of different sizes. John Cowperthwaite is the seventh generation of his family to operate from his farm. He has a contract with Sainsbury’s and says that the contract has been honoured and that he is happy with the way he is being treated. That means that there will be a business for his son Richard, who is 22 years of age, to take over. Richard works with his dad at the moment.

Photo of Heather Wheeler Heather Wheeler Conservative, South Derbyshire

I congratulate my hon. Friend on securing this important debate. It is a pleasure to serve under your chairmanship, Sir Roger. My hon. Friend is getting to an important question about contracts for our farmers. Sainsbury’s has been very good, as has Tesco, but the real issue is the pressure on the price per litre. Will he go on to talk about the big supermarkets’ contracts?

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

Yes. It will not have gone unnoticed by my hon. Friend and others that Sainsbury’s took out a large advert in a number of newspapers indicating those supermarkets that are being fair and those that are not. I will refer to that later.

Edward Cowperthwaite’s farm is a bit further into the village. He milks a smaller herd than John Cowperthwaite. He came off his tractor to speak to me yesterday. He is not on a contract and has seen two successive cuts to his milk price, in January and February this year. He works seven days a week and cannot afford to employ anyone. He has some sheep to keep his income up, and his wife works as a teacher, so thankfully he can make a go of it, but he has five youngsters and is not sure that any of them will want to enter farming while it is in this particular predicament.

At the top of the village is William Slinger’s farm, which he can trace back to 1603. He has a larger herd of cows, plus sheep, and is the founding director of Bowland Fresh, which about 30 local farms feed into. Both Booths and Asda take his milk, and he works hard to ensure the scheme works for the participating farmers. I want to thank Booths in particular, as the founding buyer for Bowland Fresh, for the considerate way that it has treated local suppliers. Edwin Booth lives locally and knows that the value of milk is not simply the plastic bottle people take away from his stores. I also thank Asda for its support for Bowland Fresh.

Whether the cause is Russian sanctions, the reduced Chinese market or simply an over-supply in the market after a very good year last year, the fact is that the price for milk on some farms is now way below the cost of production. A local dairy farmer from Samlesbury, Graham Young, who is also a member of the National Farmers Union north-west dairy board, told me that many farmers joined the European milk co-operative, Arla, and are getting under 25p a litre; some farmers are in the First Milk co-operative and are getting around 20p a litre. Although the longer term is looking good, those prices are not sustainable in the short term, and farmers have to survive the short term first.

The current situation has energised a number of MPs who, like me, think something must be done. Those include my hon. Friend Miss McIntosh, who is here today. She is Chair of the Environment, Food and Rural Affairs Committee, which produced an excellent report last month making a number of important recommendations. My hon. Friend Simon Hart, who is also here, had an Adjournment debate in November on this issue; sadly, the plight of the industry has worsened since then. A number of Members have put down or signed early-day motions and raised issues relating to dairying on the Floor of the House, including my hon. Friend the Member for Stone.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee

Non-payment caused a huge crisis. Will my hon. Friend give some thought to the idea that the Government could help by engaging more, through public procurement of services? People who are in the Army, the education sector and other sectors could get milk supplied in a way that would help our farmers, and would ensure that the Government were taking an active part on this issue.

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

That is an excellent idea, and I hope that the Minister will be able to respond to it, given the Government’s ability to direct procurement towards British dairy farmers.

Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

My hon. Friend talks about all the activity taking place in this Parliament, but we also had many Westminster Hall debates in the previous Parliament about the crisis in the dairy industry. Does he agree that the time for talk is now over, and that we really are looking to the Government for concrete steps this time round to sort out this perennial problem?

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

I do agree that the time for action is now. If we do not act now, it will be too late. The number of farms has dropped from 35,000 to fewer than 10,000, so this is clearly a crisis. I should congratulate my hon. Friend on being the founding member of the all-party group on dairy, which has focused on the industry’s plight.

To go back to a previous intervention, we know something is out of kilter when milk is sold at 89p for 4 pints. When I was in Ribble Valley last week, I saw 8 pints on offer for £2 in my local Co-op. Perrier sells for £1.04 a bottle—water is valued more than milk. That cannot be right.

I commend the Minister on his hard work and resolute efforts to look at fresh ways of supporting the industry. He meets industry representatives constantly; indeed, he met Thomas Binns, one of my dairy farmers in Cumbria, just yesterday. I have looked long and hard at a number of suggestions made by some of my farmers. I have also read around the issue in the Farmers Guardian, and I have read reports about the industry’s plight. I have produced a charter for the British dairy industry, which I hope the Government will get behind. It is a 12-point plan, although it may well be a 13-point plan after the intervention by my hon. Friend the Member for Stone. I have provided the Minister with a copy. The charter simply says:

“1. The Groceries Code Adjudicator to be given more powers to protect dairy farmers.

2. A strengthened Groceries Supply Code of Practice.

3. Supermarkets and wholesalers who pay less than the cost of production for milk should be named and shamed. They have Fairtrade coffee, chocolate and bananas, this should extend to Fairtrade UK milk and dairy processed products.

4. Farmers need to be given more assistance in accessing a variety export markets.

5. Banks should provide support to dairy farmers during this challenging time for the industry.

6. HM Revenue & Customs should move to look at profits over a five year period to provide a more level rate of taxation.

7. The EU intervention price of 15 pence per litre needs to be urgently reviewed as it is no longer an accurate figure and is far too low.

8. Better and clearer origin of production labelling. British means produced and processed in the UK.

9. More stability on investment allowances for farmers.

10. Ensure that dairy farming is supported and championed by the Government. Dairy farms are the backbone of rural Britain and it must be sufficiently attractive for new generations of young farmers to enter the industry.

11. Look to encourage producer organisations within the industry to give better protection on product price.

12. Look to cushion the worst impacts of the volatility within the industry.”

Let me also add point 13, on the public procurement of UK milk.

Photo of Richard Drax Richard Drax Conservative, South Dorset

I congratulate my hon. Friend on his fantastic speech, which is very timely. May I add my concerns about over-production? With quota coming off this year, we hear that Ireland is likely dramatically to increase its production of liquid milk. That will flood across into the United Kingdom, and the consequences could be very serious. I would be interested to hear what the Minister has to say about that. Does my hon. Friend share my concerns about the future of milk production?

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

That has certainly been heralded in a number of agricultural publications. Ireland, France, Germany and the Netherlands could all increase their production, and the price would drop even further. The threat is that we start importing more product into the UK, which will further and severely disadvantage British dairy farming. I hope the Minister will address that.

Photo of Simon Hart Simon Hart Conservative, Carmarthen West and South Pembrokeshire

At Prime Minister’s questions the other day, did the Prime Minister not say in answer to a question from my hon. Friend Glyn Davies that the Government were seriously looking at, and he was committed to, the introduction of fines and the spreading of tax payments over this year? If that is good enough for the Prime Minister, I hope it will be good enough for the Minister when he responds.

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

I will finish now to give lots of other Members an opportunity to contribute. However, we will all listen carefully, as will the industry, to what the Minister has to say. We know he supports the British dairy industry, and we know the Prime Minister supports it, having a number of dairy farmers in his constituency. It will be interesting to hear what the Minister has to say. I would like to thank Kathleen Calvert, a stalwart defender of the industry’s interests, whom I spoke to this morning, for her suggestions on helping the industry, some of which I have incorporated into my speech.

I want to finish with the last paragraph of a letter to Emma Penny, the editor of the Farmers Guardian, which is published not far from my constituency, in Fulwood, on the outskirts of rural Lancashire:

“If nothing is done we will not recognise the industry in 10 years’ time. It will consist of 50 mega dairies on the outskirts of large cities and even more milk, cheese, butter and powder will be imported. Wake up Britain.”

