Examination of witness (Questions 740
- 753)
TUESDAY 23 NOVEMBER 1999
RT HON
STEPHEN BYERS
740. Given the sensitivity of the issue, partly
for historical reasons, and given that objective two covers a
large part of countryside in which dairy farming is important,
if someone came along with some form of government assistance
under objective two what would be your reaction?
(Mr Byers) It would depend on the nature of the application
for financial support. There are now a range of different programmes
that potentially may apply to a small dairy farmer who may come
along for support under our general small business approach. It
will vary. We have to judge every application on its particular
merits. There are certain restrictions because of European Union
rules about what we can give support to and what we cannot give
support to. My understanding is that if the farmer came along
with proposals to get into yogurt or ice cream that would qualify,
for example, for regional selective assistance.
741. Going down what one might call the boutique
processing road—the "appellation controllee" type
of thing—that would seem to you to be the most likely way
that the processing would develop rather than there being a big
bang?
(Mr Byers) That is one example of what I think would
qualify for government assistance under our normal rules of support
for business.
Mr Marsden
742. Minister, on supermarkets, why did the
original reference to the MMC not empower them to look at other
elements in the supply chain, in particular to address the accusations
that processors were acting as a cartel, and the role of supermarkets
in deciding retail prices?
(Mr Byers) The original reference was made before
my time as Secretary of State, but it was very narrowly specific
to raw milk. There is a bit of a history to raw milk. When the
Milk Marketing Board was changed and Milk Marque was created and
Dairy Crest was floated off on its own, at the time the then Government
gave a clear commitment that the Director General would keep the
new structure under review specifically in relation to the supply
of raw milk. It was part of that review process that led to this
latest reference that we are dealing with today. However, since
I have been Secretary of State, I have asked the Competition Commission,
as the Monopolies and Mergers Commission is now called, to look
at supermarkets. I made it very clear, and it is part of the terms
of reference of the Competition Commission inquiry that they will
look carefully at the relationship between supermarkets and their
suppliers in relation to the concerns that Mr Marsden has raised.
743. Do you know what the change in retail milk
price has been over the last view years?
(Mr Byers) It has varied, largely depending on the
strength of sterling. My recollection is that there has been a
decline, I think, in the price of about 30 per cent. I am sure
that the committee knows the figures better than I do.
744. What about the retail milk price?
(Mr Byers) I would only be able to give you that from
my experience of buying milk which probably is not the best way
of answering the Select Committee's inquiry.
Chairman
745. I shall not ask you how much a pint of
milk costs.
(Mr Byers) It depends where you buy it from. I can
tell you but it does depend where you buy it.
Mr Marsden
746. Would you be surprised that it has been
suggested that it has fallen by only about three per cent in the
last five years?
(Mr Byers) Yes, three per cent. It would be interesting
to see the price at the farm gate and the decline that has occurred
there. It would not surprise me at all.
747. On the one hand we have the farm price
falling by 30 per cent and on the other hand the retail milk price
falling by three per cent. Does that not indicate to you that
there is more market power exercised by the dairy trade and supermarkets
than by Milk Marque and the producers?
(Mr Byers) There are issues that give cause for concern
which is why I have referred pricing in supermarkets to the Competition
Commission. In terms of pricing there are a number of areas that
the Competition Commission will want to consider. I have no doubt
that when the commission looks specifically at the relationship
between supermarkets and their suppliers that milk will be one
of those areas where they will want to give careful consideration.
748. Do you think that it is fair to say that
there is a direct relationship between the change in price by
the supermarket and the price at the farm gate?
(Mr Byers) My concern is that I do not want to pre-judge
what the Competition Commission will say to me. At the moment
my words are being watched very carefully by the supermarkets
so I do not want to pre-judge what the Competition Commission
may report round about Easter next year. I do not want to appear
difficult to the committee. I would like to answer the question,
but it could pre-judge my consideration of the report.
749. Do you have any comments on the evidence
from Express Dairy's chief executive who said that there was no
relationship between the producer price and the consumer price
for liquid milk?
(Mr Byers) I would be surprised if there were no relationship.
The best thing is to make sure that that evidence is drawn to
the attention of the Competition Commission.
Mr Todd
750. In technical economic terms there is no
reason why there should be a relationship, since the price a person
is prepared to pay is determined by that alone and not necessarily
by how much it costs to produce it. Turning back to the Milk Marque
inquiry, one could say that Milk Marque and its members faced
a decline in the price that they were able to obtain over the
period of their activity, whatever that was, of 25 per cent or
thereabouts. That would imply that if they were exercising monopolistic
power they were doing a rather poor job.
(Mr Byers) Yes.
Mr Todd: Fair enough.
Mr Marsden
751. When is the Competition Commission report
on supermarkets likely to be published?
(Mr Byers) It will report to me round about Easter
of next year. My Easter break will consist of looking of the reports
on three successor bodies and looking at the supermarkets. I shall
obviously need to consider it and I shall publish it at the time
when I make my announcement and recommendations. I shall try to
do that as soon as possible. I apologised to the House at the
time because I took far longer over the report into the supply
of raw milk than I would have liked, but I found it difficult
as I was going against the recommendations of the Monopolies and
Mergers Commission and I wanted to be clear in my own mind that
I was doing that for the right reasons. I do not know what the
supermarket report will say. It is due to be reported to me round
about Easter and then I shall publish it when I make my decision
on the recommendations. I shall do that as soon as possible.
752. You were saying that last time you took
too long. Would you like to hazard a guess as to when we shall
get it?
(Mr Byers) No. I received the report that the committee
is considering on 26 February this year and it was not until the
beginning of July that I reached a decision.
Chairman
753. It was July. You had to put a sticker over
the June date on the front page.
(Mr Byers) Is that right? At least it did not cost
to trash the whole lot and do it again. No, I cannot tell, but
there is going to be so much interest, as there was with this
report, that I would want to try to announce my decision as soon
as possible.
Chairman: Secretary of State, I think that concludes
our questioning. Can I end with a homily from the chair? First
of all, I think you can publish these reports before you announce
your decision. I am sure that was the advice that previous Secretaries
of State have received. If there is a long delay over the publication
of the supermarket report, I would urge you to consider early
publication. What this report shows is that the Monopolies and
Mergers Commission was not very good at looking at vertically
integrated industries. I remember with great pain the experience
over the beer report some years earlier where they showed they
completely failed to understand the issues raised by vertical
integration. Only the minority report written by a trade unionist
was worth reading or acting on, as it turned out in the event.
Finally, Mr Curry asked a question of Milk Marque when they came
in. He said: "So you would say, in a sense, that both you
and the dairy trade industries have been lumbered with a structure
because that is what the legislation required and what the Government
required at the time, and you have both suffered from it."
Milk Marque answered: "I think that is fair." I hope
that we are not lumbering anyone with a similar problem in the
future. Can I thank you very much indeed for your real cooperation?
In fact, the judicial review did not seem to get in the way at
all of our questioning today. We are grateful to you, even if
your officials are not. Thank you very much indeed.
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