Select Committee on Administration Appendices to the Minutes of Evidence


APPENDIX 19

Memorandum submitted by the Royal Agricultural College, Cirencester (Q30)

The Royal Agricultural College is pleased to be given the opportunity to comment on the Marketing of Milk in the UK.

In many parts of the world the dairy processing industry is based on a co-operative structure, owned by farmer suppliers. One of the most powerful reasons for this is that co-operatives can operate with very low overheads (ie they do not need to reward shareholders outside the supplier base). Thus farmer suppliers "capture" both the production and processing margins and for, well documented, reasons the UK market has not developed in this way. However it remains that farmer suppliers in the UK face essentially the same problems as those in other parts of the world and therefore it is reasonable to expect that they should have recourse to the same structures as competitors elsewhere. Thus allowing farmer owned and operated processing capacity should be seen as restoring some parity with these competitors.

Since deregulation much has been made of the systems for selling milk and their fairness or otherwise. It is however true that the base prices available to farmer suppliers of Milk Marque represents no effective premium to the Intervention Milk Price Equivalent. There is therefore in our opinion no case for the supply industry to answer regarding manipulation of markets and prices. Furthermore, the retail prices for milk and milk products have not fallen in line with the fall in producer prices (which are now in excess of 25 per cent). Milk Marque gives a benchmark price to which all other prices to producers are based. Without Milk Marque giving this lead it is expected that prices would fall still lower.

The dairy industry is structured so that production is in the areas of the UK where grass grows best because of rainfall and topography. The requirements for the milk produced is where the population density is highest and this is not usually in the same area as milk production. It is therefore important to allow the marketing of milk to reflect this structure. Only a strong organisation can do this. As an educational college the Royal Agricultural College is concerned that the future of the dairy industry needs to be strong so that the next generation of young people can be attracted to an employment that is long-term and rewarding.

Recent pressures on the price of milk to the producer demonstrate how important it is for producers to be able to process milk and to be involved in the "added value" industry. Both individual producers and Milk Marque have recognised the importance of this and are progressively moving towards more involvement in these activities. In this way the legitimate interests of consumers for lower prices and for farmers higher returns can be reconciled.

The lack of profitability in the agricultural industry is a serious concern to all of us and as an educational college the Royal is concerned that the future of the dairy industry needs to be strong. Only in this situation will the next generation of young workers be attracted to an employment that is long-term, thus maintaining the fabric of the rural community and producing high quality products under production conditions unmatched (in terms of food safety and animal welfare) in Western Europe let alone the world. In the current climate of change it is essential that we develop a positive relationship between industry and government so that we can supply appropriately trained people to meet the demands of the future.

1 July 1999


 
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