SUPPLEMENTARY MEMORANDUM SUBMITTED BY
THE MINISTRY OF AGRICULTURE, FISHERIES AND FOOD (Q 52)
GOVERNMENT ASSISTANCE TO THE DAIRY INDUSTRY
1. This note describes MAFF and DTI support
to the dairy industry in England for business start up and expansion,
product development and marketing. In other parts of the UK support
is available through the devolved administrations and the Departments
of Agriculture and Economic Development in Northern Ireland. MAFF
schemes are summarised in paragraphs 3-13 and DTI's in paragraphs
14-22.
2. It is important to realise that, by far,
most Government support to the dairy industry is given via the
Common Agricultural Policy, which is not described in this note.
In 1998, for example, it is estimated that the value of UK milk
output was £2.7 billion and that, of this, the value of price
support through the CAP accounted for about half. By comparison
the value of unilateral Government assistance to the dairy industry
of the type described here is relatively small.
STRUCTURAL FUNDS
3. Dairy processors have benefited from
the Objective 5b scheme, which provides grant in aid in
designated geographical areas. Similar arrangements have been
proposed in the Single Programming Documents for the new Objective
1 areas for Cornwall, South Yorkshire and Merseyside which are
currently being considered by the European Commission.
MARKETING GRANTS
4. The Agriculture Development Scheme
1999 was announced as part of the September 1999 aid package
for the industry. Applications have been invited from organisations
and partnerships in all sectors to help farmers improve their
competitiveness through better marketing. The rate of grant will
normally be 50 per cent. The aim is to take decisions on successful
applications by the end of January 2000. Projects must be completed
and claims for grant submitted by 30 November 2000.
5. Decisions on whether to introduce marketing
grants as part of the England Rural Development Plan, under
the EU Rural Development Regulation, will be taken in light of
other priorities and the resources available. Possibilities include
capital processing and marketing grants and support to encourage
the marketing of quality agricultural produce.
6. The dairy industry has also been helped
under various marketing grant schemes that are no longer open
to applications. Under the EU Processing and Marketing Grant
Scheme 19 projects in the dairy sector were funded in the
most recent tranche of awards (1994-96) with a total grant spend
(EU and national) of around £3 million. The projects involved
modernisation of milk processing plants, the construction of dairies,
modernisation of equipment and of packaging, labelling and weighing
facilities. The products involved are skimmed, semi-skimmed and
homogenised milk;yoghurt; dairy desserts; and various varieties
of cheeses. Under the Marketing Development Scheme (1994-98),
grants totalling around £0.5 million were awarded to 13 projects.
Among the activities being funded are enhancement of producer
recruitment; market research (including into export markets);
employment of outside directors to aid development of project
aims; operational expansion; and industry publicity and promotion.
Under Sector Challenge (1997), there are two projects in
the dairy sector with total grant aid expected to amount to around
£0.3 million. One aims to instil confidence in the industry's
customers by ensuring the quality of milk through vigorous testing
procedures; the other aims to develop the Milk Automated Collection
System (MACS) operated in the milk distribution sector.
SPECIALITY FOODS
Food from Britain
7. The Department provides support for Food
From Britain (FFB) who have day to day responsibility for speciality
food producers. With MAFF funding, FFB organise trade shows and
"meet the buyer" events. Around 500 small dairy processors
are members of the Regional Food Group network and directly benefit
from these services which can also include, for example, help
with distribution.
8. Other relevant FFB activities include
encouraging large retailers to source speciality products, sponsoring
the British Cheese Awards and, with help from the Foreign and
Commonwealth Office, production of a Directory of Specialist Cheese
Producers.
Cheese exports
9. A Cheese Steering Group has been formed
as a joint initiative between the Ministry, the Dairy Industry
Federation and other interested organisations. It was established
following a seminar, "British Cheese—Developing our
Export Potential", organised by MAFF last year. The group
has produced a promotional cheese poster.
Protected food names
10. A number of cheeses are eligible for
registration under EU schemes for protecting food names. MAFF
is encouraging businesses to register the names of traditional
foods and has launched a promotional campaign, "Safeguarding
Britain's Food Heritage" to raise awareness of the schemes.
A number of cheeses have been registered to date including West
Country Farmhouse Cheddar, Stilton and Dorset Blue. There is interest
from other cheese producers.
Secondment to the Specialist Cheesemakers Association
11. MAFF has agreed to second a scientist
to the SCA for 12 months. He will help the SCA to promote the
interest of cheesemakers and their products.
Research and Development
12. MAFF funds R & D work worth over
£2 million annually in relation to milk and milk products.
This aims to improve the compositional quality of milk, reduce
losses due to inefficiencies in production, and to create opportunities.
One of the projects funded by MAFF for example, has allowed dairy
farmers to produce milk for consumers with a different fat distribution
and also spreadable butter.
