Select Committee on Administration Appendices to the Minutes of Evidence


APPENDIX 20

Supplementary Memorandum submitted by the Tenant Farmers' Association (Q31)

INTRODUCTION

The TFA has already provided the Agriculture Committee with written evidence for its inquiry into the marketing of milk. As a result of the publication of the Monopolies and Mergers Commission report on the supply of milk in Great Britain and the Government response, the TFA felt it was appropriate to provide supplementary evidence to the Committee.

CONTENT OF THE MMC REPORT

It is disappointing that after a lengthy inquiry, the MMC failed to grasp the real issues at the centre of the debate. The TFA believes that there is no evidence to suggest that producers of milk are benefiting at the expense of consumers of milk as the price received by producers can be some 25 per cent less than the price paid by consumers in retail outlets or on the doorstep. It is also alarming that the conclusions of the report were based on out of date statistics and the TFA feels that further consideration should have been given to the conclusions once Milk Marque's market coverage dropped below the 40 per cent level.

The report also failed to consider appropriately why when prices to milk producers had fallen by some 25 per cent, prices to consumers had altered very little. From this observation alone it appears that the expense to consumers is not caused at the producer end but at the retail end of the food chain.

RECOMMENDATIONS FOR CHANGE

The TFA is at least pleased that the Government decided not to follow the recommendation of the MMC to divide Milk Marque into a number of smaller bodies. This would certainly have signalled the demise of Milk Marque and many of the small family farms that rely upon the company to take their milk.

Nevertheless, the TFA believes that it is farcical for the Government on one hand to be encouraging the agricultural industry to be more co-operative and to find ways of adding value to their raw products when on the other it criticises the industry's best co-operative, Milk Marque, for being successful in co-operation and adding value. However, the TFA looks forward to inclusive discussions about the future for auctions and direct sales of milk through Milk Marque.

PROCESSING

All UK dairy farmer co-operatives must be allowed to process their own milk without any further hindrance. The UK is the only major dairy producing nation where producers are being denied the right to invest in processing. For example, Denmark, a near neighbour to the UK, has 95 per cent of its dairy processing and production controlled by one company.

All over the European Union producer prices for milk have risen by between 1 per cent and 6 per cent between 1997 and 1998. However, in the UK producers have seen a 24 per cent fall. Under Agenda 2000 we are shortly to see increasing quotas for some European countries including Ireland and Northern Ireland. The UK itself will get extra quota along with other member states later in the reform process. Without extra processing capacity this extra milk will only serve to reduce prices to the producer even more. The Dairy Industry Federation has already stated that investment in capital to increase or replace outdated dairy processing equipment is not in the long term interests of the shareholders or their members. Producer organisations must therefore be able to invest in processing capacity.

The TFA would urge the Director General of Fair Trading not to unduly stifle further investment in processing by Milk Marque as this is a key part in ensuring the survival of many dairy farm families up and down the whole of Great Britain.

THE RELEVANCE OF THE COMPETITION COMMISSION

The TFA believes that there is a much wider debate to be held about the relevance of a Competition Commission which necessarily takes a UK-only approach. Whilst there will be instances where this will continue to be appropriate, where markets are at least European and often global the ability of a UK-only competition authority to make relevant proposals is greatly reduced. In the dairy sector particularly the UK competes against other European member states with much higher degrees of concentration in milk production. The implementation of any recommendations of a competition authority for the UK-only will be severely undermined given the activities of close trading neighbours.

CONCLUSION

Dairy farmers are already selling their milk below the costs of production and this cannot continue. For the tenant, his only assets are cows and machinery which are now worth very little. Tenants are unable to sell land and would find it almost impossible to realise in cash terms their portion of the milk quota on a holding without relinquishing their tenancy. The conclusions of the MMC report are not borne out by the facts. Producers are not unduly benefiting at the expense of consumers. Indeed, there is a real crisis in production which could be made very much worse in the process of implementing some of the recommendations of the MMC report.

15 July 1999


 
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