Minister, it is time we all woke up and smelled the coffee, but what is the use of smelling the coffee unless it has British milk in it? We also want some toast with British butter on it and a slab of Lancashire cheese, followed by British yoghurt and the full English breakfast, including a healthy portion of black pudding—all supplied by British farmers. We must not take the industry for granted. We must not lose it. We have to act now to ensure its future.

Several hon. Members:

rose—

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Full Member)

Order. Sixteen Members now wish to participate in the debate. Members can do the maths: speeches are down to four minutes. I have also decided that I will not add injury time for interventions. Members who courteously give way to others may need to bear that in mind when considering whether to take interventions.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport), Shadow DUP Spokesperson (Human Rights) 9:46 am, 4th February 2015

It is a pleasure to speak in this debate. I thank Mr Evans for giving us all the opportunity to participate.

I am here because the dairy industry is an important issue in my constituency. I have spoken about it before, but there are new issues to raise. In Northern Ireland, we have 3,425 dairy farms, boasting almost 280,000 dairy cows, with a market value of £627.5 million—the value of the dairy industry to the Northern Ireland agriculture sector is therefore enormous. The industry also employs 2,318 people.

As we have heard, the price of milk has continued to drop. In the past month, however, it appears that the market has bottomed. The milk price indicator hit a low of 19.24p per litre in mid-December, but it has now risen to 20.09p per litre. There is an indication that it may be 20p to 22p per litre before the early summer. Let me put that into perspective. If someone gets 21p per litre for their milk, and the cost of production is 28p, they lose 7p per litre. A base price of 20p per litre means that a 100-head dairy herd would lose £5,000 a month. Over a year, that would amount to £60,000. For those in the dairy industry, that is a serious issue. One of my constituents started dairy farming just before Christmas, and he is getting an extra 2p per litre, but even that is not enough.

Photo of Gregory Campbell Gregory Campbell DUP, East Londonderry

Does my hon. Friend agree that the fact that many supermarkets in Northern Ireland and across the UK use milk as a loss leader to get footfall is a key issue, which the adjudicator must address?

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport), Shadow DUP Spokesperson (Human Rights)

That is clearly an issue, and the Groceries Code Adjudicator needs to address it.

Northern Ireland exports 85% of its milk products. There are a large number of dairy farmers in my constituency, and Pritchitts is one of the major milk powder producers. It is therefore immensely important for me to ensure that things change.

There is hope on the horizon with the pending abolition of the milk quota, which maintains high production levels even if demand remains static. I also welcome the resurgence of the Chinese market. I believe demand there is coming back, and we are pleased to see that. That might just be the thing that makes the difference.

A further concern, as my hon. Friend Mr Campbell said, is retailer price cuts. Asda is selling two litres of milk for 79p. That means that only 23p profit has been made—23p that has to be split between the farmer and the supermarket giant. It does not take Einstein to work out who is really making the money. I will give hon. Members a clue: it is not the dairy farmer. Farming unions are trying to encourage Dairy UK and the Dairy Council to support the promotion of local dairy products, and we agree; every hon. Member can talk about how the milk is sweeter, the cheese better-tasting and the yogurt particularly tasty in their area. My hon. Friend knows about yogurt—he is an expert.

The issue is clear for us. Farming unions have continued to fight for the EU intervention milk price to be reviewed. That has received support from the Minister at the

Northern Ireland Department of Agriculture and Rural Development, and has been backed by the Scottish and Welsh Farming Ministers. The Minister has claimed that there is no value for money in such interventions, so it would be unlikely that the UK would fight for the review. He needs to rethink his position, given the regional support and clear need for a review. I would certainly like a consultation, at least.

Photo of Glyn Davies Glyn Davies Conservative, Montgomeryshire 9:50 am, 4th February 2015

I apologise, Sir Roger, for arriving a minute or two late at the debate, and I am grateful to be called. It takes longer to walk to work with a broken toe.

I want to make two points, on public procurement and labelling. The dairy industry has had a huge impact on my constituency, as it has on many others. The Severn valley is a fertile part of Britain, and a huge number of dairy farms earn a living there. It has been a huge part of my life. I have said before, in the main Chamber, that I am probably the only Member of Parliament who has actually milked cows by hand. [Hon. Members: “No!”] I had not realised. I will have to start an all-party group for those who have milked cows by hand.

The issue we face is global instability through the flooding of the market across the world. It is important that DEFRA should do everything possible to help in the current situation, in the hope that it will not last too long. That means talking to banks and Her Majesty’s Revenue and Customs, to see us through. I was pleased with what the Prime Minister said in response to my question in the Chamber on 21 January, which has already been mentioned and is at column 216 of the Official Report. I asked about expanding the powers of the Groceries Code Adjudicator and whether there should be a power to fine, and the answer was a strong message that the Government take the issue seriously. Progress is being made, and that is what we all want.

The only answer to the present situation is to expand the market. We operate in a global context, and there is probably over-production across the world. When quotas are lifted, that is likely to get worse. We must aggressively expand the market for British milk and dairy produce. First, we need a full-blooded DEFRA campaign to export and market to China, which is a huge growing market, and elsewhere. I know that action is being taken on that, but it must be redoubled and must continue.

Public procurement is a sensitive matter, because we are members of the European Union and must stick to competition rules, but the Government need to be as inventive as possible. Every public body in Britain that wants Britain and its dairy farming to succeed should do all they can to make sure they use British produce. That is a key issue that the Government can influence, although obviously they must be careful.

Labelling is also incredibly important. The British people generally want to support British farming. They want to buy British produce from supermarkets or other retailers, particularly now that they can see that dairy farming is having a difficult time. However, we must be certain that produce marked as British genuinely is British. That does not mean packed in Britain—produce brought here and sold and advertised as British when it is not. We need accurate labelling so that the people of Britain can join together to help the continued success of the dairy industry, which has underpinned rural life in Montgomeryshire and elsewhere for generations.

Photo of Margaret Ritchie Margaret Ritchie Shadow SDLP Spokesperson (Environment, Food and Rural Affairs), Shadow SDLP Spokesperson (Energy and Climate Change) 9:54 am, 4th February 2015

It is a pleasure to serve under your chairmanship, Sir Roger. I congratulate Mr Evans on securing this important debate on the dairy industry.

I am a member of the Select Committee on Environment, Food and Rural Affairs, under the chairmanship of Miss McIntosh, and we have just completed a detailed report on dairy prices, volatility in the market, and the need for the European Union to review the intervention price. I urge the Agriculture and Rural Development Commissioner, Phil Hogan, and the Minister, to make sure that the price is reviewed, and that there is considerable uplift. From my Northern Ireland perspective, the volatility has had a great impact on the local dairy industry. The majority—about 85%—of our milk products are exported. With the milk quota ending in April, the issue of price volatility will be more marked and definite, so it needs to be addressed.

My constituency neighbour Jim Shannon mentioned the dairy intervention price, which the Select Committee report dealt with clearly, along with the fact that the Groceries Code Adjudicator lacks teeth. On 29 January a motion was tabled on enabling fines to be levied on the big supermarkets. I hope that penalties will be brought in, but smaller retailers also have an effect on the consumer and, more importantly, the farming and dairy industries, and that needs to be investigated.

We want an uplift for the dairy industry, and we feel that there is a need to take a long-term view of the industry and its current crisis. Countless farmers are being forced to leave it and abandon their livelihoods, because they are not receiving sufficient support in the crisis. There will come a time when the markets improve and we will need their high-quality produce. There may be a shortage of farmers remaining to produce it.

