UK Dairy Sector

Mark Williams Excerpts

Wednesday 20th April 2016 Westminster Hall

[Mr Mark Williams (Ceredigion) (LD)]

I beg to move,

That this House has considered the UK dairy sector.

I am grateful for the opportunity to serve under your chairmanship, Ms Ryan, and to address the state of the UK dairy sector. This is an important debate, and I am glad that there are so many people here, not only from Wales and the devolved nations but from across the United Kingdom. I suspect there may be some interventions but, given the number of Members who wish to contribute, perhaps we will keep them to a minimum.

Everyone here will recognise and agree on the importance of the agricultural sector, especially the dairy sector, which is a vital part of our economy, our landscape and, in many parts of the country, our communities. In the rural areas that we represent—I represent Ceredigion—local family farms are the lifeblood that run through our community. Without them, many parts of my constituency could not survive and, in many cases, would not exist at all. Many farmers who work the land and tend the flocks and herds have done so from generation to generation for hundreds of years, and they want to continue, yet the future looks bleak for many of them. I get that ongoing and constant message from farmers and their representatives in the farming unions. This is a time of grave uncertainty for many farmers in my constituency, in Wales and throughout the United Kingdom. It is a time of difficulty and, day by day, many farmers are struggling to get by, which has led to the harrowing fact that almost half of all dairy farmers in Britain have stated their intention to quit the sector.

There has been an incredibly difficult market for dairy produce in the past several years. That difficulty has not been caused by one specific issue that can be easily addressed. A number of factors are involved: local ones, national ones and, of course, global ones. Farmers understand that—they have told me about it—and it has been endorsed by reports from the Select Committee on Environment, Food and Rural Affairs. I am glad that the Select Committee Chairman, the hon. Member for Tiverton and Honiton (Neil Parish), is here to share with us his wisdom and expertise on the back of an excellent report that has many positive recommendations, which I will pursue later.

Whether the factors are local, national or global, the impact is the same. In the summer of 2014 alone we saw farm-gate milk price returns to UK farmers fall between 25% and 50%, which meant a fall from about 34p a litre to 23.3p a litre as of late last year. That is the lowest price farmers have seen since 2009, yet many receive even less than that low figure. Yesterday, at the excellent Anglesey day pioneered by the hon. Member for Ynys Môn (Albert Owen), farming unions told me that some farmers in north Wales may soon receive payment of just 16p a litre. Although 23p is difficult for many dairy farmers, and perhaps 26p or 27p would be sustainable, there is simply no farmer in this country who could survive for long by selling milk as cheaply as 16p a litre. Many farmers are already struggling and living on the edge financially. Yes, Government action on averaging out tax payments over three years for farmers is incredibly helpful, but it does not address many of the challenges they face.

[Antoinette Sandbach (Eddisbury) (Con)]

One issue that farmers in my constituency of Eddisbury raise with me is the fact that the processors are not subject to the Groceries Code Adjudicator and that there is a huge gap between those on aligned contracts and those on non-aligned contracts, and it is those on non-aligned contracts who are really suffering at the moment.

[Mr Williams]

I completely concur with the hon. Lady, who has experience of the farming industry both in England and in Wales. I will address the Groceries Code Adjudicator later, but I agree with her sentiments.

In Wales, the dairy sector continues to suffer from months of continuing low prices and poor profitability, and many of the farming unions are not convinced that there is likely to be a recovery any time soon. According to AHDB Dairy, for the 12 months to December 2015 total full costs of production ranged from 25.7p to 34.4p a litre. In short, there is huge disparity between the costs of production and the price that producers receive, which is a huge concern. The figures over the past decade show the loss of 5,500 dairy producers in England and Wales, and that downward trajectory will continue if nothing is done to help support dairy farmers. That means a change in the ethos of some of our farmers, but it also means positive action from the different Governments, whether it is the Government here in Westminster or the devolved Administrations. If we do not do that, it will have a terrible impact on the rural communities that many of us represent.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

Will the hon. Gentleman give way?

[Mr Williams]

I give way to a neighbour of Wales.

[Daniel Kawczynski]

One thing that the hon. Gentleman has not mentioned is the fact that this debate is almost as repetitive as the changing seasons. I must have been to more than 12 such debates over the past decade, and we always get platitudes from Ministers, who say that everything is being done. I hope he agrees that, when the Minister stands up on this occasion, we will hearing about concrete steps that the Government are taking to support our dairy farmers.

