Examination of witness (Questions 720
- 739)
TUESDAY 23 NOVEMBER 1999
RT HON
STEPHEN BYERS
720. On the question of competition, you said
in your press release in September, "A strong competitive
market can help to rejuvenate Britain's dairy industry, making
it more responsive to its customers and more competitive internationally.
All links in the supply chain, from farmers to processors, can
benefit". The NFUS has argued that the split into three bodies
of Milk Marque will work to the disadvantage of the industry.
Why do you believe that that will make the industry more competitive?
(Mr Byers) It should do and time will tell. That is
why we have laid down certain requirements in terms of the way
in which the three successor bodies can organise themselves. For
example, between themselves they will not be able to have joint
ventures; they will not be able to have common directors and they
will not be able to have shareholdings in each other's organisation.
That is to try to ensure that the split is real. Also they should
now start to compete with each other. Time will tell as to whether
or not they do that. The great prize will come when they address
the competition concerns and as a result lift the bar on going
into processing. I personally believe that that is the way forward
for the industry. That is the lesson that we can learn from what
has happened on the Continent.
721. Without the processing aspect they would
be in a weaker position than Milk Marque was, would they not?
That would appear to be an increasingly weak position as far as
the market is concerned.
(Mr Byers) A weak position, in what way? Competition
does not necessarily mean that you are in a weaker position.
722. It was losing market share at a rapid rate,
as we discussed earlier, over the period of time of the inquiry.
It is now below 40 per cent. That is one organisation that started
out on its own without processing. Will they not be in the hands
of the dairy companies?
(Mr Byers) They may begin to regain some of that market
share.
723. Have you formed a view about the impact
of the split into three bodies on the price of milk to the farmers?
(Mr Byers) Time will tell. The indications from the
selling round in the early stages of beginning to identify the
break-up are that prices are slightly lower. But, no, I have not
and I think it should reduce the price because of the nature of
the competition because the clear finding from the Monopolies
and Mergers Commission report was that Milk Marque was essentially
providing a floor in terms of price and there was then no competition
that could lower that floor. That was one of the clear adverse
findings from the MMC.
724. Your judgment would be that the consequence
of the competition is to reduce the price of milk to the farmer?
(Mr Byers) That may well be the outcome.
725. The evidence that we have received during
the inquiry is that the producer farmer is in a state of financial
crisis at the present time. How can it be helpful if the price
goes down?
(Mr Byers) It is in the nature of competition that
if competitive markets are developed, the price may go lower.
I cannot predict. That may be a consequence.
726. This is certainly not a consequence welcomed
by British milk producers. It is something that they would be
concerned about if the price were to go lower still. In regard
to Denmark you indicated that you suspect, as I am sure is right,
that there is much more cross-border trading than there would
be here. Looking into the future of the industry would you see
it as competing domestically within Europe or in a much wider
area?
(Mr Byers) I think it depends on the product. As Mr
Todd said, certainly as far as processed products are concerned,
there is no reason why it should be restricted to the European
Union. There are markets globally for some of our products. I
am very keen, as the trade department sponsoring UK exports, to
look carefully at how we can support in this case the cheese,
yogurt, or whatever industry it may be. We are looking carefully
at how we can promote them. There are some very good products
in the UK. We would be very willing to assist the industry to
do precisely that.
727. With regard to raw milk, MD Foods, which
has a dairy in my constituency, has been mentioned. I attended
an event there when they launched a much longer-lived milk product
than we are used to. That opens up the possibility, does it not,
of much more cross-border trading in raw milk or in the milk product
without the processing element to it?
(Mr Byers) Yes.
728. Would that not be a further threat or danger
to our domestic dairy producers?
(Mr Byers) It does not need to be. They should see
it as an opportunity and not a threat. There is a market of 370
million in the European Union.
Mr Jack
729. What advice did you receive during the
course of your consideration of this inquiry as to whether we
had enough milk processing capacity in this country?
(Mr Byers) The report was on the supply of raw milk.
So the processing aspect was not a matter that was primarily of
concern in the report.
730. With respect, Secretary of State, a moment
or two ago you indicated your aspiration to see the successor
bodies to Milk Marque go into processing. Therefore, again I ask
whether you received any advice or background information to form
a view as to whether that was a good or a bad thing?
(Mr Byers) I think the record will show that the question
that was put to me was not one specifically in relation to the
Monopolies and Mergers Commission report. It was a more general
question about the industry and the benefits which may come from
processing. Your question was specifically in relation to the
Monopolies and Mergers Commission report. Specifically in relation
to the report it was a report into the supply of raw milk. That
was what I considered.
