Dairy Farming

William Bain Excerpts

Tuesday 7th June 2011 Westminster Hall

[Mr William Bain (Glasgow North East) (Lab)]

I congratulate the hon. Member for Central Suffolk and North Ipswich (Dr Poulter) on securing the debate and on articulating the concerns of many people in the dairy industry about the operation of the UK milk and dairy market sectors. I commend the interventions made by hon. Members and the remarks of the hon. and learned Member for Torridge and West Devon (Mr Cox) who spoke very movingly about the impact of bovine TB on small farming communities in the south-west.

In the past six months, we have had several debates on this subject, both in this Chamber and in European Committee A. What has emerged from those debates and from the speeches this morning is the need for good intentions on the part of the Government to be turned quickly into firm action, and the Opposition believe that such action is needed in three areas. First, the Government need to signify their support for the EU’s adoption of standard contracts for the dairy sector—should member states wish them to apply in their territories—to ensure greater parity in bargaining power between producers, processors and retailers. Secondly, there needs to be a grocery code adjudicator with greater powers of market intervention and greater independence from the Executive than is proposed in the Dairy Farming Bill, with the adjudicator being allowed to impose fines and other sanctions on those operating anti-competitively in dairy supply chains. Thirdly, further incentives in innovation and in research and development are needed to ensure that the British dairy industry has a financially viable future in delivering the highest-quality products both for domestic consumption and export, while cutting its share of greenhouse gas emissions, as indicated in the “Dairy Roadmap” report published this year.

There is evidence that dairy farmers in Britain face problems because of the operation of milk supply contracts in the marketplace. Current milk contracts deny milk producers real stability in pricing and stifle competition and innovation. The National Farmers Union has established that average EU milk prices this March were 14% higher than they were a year ago, at 29.72p per litre, but in the UK the price was 26.59p per litre, which, at 10.2%, is the fourth-lowest increase among the five highest EU milk-producing member states.

The hon. Member for Central Suffolk and North Ipswich has pointed out that the UK has the third-lowest milk price per litre in the EU, beaten only by Slovenia and Romania. The “NFU Cost of Milk Production Report” states that the average cost of milk production was 29.1p per litre between April 2010 and March 2011, which represents a shortfall of 2.76p per litre between the cost of producing milk and the price that the farmer receives. Added to that, dairy farmers in the UK face rising input prices, and the greater demand for dairy products is leading to increased imports.

The European Commission proposals to introduce standardised contracts for milk producers across the EU offer the opportunity for greater stability, alongside an equalising of contractual bargaining power for milk producers. The plans would allow the establishment of collective producer organisations, which have proven successful in other parts of the world in securing fairer farm-gate prices for milk, and member states could create greater transparency in the terms of milk contracts by regulating duration and price, as well as rights of termination should member states see fit. Importantly, the plans would also require milk processors to declare information on milk deliveries. It is vital that the Government indicate—I hope, this morning—whether they will accept the Commission’s proposal to permit national Governments to introduce contracts across all milk supply and delivery chains and whether they will be prepared to enter into further collaborative work with the industry on the wider reform of contractual arrangements, including price variation and exclusivity of supply.

Another important point to address is the competition that the EU dairy industry faces from China and other dairy producers in south-east Asia and from some of the developing economies, as that will become increasingly important in the coming years. The annualised annual growth in the Chinese dairy sector between 1998 and 2008 was 10%, and the increasing demand for dairy, specifically milk, products in south-east Asia will further drive global demand.

On the environmental impacts of dairy farming, the Opposition’s view is that we need to further incentivise farmers who are doing the right thing—for example, recycling water from the milk cooling processes and harvesting rainwater. We know from the Foresight report published earlier this year that an increase in sustainable food production to feed 9 billion people across the world by 2050 will mean producing more food with less water and making better use of soil, so we ought to give fiscal and other incentives to farmers in this country who already do the right thing and simply need additional Government support to continue to do so. Energy efficiency across the dairy sector has increased by more than 27% over the past decade, thus leading to a reduction in emissions equivalent to 270,000 tonnes of CO₂.

We therefore face a number of challenges. First, on contracts, the retail sector might not be willing to make changes to give farmers a fairer price.

[Julian Smith]

May I ask for clarification about the Opposition policy? Is the shadow Minister saying that he now believes that we should have contracts in the UK, or does he agree with me and my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) that we should begin by exerting significant pressure and by nudging the industry much more strongly in the first instance?

[Mr Bain]

I am not a great fan of nudge theory, but I believe that the Government could do a great deal by indicating that they support the broad thrust of the Commission’s recommendations. That could lead to changes in practice by the supermarket sector and other processors. The Opposition’s position is one of agreement between producers and retailers where possible and regulation where necessary. If it is established that even the most profound of nudges from the Minister has not brought greater fairness in the prices that the retail sector offers our producers, regulation may well have to be the answer. There is a great deal more consensus across the House than might have been immediately apparent.

On the future of the dairy sector, we must sort out the problem of contracts, because they are driving unfair prices. We must also continue to consider the environmental impact of the dairy sector. Some people want far less meat and dairy to be consumed in this country. I believe that one of the best ways to counter that argument is to show and deepen the dairy sector’s environmental sustainability and reduce its greenhouse gas imprint. The Government should work hard with the industry on that front. We must be aware of competition from overseas. We hope that the Doha round of World Trade Organisation talks can be resuscitated to end damaging subsidies and open the issue of animal welfare standards, to the benefit of milk producers in the United Kingdom and across the EU.

If the Government take those three steps and make great progress over the next four years, it will lead to a better, fairer and more financially viable dairy sector than we have at the moment. I hope that, in his remarks, the Minister will outline how he will deliver that.