[Mr Williams]

I agree with the hon. Gentleman. I refer him and the Minister to the report by the Environment, Food and Rural Affairs Committee. The hon. Gentleman has a fine pedigree in championing such issues. He set up the all-party dairy group in the last Parliament, and he initiated many of the 12 debates that I mentioned. I thank him for his contribution.

I mentioned rural communities. I reflect on the words of the farmer whom I spoke to on the streets of Aberystwyth last weekend, who told me that price fluctuations over the past five years have cost his business something like £100,000. That is a huge loss to the local economy, local businesses and the wider agricultural economy.

[Rebecca Pow (Taunton Deane) (Con)]

I commend the hon. Gentleman on securing this debate. I must register a slight interest, as my husband runs an agricultural auctioneering business; he runs the Sedgemoor market, which many Welsh farmers come to. He has reported to me that there is a knock-on effect. It is not only the farmers selling milk who are affected; it is the whole industry. The cost of a cow now is less than £1,000. People who rear cows to sell them to dairy farmers can hardly cover the costs of their business. The whole chain is affected, not just the end of it, and we absolutely must do something to address this situation.

[Mr Williams]

The hon. Lady is quite right, and she represents a rural area, as I do. For people who do not live in a rural area, it can sometimes be very hard to understand the extent to which the agricultural community and the agricultural economy are engrained in rural areas and every aspect of life in those areas. We have had a big debate in our area about the closure of village schools. If families working on dairy farms move away, that has a direct impact on the capacity of small schools to function. If young families leave a community, public services dwindle as a consequence, as well as the auctioneers and others involved in the supply chain for the agricultural industry, as she said.

The nature of my remarks so far has been negative, but I do not want this to be a wholly negative debate, because we have some immensely innovative farmers who want to stay in the industry and want the industry to thrive and prosper. However, my farmers tell me that they want us to speak out about the reality on the ground as they experience it.

Of course, not all the problems are home-made. There are serious global challenges for British agriculture that are not under our control. The farmers I have spoken to recognise the significant impact of global supply and demand on their businesses, and the difficulties for Government in changing that. There has been a fall in the global commodity price which, along with other factors such as the Russian ban and the reduced demand for milk from China and the middle east, has played a part in the current difficulties we face in Wales and in the UK as a whole.

For those farmers who have stayed in business and continued producing dairy, production has increased, but so has production around the world and it seems unlikely to slow down in the near future. There have been warnings. I will not dwell on them too much, but the Welsh Affairs Committee, of which I am a member, warned about the impact of the end of quota and the impact of the increase in Irish production, which the Farmers Union of Wales has been talking about since 2009; but we are where we are.

While there are positive signs that the global market for milk will continue to grow, the growth in production is higher than the growth in demand, which has a huge impact on the commodity price of milk. We live in a globalised world and at times that unfortunately means that small changes somewhere else in the world have a huge impact at home. There is action that can and must be taken to improve British dairy producers’ opportunities on the global market, such as having a strong and long-term dairy exports strategy; I emphasise that it should be strong and long-term. However, these global factors cannot always be predicted.

The domestic market remains important. Over half the milk produced in the UK is sold directly as fresh liquid milk through retailers and consumed here in the UK. This milk is mostly sold as skimmed or semi-skimmed milk, with much of the remaining milk being processed into products such as cheese, yoghurt, milk powders and butter. There are some very good companies using that milk. I think of Rachel’s in Aberystwyth in my constituency; its products can be bought in Portcullis House. They are excellent products that are made using local milk.

While many dairy products are in a very competitive global market, there has been huge criticism about the relationship between supermarkets and their suppliers, especially when it comes to the price that supermarkets pay for the milk that goes on their shelves. Milk, as a staple in many people’s shopping baskets, has for too long been at the forefront of the UK retail price war. However, rather than affecting the profits of the supermarkets, it seems that much of this cost-cutting has instead affected the price paid to dairy suppliers. Much of the milk that is produced was bought at a price lower than it cost to produce. That situation is simply not sustainable for my constituents who are farmers— or for any constituents in the farming communities represented in Westminster Hall today. The FUW said in 2015:

“It is not, and never has been, the job of the producer to fund supermarket price cuts or to enhance a retailer’s market share. Sacrificing producers to a retailer price war can only function to further break an already fractured supply chain”.

That is why I return to the point about the Groceries Code Adjudicator made by the hon. Member for Eddisbury (Antoinette Sandbach), and it is why many of us in this House supported the creation of the adjudicator.

[Julian Sturdy (York Outer) (Con)]

rose—

[Mr Williams]

I know that the hon. Gentleman has done a lot of work on this issue, so I give way to him.