The dairy industry is vital to farmers’ livelihoods and to the economy. Intervention is not just an option, it is an immediate necessity. We need action at Government and EU level to protect farmers properly in the long term, in the face of market volatility, which will bring further challenges. I commend the Environment, Food and Rural Affairs Committee’s report to the Minister, and I look forward to his response. I hope that he, in conjunction with the EU Agriculture and Rural Development Commissioner, will be able to provide some relief for the dairy industry.

Photo of Nick Herbert Nick Herbert Conservative, Arundel and South Downs 9:58 am, 4th February 2015

I join other hon. Members in commending my hon. Friend Mr Evans for initiating the debate and raising an issue of great concern to those of us with rural constituencies. In the past two decades or more, the number of dairy farmers in West Sussex has reduced significantly. The national trend is for further reductions, with the threat that dairy production in the county will become a very rare thing. That would be a great shame.

I want to raise three ways of addressing the unsustainable situation in which producers are paid a price below the cost of production—albeit that we accept that prices are volatile. The situation was not the same last year, and there are world market problems that cannot be addressed easily. The first issue, which was discussed by my hon. Friend and has been raised by the EFRA Committee, is the Groceries Code Adjudicator. I announced the Conservative party’s policy to introduce what we then called a supermarket ombudsman at the Oxford farming conference some five years ago.

I believed then, as I do now, that in spite of having faith in free markets, when markets operate in an unfair way, damage can be caused not just to producers but ultimately to consumers. That can justify measures to correct market failure. There is a danger that that is happening here and ultimately the consumers will lose if we undermine our production base too much. There is a case, as the EFRA Committee recommended, for strengthening the powers of the Groceries Code Adjudicator across the supply chain and ensuring that the adjudicator can levy substantial fines and mount proactive investigations. I welcome the Prime Minister’s indication that the Government will look at that and I hope that the Minister will say more about that when he responds.

The other policy that I promoted in opposition that we need to continue to press hard is country of origin labelling for our produce. That would help hugely in what is needed: a national campaign to market and promote British produce as the means by which consumers can support British production. We have not yet succeeded in extending that principle, partly because of the problems with getting EU agreement and also because of problems with our authorities who claim that such measures increase the burden of regulation. We need to resist such arguments.

I agree with my hon. Friend Glyn Davies that we should look carefully at public procurement and the way in which the public sector can do more to promote British produce. The long-term outlook for dairy farming may be rosy, given the potential for global markets to improve and for the international consumption of dairy products to increase, but we need to do more to help producers in the short term to recognise that dairy farmers are part of the backbone of the rural economy. It is not in the national interest to continue to see their loss.

Photo of Eilidh Whiteford Eilidh Whiteford Shadow SNP Spokesperson (International Development), Shadow SNP Spokesperson (Women), Shadow SNP Spokesperson (Work and Pensions), Shadow SNP Spokesperson (Agriculture and Fisheries) 10:02 am, 4th February 2015

I congratulate Mr Evans on securing the debate and I commend the Environment, Food and Rural Affairs Committee on its report, which provides a helpful backdrop to the proceedings. There seems to be much consensus from industry, stakeholders and others that the present low prices and market volatility are largely attributable to increased global production, lower demand than anticipated in China and the impact of Russian sanctions on EU imports.

There is also fairly widespread agreement that, in the longer term, the demand for dairy products worldwide is likely to rise and our producers could access growing international markets. In the meantime, however, as we have already heard the situation is a lot less rosy. Farm-gate prices are below the cost of production, which is creating a critical situation for many dairy farmers, some of whom have been struggling to stay afloat for some years.

I have a sense of déjà vu, because back in 2012 we debated the crisis in the dairy industry here in Westminster Hall. At that time, I welcomed the introduction of what was then the new voluntary code of conduct, but I pointed out that farm-gate prices were still too low to be viable, and that, until the prices paid to producers exceeded the cost of production, we would not have a sustainable dairy industry. That essential issue, which is not fully addressed by either the voluntary code or the Groceries Code Adjudicator, still underpins the problems facing the dairy sector.

Most of Scotland’s milk production—92% of it—is for domestic UK markets, and primary producers, who have high input costs, are caught in and continually squeezed by over-concentrated supply chains. Dairy farmers point out that that those who supply Asda, Morrisons, Lidl, Aldi, Iceland and Waitrose receive substantially less than the cost of production for their milk. Asda’s suppliers say that they receive 56p for four pints against a production cost of 68p. Dairy producers cannot be expected to subsidise retailers in that way. In the long term, that is not in the interests of our food security or consumers to push dairy farmers out of business.

There has been some discussion about whether the voluntary code is operating as it should, whether the EU intervention price is too low and whether the powers of the Groceries Code Adjudicator should be extended. The voluntary code has been a positive move—as far as it goes—but it is not designed to tackle underlying structural problems. The dairy industry in north-east Scotland—what is left of it—illustrates well the limitations of the voluntary code in practice in that there is only one processor. That is the case in many parts of rural Scotland. The voluntary code can help in terms of conditions of contracts if stakeholders choose to adhere to it, but, if circumstances change, it is very weak in that there is often no other show in town. That lack of competition means that, in negotiations between producers and processors, one player holds all the cards. That highlights the underlying problems of a concentrated supply chain.

When legislation for the Groceries Code Adjudicator was going through Parliament back in 2012, I argued strongly that the restrictions on who could make representations to the adjudicator would place serious limitations on its effectiveness. I would definitely like to see the adjudicator being able to investigate complaints from parties other than direct suppliers. The situation we are discussing is a good example of where that would be beneficial. However, that would still address only the symptoms.

Photo of Eilidh Whiteford Eilidh Whiteford Shadow SNP Spokesperson (International Development), Shadow SNP Spokesperson (Women), Shadow SNP Spokesperson (Work and Pensions), Shadow SNP Spokesperson (Agriculture and Fisheries)

I will not allow an intervention. I apologise. The Government’s failure to empower the adjudicator to impose penalties on those in violation of the code is a real dereliction that I hope they will put right with all due haste. I do not want the adjudicator to be another useless quango. Given the time constraints, I will not say anything about the intervention price except that I hope that the Minister will raise that at EU level so that it is on the policy makers’ agenda.

To allow our dairy sector to sink and diminish without trace is short-sighted. We all recognise that there is a future for the sector in growing export markets. If we are smart, we could develop those markets for high quality, value added products. We have a strong traditional industry with a reputation for quality, excellent animal welfare and food standards and distinctive, unique regional products. Notwithstanding the current market issues, there are substantial and growing opportunities for our dairy industry and a clear role for Governments throughout the UK in supporting their development. However, while we are still selling milk below the cost of production, we will not have a sustainable industry.

Photo of Anne McIntosh Anne McIntosh Chair, Environment, Food and Rural Affairs Committee 10:06 am, 4th February 2015

I congratulate my hon. Friend Mr Evans on securing such a timely debate. I will share some of the evidence that the Select Committee on Environment, Food and Rural Affairs heard in addition to our conclusions. One of the most striking things I have found in representing the deeply rural constituency of Thirsk, Malton and Filey and its dwindling number of milk producers is that, in the time that the Groceries Code Adjudicator has been in place, there has not been a single investigation. I welcome the laying of the statutory instrument, but that situation must be rectified by allowing her the power not just to levy fines, but to take an investigation off her own bat. If she is not allowed to do own-initiative investigations, we will not see any progress.

It is not often that, the week after the Committee reports to the House, the Prime Minister takes up two or three of our core recommendations, but that is what happened in this case, which was very welcome indeed. I hope that the Minister will leap into action to ensure that the Groceries Code Adjudicator’s remit and the code will apply to this supply chain. There is a commonly-held belief, which has been explored on many occasions in this Chamber, that the code does not apply in this case. That leaves the small farmer exposed.

