[Sir Roger Gale in the Chair] — Dairy Industry

Part of the debate – in Westminster Hall at 10:39 am on 4 February 2015.

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