Examination of witness (Questions 692
- 699)
TUESDAY 23 NOVEMBER 1999
RT HON
STEPHEN BYERS
Chairman
692. Secretary of State, thank you for coming
here this morning. We very much appreciate it. I have a couple
of procedural points to make. First, there is the judicial review
on Monday, of which this Committee is aware. We understand that
that may constrain some of your remarks. I hope, in practice,
that that will not cause much difficulty. We acknowledge that
is there and we shall try to be as understanding as possible.
We hope that you will be as cooperative as possible bearing in
mind those constraints. Secondly, as something of an innovation,
your remarks will appear on the Internet as early as possible,
in an uncorrected form, after this evidence session has been completed.
I do not believe that will happen tomorrow, but more likely on
Thursday. I am sure that your officials will be more anxious to
correct your remarks than would otherwise be the case. That is
a new idea from the Liaison Committee this Session, which I believe
will help those outside who take an interest in our proceedings
to know exactly what was said, particularly as the television
cameras are not here this morning. I begin by asking you about
that dangerous word "philosophy", in terms of the development
of the dairy industry and in terms of what that means for competition
policy for agriculture as a whole. I know that you will be aware
that the NFU said that your original decision—I quote their
evidence to us—had "implications for all agricultural
co-operatives that wish to invest in processing and move down
their marketing chain". Can we read into your decision on
Milk Marque an implication that Government policy is now not to
allow farmers at all to build large-scale voluntary cooperatives,
vertically integrated, with the intention of adding value to their
products?
(Mr Byers) I welcome the opportunity of giving evidence
before the Select Committee today. I hope what I have to say will
be useful to the committee in arriving at its eventual recommendations.
Myself and the Department of Trade and Industry will look with
great interest at the recommendations that come from the Select
Committee. When considering the recommendations from the Monopolies
and Mergers Commission I have to look at the case that is being
considered at that time. This investigation was specifically into
the supply of raw milk. It was as narrow as that. That means that
when I arrive at my conclusion on those recommendations I cannot
take into account any wider factors in relation to the agriculture
industry more generally. So the decision that I took was specifically
on the matter that was referred to the Monopolies and Mergers
Commission. In one sense it was quite a narrow referral. It is
an area which has some considerable history and there are one
or two Members of the Select Committee, like Mr Curry, who will
very well know—probably better than I do—the history
behind the formation of Milk Marque and its predecessor the Milk
Marketing Board for England and Wales. When I received the report
from the Monopolies and Mergers Commission, first, I had to acknowledge
that there was an adverse finding that in the view of the Monopolies
and Mergers Commission that Milk Marque was abusing its dominant
market position, to quote the report, and I then had to decide
how I felt that could be remedied. As the committee will be aware,
I did not agree with the specific recommendations from the Monopolies
and Mergers Commission to go for a forced break-up. I thought
that we could satisfy and remedy the findings by changing the
selling process. To answer your question, the decision that I
took was not on wider policy grounds, but specifically in relation
to the adverse findings and the recommendations that came from
the Monopolies and Mergers Commission report.
693. I shall press the question again. One of
the issues is that your decision seems to have sent a signal to
farming that large-scale vertical integration is no longer a government
policy. That is despite a document dated August of this year,
from MAFF, A New Direction for Agriculture, which reads,
"But levels of collaboration remain markedly lower than elsewhere
in continental Europe—for example the financial turnover
of the French co-operative movement is about seven times that
of the UK". It advocates precisely the integration and cooperation
that your decision seems to have indicated is no longer government
policy.
(Mr Byers) I welcome the opportunity of clarifying
the position. I happen to believe that the decision that I took
and indeed the comments that I have made since in relation to
the proposal from Milk Marque and its members to create three
successor bodies, indicate that I would, provided the competition
grounds had been satisfactorily addressed, be very willing to
look at the possibility of vertical integration. The competition
aspect has been driving my thinking on this and not a wider view
about whether vertical integration in the agriculture sector is
a good or a bad thing.
694. Mark Todd will pursue that in more detail
later. On the question of public interest, which is a difficult
and elusive term, as I remember from my days as a specialist adviser
at the DTI. I shall quote at some length from a memorandum by
the National Assembly for Wales, in which the Secretary for Agriculture
and Rural Development said to this committee: "First is the
question of how the public interest ought to be defined. It is
clear the MMC Report equates the public interest in the supply
of milk with the consumer interest; specifically, as the price
consumers pay for milk. This may seem an overly narrow definition.