I express my hesitation about seeing further concentration in the market. We also need to look at why co-operatives work so successfully in countries such as my second homeland of Denmark but not so well here. They can negotiate collectively on price, contract terms and conditions and that must be considered.

I applaud the moves towards country of origin labelling and I press, as the whole Committee does, for an urgent review of the intervention price. It is welcome that the Government have set up, for the first time, an agriculture counsellor to be based in Beijing. The drive by the Department for Environment, Food and Rural Affairs for exports is welcome, but we must also support those producers, such as Shepherds Purse, just two fields along from where I live in North Yorkshire, who are creating cheeses that compete with many of the popular brands that we currently import.

There is a vibrant future for the dairy industry, but, should prices go up again, potential producers and farmers must look to the fact that the market is very small. We must look at the difference between the small, individual farmer and the might, weight and strength of the processor as well as that of the supermarket. I leave everyone with the thought that until that chain and that relationship is addressed, I do not see there being any change to either the dairy price or the dairy industry going forward. However, I believe that the groceries code and the adjudicator’s role are key to strengthening and restoring the balance for the dairy farmer and ensuring a sustainable future, so that the cost of a pint of milk reflects the cost of production.

Photo of Albert Owen Albert Owen Labour, Ynys Môn 10:10 am, 4th February 2015

It is a great pleasure to serve under your chairmanship, Sir Roger, and a genuine pleasure to follow Miss McIntosh, who is doing an excellent job as Chair of the Environment, Food and Rural Affairs Committee. I appreciate the considered and thoughtful evidence-based report that her Committee has done.

I congratulate Mr Evanson securing the debate. Since I have been in the House, I have been working with him on rural issues. When he was the shadow Secretary of State for Wales, he came to the Anglesey show to see the best county in the United Kingdom in the glorious sunshine at its best, with the dairy industry central to that. He and I have been singing from the same hymn sheet for some time, and he helped me with a private Member’s Bill for a supermarket ombudsman at the latter end of the last Parliament—he was one of its sponsors. It was good that, at that time, the DEFRA teams in each of the major parties were on board, but it was difficult getting to the Business, Innovation and Skills Front-Bench teams. That has been part of the problem, and we should concentrate on that. This is specifically an agricultural issue as well, and we should try to look at it in that way to get a better deal for farmers.

The dairy industry is important and we should not see it in isolation. If we combine food, farming and tourism, we are talking about a huge sector of the British economy. At the centre of that are the dairy farmers and the farming community, so we should not look at this problem in isolation, but it is a special issue.

Glyn Davies is just leaving the Chamber. I started my working life on a farm. When machinery broke down I milked cows by hand, so I have some grass-roots experience—and some other experiences from the end of a cow—to bring to this debate. The serious point, however, is that I understand how special dairy farming is, because dairy production cannot be turned on and off at a tap when there are volatile prices and exterior factors across the world. Unlike sheep farmers and others that can diversify into other areas, dairy farmers cannot do that so easily, and I want to highlight that point.

I agree with the 12 or 13-point plan suggested by the hon. Member for Ribble Valley. We need a specific plan. In Wales, the issue is devolved and a dairy plan is coming into being, which concentrates on many of the issues that have been mentioned today. It is not an isolated issue for each Assembly and Parliament to deal with. It is a UK and global problem, and we need a UK response. That is why DEFRA needs to co-ordinate a plan of that nature to get the fairness that we all want for dairy producers.

For my final minute, I want to turn to the Groceries Code Adjudicator. I am hearing good noises about it in this morning’s debate, but in this Parliament the House was given an opportunity to water down the supermarket ombudsman’s powers, and unfortunately they were watered down. When that went through the House, we warned that if there were a toothless referee, it would not be able to make an impact. A referee must be able to come down on both sides in the game—not that I am saying it is a game—so we need to strengthen it. We need to name and shame. We have been calling for that, but it has been resisted.

I have been hearing that there is internal strife between the two parties of the coalition Government, but let us put that aside. Let us ensure that we get—[Interruption.] It is not “nonsense”. The ability to fine early on is needed. We need an ombudsman that has teeth. We need the referee to be able to put forward strong recommendations and have a proper inquiry. As the EFRA Committee said, this is a UK problem. British goods and produce are the best in the world; let us make sure we provide fairness for those best producers.

Several hon. Members:

rose—

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Full Member)

Before I call Mr Ollerenshaw, to whom I will give the four minutes, because he has had no warning of the fact that there will be less time, I tell hon. Members that I will be taking the time limit down to two and a half minutes. I appreciate that that is tight, but I suspect that much of what needs to be said has already been said. If Members can concentrate on making just the points they really need to make, we will still get everybody in, but it will be tight.

Photo of Eric Ollerenshaw Eric Ollerenshaw Conservative, Lancaster and Fleetwood 10:14 am, 4th February 2015

It is great to serve under your chairmanship again, Sir Roger—I accept your strictures and will try to get in under four minutes. I congratulate my hon. Friend Mr Evans on securing the debate; obviously, Lancashire leads the way, as per usual, on this issue. In Lancashire, according to figures from the National Farmers Union, we lost 28 dairy farmers last year. That still leaves over 500 firms—mainly family firms—such as the prize-winning Whitlow dairy herd in Preesall. As my hon. Friend pointed out, many of those families’ tenancy or ownership of small-scale farms goes back hundreds of years and they often have 50 to 500 cows.

I shall try not to repeat what others have said, but Albert Owen spoke about scale, and in these debates, we need to point out that this is not some minor rural issue. It is a major British industry. We are the third biggest producer of milk in Europe, and the 10th biggest in the world, with nearly £4.5 billion of product. That is what we need to mention to break down some of the barriers that people who are perhaps not from rural areas have in understanding what we are trying to do.

The recent price volatility is complex. There is almost another cold war, with Russia cutting back on dairy imports. Since 2010, Members have seen this extremely volatile market going up and down, as my hon. Friend Miss McIntosh pointed out in a very important Select Committee report.

On the slashing of milk prices in supermarkets, rather than focusing on the retail price, perhaps we need to focus on what the supermarkets are paying the milk producers. That is where the issue lies, not in whether supermarkets run a loss leader at the front end. We should not tar all supermarkets with the same brush. I add my praise for Booths supermarkets in the north-west, and Edwin Booth, for maintaining the highest prices paid to producers, as my hon. Friend the Member for Ribble Valley said.

However, there are no quick fixes. We have gone through the general agreement that the EU intervention price is set too low to be helpful, and that needs to be reviewed. We all agree on the Groceries Code Adjudicator. Some farmers still do not see what that means and how it will have an impact on their lives; we need to do something about that, and I am grateful for the Select Committee’s support on that issue.

The labelling pointed out by my hon. Friend Glyn Davies is absolutely key. We need to get the labels right, so that people are able to buy what is made and produced in Britain—which actually tastes like cheese, unlike some of the competitors one finds abroad. I want to mention Garstang blue, made near to me at the Dewlay cheese production, just below my constituency.

We need producer organisations, such as Bowland Fresh, which has been mentioned. I understand that Yew Tree Dairy in Skelmersdale has now introduced a milk drying plant, which might help prevent volatility over time. The NFU’s suggestion for a futures market in dairy—again, to smooth out the price—has not been mentioned so far today, and it seems to be a practical way forward. All these bits and pieces have been suggested, but what we want to see from the Minister is those bits and pieces starting to come together in a policy to save a vital part of British agriculture.

Several hon. Members:

rose—

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Full Member)

Members now have two and a half minutes, without hesitation or deviation. I call Sarah Newton.

Photo of Sarah Newton Sarah Newton Conservative, Truro and Falmouth 10:18 am, 4th February 2015

I will try my best, Sir Roger.