[Julian Sturdy]

I congratulate the hon. Gentleman on securing this important debate and on making a powerful argument. Regarding the Groceries Code Adjudicator, he will be aware that there is an upcoming review of the adjudicator, two years after the office was created. Is that not the perfect opportunity to strengthen the adjudicator and its remit, as my hon. Friend the Member for Eddisbury (Antoinette Sandbach) touched on? This is an area where Government can act.

[Mr Williams]

Again, I completely concur with that comment. I think the hon. Gentleman secured a debate on the Groceries Code Adjudicator in this Chamber a few weeks or months ago, and he made that point very strongly then. He is quite right; we need the opportunity that this review presents.

I supported the creation of the adjudicator, as did my party, and I commend the cross-party efforts to create the adjudicator. Andrew George, the former Member for St Ives, and others, including the hon. Member for Ynys Môn—in fact, all parties in the House pioneered and put forward the case for the adjudicator, the creation of which was long in coming.

Like the hon. Member for York Outer (Julian Sturdy), farmers tell me that, yes, the adjudicator has the power to name and shame, and, yes, the adjudicator has the power to levy fines, but those powers are insufficient. The adjudicator needs to have the power to examine the whole of the supply chain from gate to plate, even if that requires legislative change. That would instil great confidence in many farmers who do not have a direct relationship with supermarkets through one of the admirable dedicated supply contracts.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

rose—

[Mr Williams]

I give way to my neighbour from Carmarthen East and Dinefwr.

[Jonathan Edwards]

I am grateful to the hon. Gentleman for giving way, for securing this debate and for the passionate remarks he has made. Based on what he has just said, and based on the previous intervention, unless the Government act during that review and give the adjudicator some teeth, there will be a huge Government failure on the dairy industry.

[Mr Williams]

I totally concur with that. I think there is an emerging consensus. It took some time to give the adjudicator the capacity to levy fines. I think this is the next step, but it cannot come quickly enough for many of the farmers in Carmarthenshire, Ceredigion and elsewhere.

We are told that more dairy farmers are supplying supermarkets on a dedicated contract, which is true, and that many of those farmers receive more favourable milk prices, which is good, but only 4% of Welsh dairy farmers have a direct link with the supermarkets. I celebrate that 4%—I congratulate those farmers and those supermarkets on having better arrangements—but it is only 4% of Welsh farmers who can potentially be assisted by the Groceries Code Adjudicator if there are contractual breaches. The rest of them are on their own and there is a huge sense of vulnerability.

I will proceed as quickly as I can now; if the House will excuse me, I will not take any more interventions. I will talk about efficiency in the dairy sector. Of course, efficiency can help to reduce the cost of milk production, but to do so farmers need to have the money to invest, and that needs to be recognised in the price paid to farmers for their milk. The FUW says,

“Whilst... some retailers have made small in-roads in this area, it remains imperative that the prices paid to producers not only cover the cost of production, but also provide room for investment in order to allow the sector to innovate and remain competitive.”

I am yet to find a farmer who does not have an eye on the future and who is not prepared to plan or innovate. The issue for almost all those producers, and many of the larger ones, is that the financial constraints on them—some of those constraints are sometimes imposed by the banks, which are not always helpful; many of them are, but many of them are not—make it impossible for them to invest in the way that we want them to. If we expect farmers to invest, say, £100,000 to extend a milking parlour at a time of gravely low prices, that is a huge challenge and for many farmers it is not feasible.

Despite that, the industry has achieved many of the efficiencies expected of it. It is predicted that between 2015 and 2016 the industry will reduce the cost of production by 4.56 pence per litre. However, to go back to the international dimension to this situation, at the same time prices fell by 20%.

We need to look at processing capacity. In Wales, the fact is that we have had no substantive investment in processing facilities for 10 years, although the hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) may tell us a little good news if she catches your eye, Ms Ryan. There has been a loss of milk and cheese processing at a time of increasing supply. That needs to be addressed.

Briefly, I will endorse what the Environment, Food and Rural Affairs Committee said in the recommendations of its excellent report, “Farmgate prices”. One of the recommendations stated:

“Claims from national retailers that there are ‘sustainable economic reasons’”—

sustainable for whom, we ask—

“justifying price differentials have not been fully accepted by many farmers, and retailers must”—

I emphasise, “must”—

“do more to explain their reasoning and to ensure their prices adequately reflect the costs of production.”