Mrs Organ
731. On the implementation of the structural
reform, are you satisfied with the division of Milk Marque now
being implemented? Do you have any concerns, for instance, that
the three separate cooperatives are valid for one day only and
after day one farmers, say, in the Cheshire dairy area can choose
whether they go into the northern or central areas; or the Forest
of Dean, or anywhere. As you have said, time will tell. Could
we not end up with a situation where we have one dominant cooperative
and two much smaller ones which operate in a far less favourable
scenario because they have to deal with farmers from far afield?
Could you comment on how you feel about that and what you see
in the future?
(Mr Byers) I had not realised until now that farmers
in your own constituency would have such a wide choice.
732. Theoretically that is so.
(Mr Byers) I can see that. The point is one that is
well made. There will be three groupings at a particular time
and broadly in three equal areas in terms of the number of the
amount of market share that will be covered. There is nothing
to stop a farmer moving from one to the other. Indeed the Director
General of Fair Trading will make sure that there is no attempt
to have restrictions placed on individual farmers which would
make it difficult for them to move from one of the successor bodies
to another. Clearly it will be movable; it will change. The issue
we are concerned about is to ensure that there is competition.
Earlier on I made the point that because any one body has a dominant
market position does not per se mean that that needs to
be a dominant position that is abused. We shall continue to monitor
that area. The Director General of Fair Trading has indicated
that he will look carefully at the way in which the successor
bodies operate to ensure that there is effective competition there.
733. If, as time will tell, there were a situation
where one of the cooperatives became not just dominant, but did
abuse its dominance, would you want to look again at the split?
(Mr Byers) We would want to look again at the whole
area.
734. Do you believe that the structural reform
that is being put in place meets all the objections of the competition
authorities against the behaviour of Milk Marque? Do you think
we have satisfied all the criteria?
(Mr Byers) I think the structure has the potential
to do so. Now we need to consider the way in which it works in
practice. As I mentioned in a reply to Mr Jack, we have put in
place restrictions in terms of no common directors and no shareholdings
in one company by another to ensure that the split is a real split.
Of course, there is a lot that can happen in practice. There are
telephones and people speak to each other, and so on. The Director
General of Fair Trading will look carefully to make sure that
not just the structures are in place, but that the way in which
it works in practice is competitive. The Director General will
monitor that in the first few months in the lead up to the first
selling round.
735. Was there anything that you felt uneasy
about and where you felt you were not meeting the objections of
the competition authorities in the structural reform?
(Mr Byers) No. The reason why I warmly welcomed the
decision that Milk Marque had taken—and its members—voluntarily
to break itself up into these three successor bodies, is that
I believe that it meets the concerns that were expressed by the
Monopolies and Mergers Commission. If my recollection is correct,
I believe that the report talks about the forceable break-up into
between three and five successor bodies. I think this meets the
terms of the report.
736. You have asked people who have concerns
about the split to contact the Director General of Fair Trading.
When do you expect to receive his advice on the substance of those
concerns? What action will you take?
(Mr Byers) The indictions from the Director General
are that he shall be able to advise me at the end of this financial
year or at the beginning of the next, so round about the beginning
of April. That is why I have said that if he is satisfied that
the competition concerns have been addressed, round about Easter
time—although Easter is later next year—I shall want
to be able to say whether or not there is still a barrier to going
into processing. I shall want to be able to indicate that, if
at all possible, round about Easter time next year.
Mr Curry
737. We all glibly talk about processing. What
we really mean is producing products. Skimmed milk powder is a
processed product. No one wants skimmed milk powder all over the
place. The reason for the break-up is the question of processing.
The main objection of the dairy companies to Milk Marque as it
was constituted, was, firstly, its selling system and, secondly,
its current obsession of getting into processing. When they gave
evidence to us they made it fairly clear that they thought that
the successor bodies would be barmy to try to get into processing
and that there was plenty already. That was the gist of what they
said. At the moment they appear to want to call off the war between
the two sides which has characterised the industry for years.
If we saw the cooperatives seriously going into processing I can
imagine it livening up again. Are you likely to be scrutinising
the activities of the cooperatives in any attempts to get into
processing? You have said that you can see no bar to it, but it
must be a question of scale as well.
(Mr Byers) My view is that if it is a commercial decision
taken by the cooperatives that will be a decision for them to
take, and it would be inappropriate for me to advise one way or
the other.
738. Is it not more likely that we shall see
increasing cooperation between dairy companies and their regional
cooperative? After all, a lot of the dairy companies already have
farmers signed up so that they have their own farmers who will
not resile from that and we are going to see vertical integration
created perhaps on a regional basis. Would that cause inconvenience?
(Mr Byers) It does not need to, provided it operates
in a competitive manner.
739. Did you form the impression that the cooperatives
could survive without processing, either by acquiring it or by
being acquired, or acquiring existing businesses themselves?
(Mr Byers) This is not in the context of the report,
but I would have thought that the three successor bodies should
be strong enough on their own but I know that they are, for their
own reasons, very keen to get into processing. As I say, that
will be a commercial decision for the successor bodies to take.
| 