Tamara Hooper is a constituent of mine who farms some land that I am very fond of. It is next to the farm that my godfather farmed, and her tale is of the situation faced by many farmers in my constituency, who have tried over generations to keep their way of life and first-class dairy farms going. Their huge skill in raising stock and looking after them and the land is passed down over generations; it is not something that people learn overnight.

Tamara Hooper is currently being paid 24.81p a litre by Arla. That is simply unsustainable. The 48 companies that rely on her farm will go out of business unless we do something about it. In my lifetime, I have seen the number of dairy farms in my constituency drop like a stone to the handful that remain. Some enterprising Cornish farmers have been able to develop cheeses, ice creams, milks and butters. There are many household names that people now find in supermarkets, which is great. I hope that many more of them will be supported to do that, but right now, Tamara and her family face going out of business. It takes time for people to set up new relationships and sell their milk directly. It takes time for people to train themselves as a cheesemaker, and they have simply run out of time.

I support all the work that has been done by the Select Committee and in the charter proposed by my hon. Friend Mr Evans, which points to a series of practical things that the Government can do to intervene in a broken market. We have to intervene so that when the upturn that we all expect and anticipate comes, we will still have farms and farmers able to meet that opportunity. Just as we have a strategy for national energy security, we need a proper strategy for farming and food security, because that is just as important. I urge the Minister to take on board the ideas that we have come up with this morning and take urgent action to fix the broken market.

Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham 10:20 am, 4th February 2015

During the previous Parliament, in 2006, I set up the all-party group for dairy farmers. In Shropshire at that time, nearly a decade ago, we already recognised the crisis that our dairy farmers faced. Some 160 Members of Parliament joined the all-party group and we had an excellent secretariat, the Royal Association of British Dairy Farmers. The Prime Minister joined the all-party group when he was Leader of the Opposition; it was the only one that he joined during that Parliament. After a year of deliberations, taking evidence, going to Brussels and meeting various organisations, we came up with two recommendations: a limited cull of badgers to deal with the crisis of bovine TB, and a Bill introducing a groceries adjudicator to regulate the supermarkets and their conduct towards processors and dairy farmers. We took those recommendations to David Miliband, who basically laughed us out of his office—

Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

We have the minutes of the meeting. Mr Miliband said that both those issues were completely unrealistic and told us that he would not do anything about them.

I look to the Minister to take action on those two vital issues before our dairy industry collapses. What does he understand to be the impact of the volatility in the dairy industry on the cattle industry? Some of my cattle farmers are starting to talk about how it is affecting them.

I would also like to ask about EU subsidies. Apparently, subsidies are available to ensure that children under five have milk, and we are not claiming all the subsidies to which we are entitled. I hope to hear what he is doing to travel around the world and ensure that everything possible is done to open up new export markets for our dairy industry, particularly in Russia, where the ban on British beef has been lifted, which is worth £150 million a year to our cattle industry. I hope that when sanctions are lifted, we will do everything possible to increase exports to Russia.

Photo of Julian Smith Julian Smith Conservative, Skipton and Ripon 10:23 am, 4th February 2015

The issue that we are discussing is a major one for Britain, but it is particularly acute for North Yorkshire. Since 2002, the region has lost 489 farmers, which is the second worst performance and loss in the country. Even farmers who are doing their best to invest in and build their businesses—such as Paul and Janet Bolland near Skipton, who recently invested £700,000 in their parlours and their farm—are struggling to pay interest on those investments. I do not find compelling the argument that we should look to Europe for reductionist intervention. My fear is that other countries that have higher production costs may soak up some of the subsidy.

I agree with many of the recommendations made by my hon. Friend Miss McIntosh, and I pay tribute to her for all her work as Chair of the Environment, Food and Rural Affairs Committee over the past few years. I add my support for the idea of greater teeth for the Groceries Code Adjudicator and for looking again at the voluntary contract. UK Trade & Investment needs to be a bit more robust and communicative about all the good work it is doing. I have not heard directly from it about whom I should introduce my farmers to, and how to communicate to them. It needs to get out there more and tell us what it is doing.

There are some short-term measures that I would like to see from the Treasury. HMRC could really help farmers with their monthly payments, perhaps by allowing some pooling of profits over several years rather than working on an annual basis. Above all, I think that the Minister, who has responsibility for farming, has done excellent work on the matter. I fear and suspect that were we talking about another industry such as the car industry, there would be a cross-Government task force, a committee and a cheerleader. We want that sort of focus for the dairy industry. We want somebody to take responsibility so that we know to whom we can go, across the whole gamut of Government intervention and help, to help this industry, which is in such need at the moment.

Photo of Alan Reid Alan Reid Liberal Democrat, Argyll and Bute 10:25 am, 4th February 2015

I congratulate my hon. Friend Mr Evans on initiating this important debate. The fall in the milk price is causing serious problems for British dairy farmers. In my constituency, dairy farmers are mainly concentrated in Kintyre and the Isle of Bute. There are many dairy farms in Kintyre and the industry is a vital part of the local economy, which would struggle without it. As well as direct employment in the farms themselves, the dairy industry supports many other local businesses, including the Campbeltown creamery, which makes the famous Mull of Kintyre cheddar. I urge First Milk to invest in the creamery to secure its future and that of the local dairy industry. Grants from the Scottish Government have been offered, provided that First Milk makes its own investment.

Although there is widespread agreement that dairy demand will outstrip supply in the long term, which will create real opportunities for the UK dairy supply chain in the future, farmers have to survive the current crisis. EU intervention should be considered until the situation with the Russian import ban and other market forces has been resolved. Price intervention is set too low to have any effect before the situation becomes even more serious.

Like most hon. Members who have spoken, I welcome the Government’s decision to grant the Groceries Code Adjudicator the power to fine supermarkets that have breached the groceries code, and I hope that that will act as a deterrent to supermarkets. However, many dairy farmers do not fall within the scope of the groceries code because they do not sell directly to supermarkets, so the code must be extended to include complaints from indirect suppliers such as dairy farmers. The code is not due to be reviewed until next year, I believe, but I urge the Government to bring the review date forward.

The adjudicator should be able to be proactive, and should be seen as a genuine threat to those who breach good practice. In times of price falls, it is the primary producer—the dairy farmer—whose business is impacted by the low prices. Those further up the supply chain pass price cuts down the chain, but the long-suffering dairy farmer has nobody else to pass a price cut to, and they have to take the hit.

HMRC must also be more helpful by allowing dairy farmers to spread profits over several years. I urge the Government to take the steps that I have outlined to help the dairy industry survive the current crisis and secure a good long-term future.

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall 10:27 am, 4th February 2015

Well done to my hon. Friend Mr Evans. My constituency has a large number of dairy farmers, some of whom have positive stories to tell. Others, however, have to contend with the ongoing problem of bovine TB, and the volatility of milk prices may be the final nail in the coffin for them.

I want to take the opportunity to congratulate some dairy farmers who have diversified and become processors. The gold award-winning champion Philip Stansfield formed the Cornish Cheese Company, which the Environment, Food and Rural Affairs Committee visited last year. The story of the young guy who produces Cornish gouda using his father’s cows is an example of a fantastic way of utilising the family milk to help with running costs. Bill Clarke and his wife, from Greymare farm near Lostwithiel, sold their cows in 2001 to concentrate on their processing business. They work only with Cornish farmers, of whom they have 23, all from within a 25-mile radius of their farm. They started from small beginnings, bottling milk from their own herd once the children were in bed. Their sons have now joined the business, which employs more than 100 people.

The story is not the same for all dairy farmers in south-east Cornwall, but it could be. I have recently been visited by a dairy farmer who is really concerned about his future. Having invested in new equipment, he fears that he will be unable to sustain his farm with such very low prices. He is fearful for his future.

