APPENDIX 4
Memorandum submitted by the Tenant Farmers
Association (Q6)
INTRODUCTION
The Tenant Farmers Association is the representative
organisation for all who rent agricultural land in Great Britain.
Its membership covers all farming types and sizes and is recognised
as the definitive voice for the agricultural tenanted sector.
Around half of all dairy farms in the country are either wholly
tenanted or of mixed tenure. Given the amount of capital required
in dairy production an agricultural tenancy provides a useful
mechanism for sharing the risk and costs of production.
While the TFA represents farms of all sizes it also
represents some of the smallest dairy farms either let through
the County Council Smallholding Estates or in traditional tenanted
estates in remote parts of the country. It is such farms which
have the most to lose if a fair system of milk marketing is not
found soon.
STATE OF
THE INDUSTRY
The dairy farm sector is facing one of its deepest
recessions for many years. The milk price to producers continues
to fall and is beginning to reach unsustainable levels. The TFA
is concerned that if it goes much lower it will make a large proportion
of dairy farms uneconomic and susceptible to closure. The TFA
is already aware of many tenants of dairy holdings who have either
served notices to quit their holdings or who are seriously contemplating
such a move.
This situation is not helped by the continuing delay
of the Government in making available the Monopolies and Mergers
Commission Report into the supply of liquid milk in the UK. Whilst
this was expected at the beginning of May it appears that it will
now be held back until July by which time the crisis in the dairy
sector will be ever greater. The delay in the production of the
report has caused a pause in investment, particularly in processing,
which is so vital to the success and future profitability of the
dairy sector.
Farmers have not yet been able to capture a significant
proportion of the value of their milk in the whole food chain.
Whilst they are paid less than 18p per litre when they sell their
milk it leaves supermarket shelves at more than double this level
and doorstep deliveries are at least three times the price received
by farmers. The TFA believes that this is caused by a bottleneck
in the supply chain at the point at which the milk is sold from
the first purchasers to the retail and processing sections of
the chain. This does give tremendous buying power at that stage
which is to the detriment of the individual dairy farmer.
Without further investment this situation will be
exacerbated by the increase in milk quotas agreed for Ireland,
Greece, Spain, Italy and Northern Ireland beginning in 2000-01
and the more general increases for all other member states beginning
in 2005-06. Without an increase in demand through further processing
milk prices will only be driven down by this ability to produce
more.
PURCHASE OF
MILK FROM
FARMS
Since the deregulation in the milk market many schemes
have been developed to purchase milk from farms but the TFA believes
that Milk Marque, being the successor body of the Milk Marketing
Board, remains the backbone in this area. The TFA can see the
logic behind local buying groups, independent of Milk Marque,
which can perhaps sell into niche markets or have other unique
selling points which can be capitalised to their benefit. However,
the TFA does have some difficulty with the effectiveness and efficiency
of other operations which seem to try to acquire milk all over
the country without any specific strategy or marketing advantage.
Connected with this the TFA wonders if there is benefit in the
arrangements established by some organisations who appear to have
"brokers" acting on their behalf
The TFA is aware that some milk purchasers have been
attempting to offer incentives to farmers in the hope that they
can even out the supply of milk through the year, artificially
regulating the milk flow. The TFA would suggest that history shows
this is not an efficient means of production. It is by far more
appropriate to try and follow the seasonality of supply in the
production process.
It is also worth noting that Milk Marque, in many
areas of the country, is the buyer of last resort. Although it
will have done much to ensure that the costs involved in carrying
out this function are kept to a minimum or recovered, it must
still impact upon Milk Marque's efficiency at some level.
PROCESSING
The TFA believes that it is in the area of processing
where the nub of the problem rests. The large differential between
producer and retail milk prices are a consequence of high processing
costs produced through using outdated plant and equipment. All
other countries have invested in state of the art technology which
enables their processing costs to be lower than those of the UK
and the returns to producers higher.
The TFA is not aware of any willingness among the
major processing companies to carry out a major investment process
to upgrade our position to allow us to be competitive in European
and world markets. As an example we know that one major company
is importing milk powder from Germany for its UK yoghurt plant
because it does not have the technology to produce the milk powder
to the required standard from UK produced milk in UK plants.
In view of this milk producers, regardless of which
milk purchaser they are using, must be allowed to invest in processing
capacity to protect their long term profitability and survival.
As we have said without extra processing capacity the extra quota
to be allocated across Europe could be more of a threat than an
opportunity to UK dairy farming.
Extra processing capacity situated close to the major
areas of milk supply could also help in achieving rural development
and environmental objectives by increasing rural employment in
productive, useful and sustainable activities and reducing the
extent to which milk, as a bulk commodity has to travel up and
down the country by tanker.
SELLING
As the TFA has noted above, we have concerns about
the bottleneck in the supply chain at the point at which milk
leaves the first purchasers for processing for retail sales. It
would appear to us that the major buyers are acting like a cartel
and the TFA hopes that the Monopolies and Mergers Commission report,
when published, will have something to say about, and changes
to make to, this situation.
The rumours circulating around the industry about
the possibility that the Government may argue for Milk Marque
to be split into regional co-operatives is greatly concerning.
At a time when all sectors of the farming industry are being urged
to be more co-operative it is alarming that probably the most
successful farmers co-operative venture is being attacked in this
way. The TFA would argue most strongly for the retention of Milk
Marque in its current form in order to counter the buying power
of the major processors and retailers. We must also consider our
competitive position in Europe and with the rest of the world
where the tendency is for greater degrees of concentration which
we must be able to match if we are to maintain European and global
market share. For example in Denmark, MD foods has captured 95
per cent of the market and gained size efficiency in the process.
It is against this background that we are competing.
The TFA does have concerns about the way in which
Milk Marque sells its milk and that the dairy industry can effectively
hold it to ransom in the way it has done in the second half of
last year and beginning of this year. However, the TFA cannot
suggest an alternative but a system which has the confidence of
all sides, must be found.
CONCLUSION
The TFA can see no evidence that the current system
is causing producers to gain excessively at the expense of consumers.
Indeed, the opposite is much more the case. Processing capacity
and efficiency is the key to revitalising the UK dairy sector
and in the absence of a commitment from current processing companies
on investment, farmers and the organisations to which they sell
their milk, must be allowed to step into the breach left by this
lack of investment by taking matters into their own hands. The
TFA believes that this is being unnecessarily hampered by the
continuing delay on behalf of the Government in producing the
Monopolies and Mergers Commission Report.
21 May 1999
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