It treats farms as mere economic units of production, and allows
no account to be taken of the impact that lower farmgate milk
prices will have on the social fabric of fragile rural communities,
or on the environment. Lower farmgate milk prices are likely to
force farmers to adopt more intensive modes of milk production.
The identification of the public interest solely with the consumer
interest precludes any possibility of striking a fair and reasonable
balance between these issues". In the spirit of a university
essay, I would like you to comment on your colleague's views.
(Mr Byers) I note them with interest. I met the Minister
in early August to discuss with her the implications of my decision
for the Welsh dairy industry. As you will be aware, Chairman,
from your experience in the department, when one considers the
public interest, there is a range of issues to take into account.
It was against that background that I did not agree with the clear
recommendation from the Monopolies and Mergers Commission report
to go for a forced break-up. I felt it would be better for the
industry to reform the selling process—that was important
given the findings of the MMC—and really for the industry
itself to consider the way in which it wishes to develop in the
months and years ahead. Arising from that, the industry has looked
carefully at the way it wishes to organise itself. It considered
the adverse findings and on a voluntary basis brought forward
the decision to divide up into three successor bodies. I very
much welcome the approach that it has taken. I have also said
that when the Director General of Fair Trading has looked at the
way in which the selling process has been conducted, and if he
feels that there is now competition, then round about Easter time
next year I shall be in a position to decide whether or not vertical
integration and going into processing will be the appropriate
thing to take place.
695. It strikes me that you are prepared to
concede the principle that when you are considering agricultural
issues, a narrow focus on the price that the consumer pays for
the foodstuff in question is not an adequate definition of public
interest.
(Mr Byers) It needs to be wider than that. Generally
speaking, I believe that competition itself is beneficial, not
just in terms of pricing, but also in terms of product innovation.
Perhaps that is an area where we have not been as successful,
particularly in this sector, because there has not been effective
competition and we have not seen the product innovation that has
happened in many other countries.
Mr Todd
696. As has been said, large, vertically integrated
cooperatives exist in other countries and in other member states
in the European Union in this sector, without apparent objection
or formal action by those countries. What conclusion do you draw
from that?
(Mr Byers) There are two issues that are worth reflecting
on. The first is that the markets to which you refer are not self-contained,
as our market is. There is a lot of cross-border buying and selling
on the Continent. Secondly, there is not a problem per se
with having someone who has a dominant share in the market. The
issue is whether they abuse that dominant market position. The
MMC finding in this case was that, yes, Milk Marque did have a
dominant market position. That in itself is not a problem. The
problem was that they then used that, in the words of the report,
to manipulate the selling process. That was the adverse finding
in the report.
697. Your first point concerned the internationally
traded nature of the products in question. I am interested in
your view on two aspects. One is that the future product development
of raw milk itself and its storability will indicate that the
possibility of that being traded over reasonably long distances
will be upon us quite shortly. Therefore, to define the market
in national terms is potentially archaic. The second point is
that the processed milk products certainly have an international
market place. How would you defend what you have just said on
the tradability of the product in the light of those two concerns?
(Mr Byers) I think I was stating the present position
and doing so accurately. As we look forward we shall be able to
see by the middle of next year, particularly if competition aspects
are addressed, vertical integration taking place, the industry
getting into processing and then having access to international
markets. That would be part of the development that will occur
when we remedy the concerns about the competition aspects as identified
in the report. I think that will happen.
698. Essentially I think you said that one of
the key aspects of this was defining the scope of the market place.
Is this a UK market place or is it European or even a global marketplace?
(Mr Byers) Yes.
699. I think you have taken the concept that
in terms of raw milk the market place is the UK and the dominance
within that particular marketplace was the material factor that
you bore in mind. In terms of the processed products, we are not
talking about purely UK market places and Milk Marque's presence
in them was trivial. Could you develop that thinking a little
further so that you explain to us how we deal with a market place
that looks at both the raw milk issue and the issue of the bringing
together of processing and raw milk, as addressed by the MMC?
(Mr Byers) The MMC considered the very narrow issue
of raw milk. The concern expressed, and which I share, was that
if you had a situation where Milk Marque was abusing its dominant
market position, which was a finding in the report, should you
then leave things unchanged and allow Milk Marque to go into processing?
I took the view that that would be wholly inappropriate because
it would strengthen Milk Marque's position. We are trying to remedy
the adverse findings on competition grounds and once we have done
that there will be no bar to going into processing. Hopefully,
that is what we have now achieved, as the Director General of
Fair Trading reviews the selling process over the next few months.
If he arrives at the conclusion, as I hope he will, that there
is now effective competition in the market, there is nothing to
stop myself looking sympathetically—I have said this before—at
an application to go into processing.
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