I support the conclusions and recommendations of the Environment, Food and Rural Affairs Committee and the recommendations that have been made so well by my hon. Friend the Member for Ribble Valley. I want to see a vibrant and thriving dairy industry in south-east Cornwall, with both processors and producers.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Full Member)

As a word of early warning, Mr Farron is next. Mr Williams, you rose earlier and, because Sir William Cash has left, I can possibly squeeze you in at the end. I put you on notice.

Photo of Tim Farron Tim Farron Liberal Democrat, Westmorland and Lonsdale 10:30 am, 4th February 2015

I pay tribute to my hon. Friend Mr Evans. Dairy farming is integral and vital to the economy, culture and landscape of Cumbria. Across the UK, over the past four Parliaments, we have seen a more than 50% drop in the number of dairy farm holdings and a more than 10% reduction in milk-producing capacity because of the lopsided, counter-productive, unfair and unfree market.

It is an outrage and a great shame that it has taken this crisis to prove right those of us who wanted the groceries code adjudicator to have more powers and more teeth. We should have got it right at the beginning, but the power to fine is right. As my hon. Friend Mr Reid rightly said, we should ensure that the adjudicator can look beyond the direct relationship with supermarkets to the indirect relationships, because that is where farmers are being done over most regularly and most heinously. We must look at the processor monopoly within the market, too, and consider putting the code of practice on a statutory footing.

I challenge the notion abroad that, somehow, the supermarkets are using milk as a loss-leader, which is not the case. Nearly 50% of the average price of a litre of milk in the supermarket goes into the supermarket’s pocket. There is room within the supermarkets’ profit margins to deal with this situation, and we must not let them hide behind the idea that this is all about world commodity markets when it is not. Poverty and hardship is now rife among dairy farmers. The inability of dairy farmers to reinvest in their future and their stock is now commonplace, and we see the loss of family farms on at least a daily basis.

John Maynard Keynes once said:

“Markets can remain irrational longer than you can remain solvent.”

That is absolutely the case within the farming and dairy sectors, and we must recognise that we have to save the supermarkets from themselves before they completely lose the producers on whom they rely. It is an outrage and an irony that we can go down a supermarket aisle to buy fair-trade coffee and tea from Nicaragua and Colombia, but down the next aisle, getting the milk to put in that tea and coffee, we find milk ripped from the hands of a Cumbrian dairy farmer for less than it cost them to produce. We are passionate about fair trade for farmers from Colombia, but equally passionate about fair trade for farmers from Cumbria.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton 10:32 am, 4th February 2015

I congratulate my hon. Friend Mr Evans on securing this excellent debate. I want to make the case that, across the west of the country, on the grasslands throughout the country and on my own grasslands in the Blackdown hills and Exmoor, dairy farming is important not only to dairy farmers but to the whole farming industry; some 60% or 70% of our beef cattle come from the dairy sector. From the time that a cow goes to the bull, or is inseminated, it is three years before that heifer comes into milk production. We cannot turn milk production on and off overnight, which is why it is a special case. We have too much supply and not enough demand, but we have to do something about it. The Prime Minister and other Ministers are taking this seriously, and one of the keys is public procurement and ensuring that, by not always having to buy the cheapest milk, we can get our own production into our schools and prisons, or wherever it might be; let us ensure that our own milk and cheese is in there.

On retailers and the groceries code adjudicator, I am delighted that a statutory instrument is being used to introduce substantial fines for supermarkets. Not all supermarkets are bad, and many have done a good job, but many are driving down milk prices, not for liquid milk but in the processed cheese market for their own-label cheese, which needs to be investigated thoroughly. The European Commission has a role to play in intervention. The Commission must up the intervention price, buy milk powder and cheese and put them into storage, thereby taking them out of the market. Once the market recovers, and it will, the Commission can let that cheese and milk powder back out into the market, which will not cost a great deal of public money. We have to take action. Standing around and wringing our hands is no good. I understand from the Secretary of State for Environment, Food and Rural Affairs that there will be a milk summit, which is absolutely right. We must sit down with everyone and thrash this out, because we cannot destroy our dairy herds and then expect to pick them up over night—that just will not happen. I am delighted that this debate has taken place, but let us see some real action.

Photo of Roger Williams Roger Williams Liberal Democrat, Brecon and Radnorshire 10:35 am, 4th February 2015

I apologise to the House for arriving late. Other duties held me back. I am impressed with the understanding of the dairy industry that I have heard in this debate, which is partly due to the Environment, Food and Rural Affairs Committee report. I am pleased that a number of those recommendations have been enacted so soon.

I will concentrate my few remarks on the groceries code adjudicator. I am pleased that she will shortly have the power to impose fines, because only fines really count to commercial organisations. Yes, naming and shaming is important, but fines are important, too. Reference has been made to extending the adjudicator’s powers to ensure that she can examine the whole length of the food chain. Very few farmers in my constituency trade directly with supermarkets, and most people who produce milk do not sell directly to a supermarket.

I am also concerned that the groceries code adjudicator should be able proactively to examine situations where she, or possibly he in the future, believes there to be a failure of the marketplace. At the moment, she can act only on a complaint. As we have heard from my hon. Friend Mr Reid, producers sometimes have only one customer. Such producers are therefore very cautious about making a complaint that may result in him or her being put on a blacklist and being unable to sell their product.

Thank you for this opportunity, Sir Roger. I look forward to hearing the closing remarks.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee 10:37 am, 4th February 2015

This is an important and interesting debate. The dairy farming industry is integral to Staffordshire and my constituents, as it has been for generations, and it is incredibly important for the local economy. I congratulate my hon. Friend Mr Evans on his charter for the dairy industry, and I am extremely glad that he has listed public procurement, as so many others have today, as part and parcel of giving a fair deal to the dairy farming industry. I also congratulate the Chairman of the Environment, Food and Rural Affairs Committee on the Committee’s fifth report, which it published the other day. We are seriously getting into it and, additionally, the Prime Minister has given his backing.

We will hear from the Minister in a moment, but when we consider the questions of intervention price, labelling and public procurement, there is a European dimension. Not unnaturally, as Chairman of the European Scrutiny Committee, I am concerned that we should not be held back simply because the rules and regulations that have been devised and that generate an enormous number of problems for our dairy farming industry, and indeed for other businesses, are allowed to prevail against our national interest. I will leave that thought with the House.

I tabled early-day motion 675 on the non-payment of dairy farmers, and there are a number of signatories. I would be extremely grateful if people signed that early-day motion, which points out, as others have said today, that

“the number of dairy farmers had dipped below 10,000 for the first time, a 50 per cent fall since 2001”.

That is a serious figure that demonstrates everything that has been said in this room by these extremely eloquent speakers on behalf of dairy farmers. The case has been made, and we now look forward to hearing what the Minister has to say.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs) 10:39 am, 4th February 2015

This has already been an excellent debate. I thank Mr Evans, a good Swansea boy, and all Members who have spoken for their contributions. My hon. Friend Albert Owen and others reminded us of the importance of the dairy industry not simply to the economy, growth and exports but to the social fabric of our rural communities, their interplay with our towns, and our health and well-being.

About 14 billion litres of milk are produced in the UK each year, and about half of that is used for liquid milk. The UK is the third largest milk producer in the

European Union, after Germany and France, and the 10th largest in the world. Given the industry’s value of £4.27 billion at 2013 market prices, its importance is clear.