Generic Advertising
13. At the industry's request the Minister,
with his Scottish and Welsh counterparts, agreed to a poll of
GB dairy farmers this autumn to establish whether or not they
favoured extending the remit of the Milk Development Council to
include a compulsory levy on dairy farmers to help fund a generic
advertising campaign with an equal contribution from dairy processors.
Of the forms returned, 75 per cent were in favour and 25 per cent
against. The Government therefore intends to propose the necessary
changes to the legislation subject to detailed arrangements being
agreed with the dairy processing industry for it to provide matching
funding.
DTI SUPPORT
Regional Selective Assistance (RSA)
14. RSA is the main instrument offering
direct financial assistance to companies in Assisted Areas. It
is available to most manufacturing and some service industries
carrying out investment projects. Support for agricultural products
are subject to EU restrictions arising from the state aid rules.
These are complex and DTI seeks advice from MAFF on applications
from the milk sector to ensure compliance with the rules. The
average rate of grant is between 5 per cent and 15 per cent of
the fixed capital costs.
Enterprise Grant (EG)
15. EG is a new DTI scheme commencing on
1.1.2000, for projects of less than £500k capital spend.
It will provide a selective grant of up to 15 per cent of fixed
capital investment on projects, with a maximum of £75k assistance.
EG will be targeted at growth SMEs in Tiers 1, 2 and 3 of the
proposed new Assisted Areas map (due to come into effect on 1.1.2000)
and will replace assistance currently available under RSA at this
level. Support is subject to EC sectoral restrictions.
The Smart Scheme
16. Smart is the DTI's package of support
in England, which provides grants to help individuals and small
and medium sized enterprises (SMEs) review their use of technology,
access technology, and research and develop technologically innovative
products and processes. Support for agricultural products are
subject to EU restrictions based on state aid rules. MAFF advise
on a case by case basis whether a project is affected by the restrictions.
Since the introduction of Smart in 1986 a number of agriculture-related
projects have been supported. These include the development of
an innovative process to produce almost any hard traditional or
speciality cheese in a miniature waxed form.
Existing General Business Support for SMEs
17. Business Links are currently required
to help all small businesses whatever their sector or location,
including agri-business and the dairy industry. The range of support
includes a comprehensive information service and more detailed
generic advice and personal support on such matters as business
and financial planning, marketing, innovation, technology and
managing change. In some areas Business Links have rural or agricultural
business advisers. The DTI's network of Regional Supply Offices
are involved in building clusters of small food producers to help
them market their products.
Regional Development Agencies & Development
of the Small Business Service (SBS)
18. Regional Development Agencies (RDAs)
which have a strong rural constituency will be looking to ensure
that business support services are attuned to the needs of farmers
and this includes help with diversification from mainstream farm
business. The SBS aims to improve access to and take up of information,
advice and business support services from Government, public,
private and voluntary sectors. It is aimed at all small businesses
including start ups, pre start up, and self-employed farmers and
agri-business in general. It will actively promote co-ordination
across Government departments, by representing the needs of small
businesses. This will improve the service to small firms in sectors
where Government departments share responsibility.
Small Firms Loan Guarantee Scheme
19. Assistance is given to small firms in
a wide range of sectors where, under normal commercial circumstances,
they would be unable to obtain a conventional loan or overdraft
because of a lack of collateral to offer as security. The Government
assists by providing guarantees to lenders willing to make loans
available under the Scheme. The Scheme guarantees 70 per cent
of loans between £5,000 and £100,000. For established
businesses (those trading for two or more years) the guarantee
increases to 85 per cent on loans up to a £250,000 maximum.
20. Eligibility criteria relate to the size
of business covered (maximum 200 employees and turnover not exceeding
£3 million for manufacturers or £1.5 million for other
sectors), the purpose of the loan (must be for business development),
and the type of business activity (many sectors are covered but
there are specific exclusions). The agriculture sector, although
covered by the Scheme, is subject to specific restrictions resulting
from European State Aid rules. Product specific restrictions in
the dairy sector exclude aid which would lead to a level of milk
production which exceeds permanent milk quota and limits increases
in the number of dairy cows.
21. For processing and marketing within
the "Cows milk and cows milk products" sector, aid is
not allowed, unless it is used to bring establishments in line
with EC health standards, or concerns environmental protection
and does not lead to an increase in capacity. Further exceptions
to this restriction exist where the production involves substantial
innovation, products for which there is a shortage of capacity
or for the manufacture of products using traditional or organic
methods.
22. Finally, there are certain products,
based on dairy produce, that are not defined as agricultural products
within the Treaty of Rome and are, therefore, not covered by the
specific EC Agricultural State Aid restrictions. They include
the manufacture of ice cream and flavoured yoghurt.
22 November 1999
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