Select Committee on Agriculture Minutes of Evidence


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


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 10 December 1999