However, despite the long-term optimism expressed by some Members, Ministers and EU Agricultural Commissioner Phil Hogan, the dairy sector has suffered from low prices and volatility for years. The November 2014 farm-gate price of 28.91p per litre was down 16% from the previous year. The 2012 milk crisis led to blockades of depots and processors, and thousands of angry farmers descended on Westminster to confront Ministers. In fact, the former Minister who was confronted by those angry dairy farmers, Sir James Paice, is now the chairman of First Milk, which is owned and run by dairy farmers who have been forced to delay payments. He told the press recently that

“hundreds of UK dairy farmers are unlikely to find a home for their milk this spring.”

In addition to that delay, First Milk’s producers have seen the price they are paid plummet from 32.5p per litre last spring to 21.2p per litre for those supplying the Co-op on liquid contracts and 21.57p per litre for those in the manufacturing pool.

The average farm-gate price of about 28p per litre disguises huge variations. A third of liquid milk is sold to retailers, which base the price they pay on what it costs the farmers to produce it, plus an agreed margin. Sainsbury’s and Marks and Spencer currently pay 34p per litre, Waitrose pays 33p per litre, Tesco pays 32p per litre and the Co-op pays almost 31p per litre.

Some major retailers, though not all, argue that their massive discounting of liquid milk at four pints for less than 90p in their endless price wars is not done at the cost of farmers. They argue that the only casualty in the price wars is their own profit margins, but, frankly, even supermarkets that pay decent farm-gate prices to the producers and have the most direct relationships cannot absolve themselves from responsibility. The fact that they engage in price wars in which liquid milk is a prime weapon embeds the idea that milk is a commodity to be undervalued and sold for less than the price of water or carbonated and unhealthy fizzy drinks. Ultimately, the only casualty in the price war is the dairy farmer. We need to see not only British milk but British dairy products on supermarket shelves.

Some retailers and their production chains do not contract directly with producers, so they may not have regard to the voluntary dairy code, which I will return to in a moment. They do not absorb the costs of the price wars themselves, and instead put pressure on their supply chain, which causes farmers to reduce costs further below the cost of production.

Two thirds of liquid milk produced is sold to processors, which is where the cuts are being made. Arla, which supplies Asda, pays farmers 25p per litre. Müller-Wiseman pays the same. Dairy Crest is set to cut its price to less than 25p per litre, and we await a decision on the sale of Dairy Crest’s liquid milk division to Müller in the latest act of business consolidation to drive out costs. First Milk, as I said, pays less than 22p per litre. Iceland supermarket is supplied by Arla and Müller-Wiseman, but it has asked them to base their future prices on the cost of production—that is at least a step forward.

Morrisons has announced that it intends to establish its own producer group, but in the meantime it gets its milk from Arla and Dairy Crest.

There is also huge variation in production costs. The figure most commonly cited is the National Farmers Union average of 28p per litre. However, the most recent figures from the industry body, DairyCo, show that there is a 14p per litre difference in the cost of production between the top quarter and the bottom quarter of farms.

We need a prompt review of how the whole dairy industry is overseen through the dairy code and the groceries code adjudicator. The genesis of the dairy code, which was established on a voluntary basis in November 2012, was a dairy crisis that culminated in blockades, protests and a Minister leaving his post benighted but not delighted at his treatment. However, the independent review by Alex Fergusson MSP in 2014 proposed an extension to retailers and measures to increase the uptake into the 15% that are not currently signed up to the code.

When the public and the political awareness of the pressure on dairy farmers is so great and when the public relations disaster for processors and retailers is so potent, why is the take-up not higher? Why is it not universal? Will the Minister commit to name and shame everybody who has not signed up to the dairy code in public, on the Department for Environment, Food and Rural Affairs website and in Parliament? Will he also commit to name and shame and publish a regularly updated list on the DEFRA website and in Parliament of all the processors and retailers that participate in supply chains that pay farmers less than the average cost of production?

The Government, in evidence to the Select Committee on Welsh Affairs in 2013, repeated their previously stated position. They said that they would seriously consider legislating for compulsory contracts if the code fails to deliver the desired outcomes. Does the Minister now feel that that is needed, or has he considered it and ruled it out?

I and some Members here today know that the Government had to be dragged into agreeing to financial penalty powers for the groceries code adjudicator.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs)

I sat on the Groceries Code Adjudicator Bill Committee, so I can tell the hon. Gentleman that they did. They conceded only under pressure from Members on both sides of the Committee. They argued against giving it those powers, which perhaps explains why it has taken so long to introduce the regulations. I and others have repeatedly raised that delay in Parliament.

I ask the Minister to clarify what the Prime Minister meant when he was pressed on extending the role and remit of the GCA to the dairy industry at Prime Minister’s questions on 21 January. He said:

“I also think it is time to look at whether there are ways in which its remit can be extended to make sure it looks at more of this vital industry.”—[Hansard, 21 January 2015; Vol. 591, c. 217.]

We all welcome the sinner who repents, but that issue was discussed ad nauseam in the Groceries Code Adjudicator Bill Committee two years ago, and the Government rejected it. We had the opportunity to extend the powers along the whole supply chain, including processors and intermediaries, but that was dismissed as disproportionate. We also had the opportunity to enable the GCA to investigate abuses, but that was dismissed as allowing “fishing expeditions”.

I seek clarity, so let me ask the Minister directly. When the Prime Minister referred to extending the remit of the GCA to look at more of the industry, did he mean that it should include intermediaries? Did he mean that the GCA should have the power to instigate proactive investigations into abuses, which the Environment, Food and Rural Affairs Committee asked for?

The current pressures on the dairy industry go beyond the UK. They reflect reduced demand in China due to the economic slow-down and the closure of the Russian market. The recent increase in production in the EU due to confidence in higher milk prices in 2013, good grazing and good weather, and increased yields in the UK conspired to lead to an over-supply. Arla suggests that global production is increasing by 5% per year, while demand is growing by only 2%. There is no single answer, but there are several areas in which we need to take action in the face of continuing long-term global price volatility and predicted continuing falls in farm-gate prices in the near future.

Will the Minister update us on the progress on country-of-origin labelling, on the establishment of producer organisations in the dairy sector, on the futures market for dairy and on what the uptake and interest in it has been? How much of the countryside productivity scheme money—the £141 million—has gone directly to dairy farmers, and what measures has it funded? What progress has been made with banks and lenders to deal with the immediate cash-flow problems? What discussions has the Minister had about the resilience of the dairy sector in the face of increased volatility that could follow the ending of milk quotas on 1 April this year? Most of all, we would like to know what the Prime Minister meant on 21 January. Was he serious, was he committed or was he deluded? Was he misinformed? Did he misspeak? Was he off piste and off message? Was it a soundbite in the run-up to the election to make the farming community think he is listening? The Minister has the chance to clarify whether the Prime Minister knew what he was talking about, or whether he was just spinning out of control.

It is over to the Minister to sort out the confusion from No. 10. Here we are again, three months to the day after the previous dairy debate, and three years after the previous dairy crisis. Our dairy farmers need and deserve some straight answers.

Photo of George Eustice George Eustice The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs 10:49 am, 4th February 2015

I begin by congratulating my hon. Friend Mr Evans on securing this important debate. Given the sheer number of Members who have wanted to speak today, it is clear that he has touched a nerve and alighted on a serious problem, which is the current state of affairs in the dairy industry. I am well aware that many dairy farmers are suffering at the moment. Yesterday, I was in Cumbria and I met a group of dairy farmers there. Earlier this year, the issue dominated discussions at our regular farm resilience group, as it did at our meeting of the dairy supply chain forum last November, and we have another meeting next week with the Secretary of State to look further at the issues facing dairy farmers and to consider how we can help them.