The report talks about producer power in the marketplace. What is being done at the UK level—I would ask the same question to Ministers in Northern Ireland, Scotland and Wales—to encourage producer organisations? In Wales, there has been concern that the Assembly Government have not been forthcoming with the resources promised to the farming community to develop producer organisations.

The report highlighted that opportunities exist for imports to be displaced and for new products to appeal to UK and global consumers. The whole supply chain needs to invest in continued improvement and productivity. If that is an aspiration, it is a laudable one, and I know many farmers are attempting to respond to it.

The report also questioned the

“assurance from the retail sector that there is no link between the price at which supermarkets sell to their customers and the price supermarkets pay to farmers.”

The report said that “Progress is uneven”. I would say that the Committee is being rather generous in saying that it is “uneven”.

DEFRA and Agriculture Ministers in the devolved Governments need to encourage the use of more long-term contracts. That will help to provide predictable levels of income and ensure secure financial planning and investment decisions, regardless of the price in the supermarket. There needs to be clearer guidance from DEFRA so that customers know that they are buying British goods or—I would say this, wouldn’t I?—Welsh produce.

Through the European school milk scheme, children over the age of five receive a subsidised portion of milk. Revisions to the scheme—I believe the UK Government abstained—were passed this month, which means that the UK will receive just under €10 million in aid per school year, which is the fourth highest allocation of any country in the EU. DEFRA is responsible for implementing that allocation. Will the Minister clarify whether the Government will continue to participate in the revised European school milk scheme? What plans do they have for consultation? Critically for this debate, what discussions has the Minister had with the dairy industry about how it can benefit from the scheme?

My final substantive point is on the voluntary dairy code of practice, which often gets ignored. There is concern over its brevity and the number of people it covers. My farmers tell me that the code has had little impact on the farm-gate price received by producers and is largely ineffectual in the midst of a market surplus. When the former Minister, Sir James Paice—Jim Paice—came to the Royal Welsh show in Builth Wells and announced the code, there was great excitement among the farming community. We were told at the time that, if there were concerns that the dairy code was not working effectively, the Government would leave open the potential for a statutory code of practice. How is the voluntary code being monitored? What consideration is being given to putting it on a statutory basis? For a long time, the FUW has called for the inclusion of market-related pricing formulas within dairy contracts, and I fully support that.

I could go on; it is a hugely wide subject. The remit of the debate was deliberately made as wide as possible to encourage contributions from Members from all parts of the UK and with different experiences, but there will be a commonality to many of the messages that we present to the Minister. There are two great industries left in Wales—steel and agriculture—and a growing small business sector, which we nurture. The steel industry is concentrated. We hope that the proposals for a management buy-out in Port Talbot yield results, because the impact of many thousands of people losing their jobs overnight would be catastrophic for Wales and the United Kingdom. However, a more sublime, devious decline of an industry is happening in Wales, and that is agriculture. The Committee report gives us some of the answers that need to be pursued. It is very important that the thousands of jobs in rural communities are sustained and protected. I do not dwell on the negatives, because I am reminded by the young farmers who come to my surgeries—I go to their meetings, and they want to stay in the industry—that they are the people we need to support and on whom our rural communities depend.

[Several hon. Members rose—]

--- Later in debate ---

[Mr Mark Williams]

I am grateful for the opportunity to thank all hon. Members, including those on the Front Benches, for their contributions. I am not sorry we asked the Minister 31 questions. I know that if he was unable to answer any as fully as he wanted, he will write to us. I thank him for his contribution and those of the Front-Bench spokesmen. Many points of note were made, some following from my speech, and many new ones.

The hon. Member for South Down (Ms Ritchie) spoke about Northern Ireland and the proactive way in which moneys are being released to support investment. That is important. Mention was made of TB eradication. The hon. Member for North Dorset (Simon Hoare) may find that history regards various aspects of coalition life and policy rather differently from him. We will see what happens in the fullness of time. Certainly in Wales, there has been consistency in three of the four parties about what we need to do to eradicate TB. I am particularly pleased that Ceredigion, with Carmarthenshire and Pembrokeshire, recently voted for a selective badger cull. That was the first issue raised at a meeting I had on a farm last week. It needs to be addressed.

Finally, I did not raise this, but I am pleased that my constituency has been labelled the most Europhile part of the United Kingdom. I am proud of that—[Interruption.] Hon. Members knocked me off my perch. A strong reason is the importance of the farming industry, which is a major employer in my constituency. Farmers are fully aware of the necessity of continued EU membership. On that controversial note, I thank all hon. Members for taking part in this debate.

Question put and agreed to.

Resolved,

That this House has considered the UK dairy sector.