It is fair to say that the dairy industry has had a rollercoaster ride in the last couple of years. In 2012, we were exactly where we are now, with prices on the floor; in fact, in many ways the situation then was worse, because feed prices were very high and dairy farmers were losing a lot of money. Then, last year—2013-14—we saw a very good year for dairy farmers. Prices were much higher, at around 30p to 35p per litre. feed costs came down, and the farm business survey showed that they had a good year last year. Since then, there has been a big increase in production in New Zealand, with production there up around 18% over the last year. Demand in China dropped off quite suddenly, as the Chinese had built up stockpiles of skimmed milk powder and came back out of the market. Production in Europe is up by 8% to 10%, and the Russian trade ban has aggravated things. As a result of all that, on the international auctions we have seen a very sharp decline in prices, which brings us to our current low level.

As a number of hon. Members have already alluded to, it is worth noting that there are differences between different farm businesses; different farmers face a wide range of costs. Yesterday, I visited a farmer who has Jersey cattle on an extensive grass-based system, and his costs of production were only around 22p per litre. It is not always about “inefficient” and “efficient” producers. Sometimes, efficient producers choose to run quite intensive systems, which means they have higher labour, feed and capital costs, and have to make more investment. Quite often, those producers find that they have higher production costs—for some of them, it costs 28p to 30p per litre—and if they are receiving low prices they are losing money.

The other element to bear in mind is that there is a big spread in the prices that farmers receive. At the top end, there are those farmers who are responsible for around 30% of UK liquid milk production and they are on cost-of-production contracts to the major supermarkets. Many of them are still receiving around 30p per litre for their milk. At the other end, there are those farmers who supply processors and consequently they are much more exposed to the international commodity markets, such as those supplying First Milk, which takes most of the milk production in Scotland, the north, the borders and Wales. At the moment, First Milk is able to pay farmers only around 20p per litre, so there is a big spread, both in terms of production costs and the prices farmers are paid.

I will point out, first of all, the things that we are doing in the short term. Immediately, we have to address farmers’ cash-flow challenges. Regarding those farmers who have not yet received their single farm payment—most farmers have received it, but some have not—we have told the Rural Payments Agency to absolutely prioritise dairy farmers, and particularly those supplying First Milk.

I had a meeting with the banks two weeks ago to encourage them to show forbearance to their business customers who are dairy farmers suffering difficulty at the moment, and I will continue to monitor the process as far as the banks are concerned.

We have urged Her Majesty’s Revenue and Customs to be sympathetic in its dealings with dairy farmers. Those dairy farmers who had a good year last year potentially face quite a large tax bill, which is due to be paid in June this year, and we need to show some forbearance to those farmers who will have just weathered a very difficult winter.

Finally DairyCo, which is part of the Agriculture and Horticulture Development Board, has set up a special unit to give financial advice to farmers to help them through these difficult times. Also, we will shortly open a new round of rural development programme schemes, which will have dedicated measures to try to help farmers to improve their productivity and reduce their costs.

In the medium term, there are other issues that we are looking to explore. First, there is exports, which was mentioned by a number of hon. Members. I completely agree that if we want to have a resilient industry for the long term, we have got to open new export markets. We have seen good progress in this area. In the past year, there has been 47% growth in exports to non-EU markets of our dairy products. In fact, our total dairy exports are now at their highest level ever, at £1.3 billion. A few weeks ago, the Secretary of State was in China where she had discussions with the Chinese about how we can open up these opportunities, and we will shortly receive a delegation from Brazil to consider the opportunities for dairy exports to that country.

Another key area that I have been working on with the National Farmers Union in particular is around market measures to deal with volatility. In the US, when quotas were removed quite a sophisticated futures market was developed to help to manage volatility. Typically, US dairy farmers fix around 40% of their production at a fixed price, hedged in the futures market, and leave only 60% of their production to the vagaries of the market. That takes some of the extreme peaks and troughs in the market out of their income profile. We can learn lessons from that system and we are working on this issue with the NFU. There are embryonic markets in skimmed milk powder and butter, for instance, which are run by the London international financial futures and options exchange, and Eurex, and we would like to see whether we can develop that futures model further.

We are keen to promote country-of-origin labelling. The UK was at the forefront of arguing for improved country-of-origin labelling on beef, lamb, pigs and poultry, and we should do the same on dairy products, so that we do not have Irish milk being imported to the UK and processed into cheese, before it is fobbed off as a product of the UK.

Procurement was mentioned by a number of hon. Members. Last year, we launched the Bonfield report, which was a new approach to procurement. It sets out a balanced scorecard. The uptake from schools and hospitals has been good in that respect, and we are keen to encourage further uptake.

Photo of George Eustice George Eustice The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs

I cannot give way, as I want to cover as many points as possible. I agree with the point made about procurement, and we are making progress in that area.

A number of hon. Members mentioned the groceries code adjudicator. I can confirm that a week ago the order that establishes the ability to levy fines was laid. It is subject to an affirmative resolution process, so it will now go through Committees in both Houses, but that will happen during this Parliament.

A number of hon. Members talked about the extension of the groceries code. We are considering that. Last year, I considered whether we should place the dairy supply chain code on a statutory basis, but because there is existing EU legislation in this area—a common market organisation regulation that establishes the grounds of such codes—we would end up with a weaker code if we put it on a statutory footing, because we would not be able to stipulate that farmers could walk away at three months’ notice. Therefore, while we had a contingency plan to put the dairy supply chain code on a statutory footing if it collapsed, we would have ended up, as I say, with a code that was weaker, so there are limitations to doing that.

When it comes to the powers of the GCA, we have to realise that they are not reliant on complaints. They already have full powers to investigate

“if there are reasonable grounds to suspect” that the code has been broken. So, those measures are already in place. In fact, when I met Christine Tacon recently to discuss this matter, she said that one of the biggest things she is trying to encourage is better training of processors and those dealing with supermarkets to ensure that they use the code effectively and say to supermarkets, “You’ll understand that I can’t accept what you are asking me to accept, because it would be in breach of the code”, and to do so in a way that ensures everybody abides by the code. That is how we can help those further down the supply chain, because one of the issues is that it might sometimes be easier for processors to take the hit from the supermarket and pass it on to farmers. We need to ensure that they hold their retail customers to the code.

A number of hon. Members mentioned intervention prices. I have to say that Commissioner Hogan thought that that would be the wrong way to go when it was discussed at the Agriculture and Fisheries Council last week. One of the difficulties we would have is that other farmers in the UK would have to pick up the cost of such action through crisis measures, and we would tend to find that other European countries would benefit most, because although we have low prices here, other European countries have even lower prices. Also, the history of such schemes tends to be that the UK pays while others benefit, so we have to be concerned about that. However, we have the milk market observatory at EU level, and other crisis measures, particularly to mitigate the effects of the Russian ban, have been considered.

Hon. Members mentioned the EU school milk scheme. I will say, briefly, that we access that scheme, although it is not a very generous scheme; we have to top it up a lot, but we do use it. When it comes to the number of dairy farmers, there has been consolidation over many years, but production in the UK is now at a 10-year high. So, although we have fewer dairy farmers, total dairy production in the UK is still higher than it has been for a decade.

I will finish on a brighter note, by saying that the long-term prospects for this industry are good. We are seeing a 2.5% rise in demand per year, and the UK is well placed to take new opportunities in markets. We should also note that most analysts are now predicting a recovery of milk prices—farm-gate milk prices—later this year. The last three Fonterra global dairy trade auctions have shown a recovery in skimmed milk powder prices on the global market; in fact, they are up 15% since the beginning of the year. As I said, it will take time for that to feed through to farm-gate prices, but most analysts now expect that we will see a recovery in farm-gate milk prices from the summer onwards and that could be quite a strong recovery, if the early indications on the international auction in recent days are anything to go by.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Full Member)

I thank all Members for their forbearance this morning. It has been difficult, but the House has conducted itself impeccably.