Examination of witness (Questions 760
- 779)
TUESDAY 23 NOVEMBER 1999
THE RT
HON NICHOLAS
BROWN
760. You would regret it if the decision on
Milk Marque sent a signal to other farming sectors that cooperation
and integration were not acceptable?
(Mr Brown) Cooperation and integration are the right
way forward for farm businesses generally. Clearly, the sectors
all have their own different features but in advocating these
arrangements one also has to be mindful of competition policy.
I am also a very strong advocate of joining up the food chain.
In the milk sector, strategic alliances between producer organisations
and major processors are the way forward and that involves an
element of collaboration.
761. We have moved on from a joined up government
to a joined up food chain?
(Mr Brown) I think that is the right way forward.
Mr Jack
762. On cooperation, from your studies, why
do you think continental Europe is better at it than we are? Why
does it seem to be more successful there than here?
(Mr Brown) I am not sure that that is right. I can
see how it might look that way because of the history of the farmer
ownership of the whole chain on some continental models, but I
think it is the United Kingdom industry that is best placed to
meet the challenges that are moving remorselessly towards us.
As the market liberalises, as it is bound to do, even if it might
not seem so today, it is the more liberal elements that we have
in place here that will be able to face up to those challenges,
rather than a more rigid, continental model.
Chairman
763. Looking back into the mists of history,
which perhaps we have spent too much time doing in this inquiry,
you will accept that the Milk Marketing Board was originally set
up back in 1933 because it was recognised that the poor old farmer
needed to have some countervailing power in the face of the milk
processors and the dairy companies. What is your judgment of the
balance of power between the dairy farmer and the processing and
dairy companies now as we sit here in 1999?
(Mr Brown) We are in a period of transition. The Competition
Commission report has clearly set some challenges for the producer
side of the industry. I have been very careful to give as much
time as I can both to representatives of producers and to representatives
of the Dairy Industry Federation as well. I have made it clear
to both sides that I regard the immediate chain of events following
the Competition Commission's report as a period of transition
for the industry. I have been a strong advocate with both groups
of a way forward by negotiation and consensus, including collaborative
arrangements. Each side worries about the strength of power in
the hands of the other and I am afraid this rather adversarial
relationship has characterised the industry in the past. I want
us to move away from that. I think once the new arrangements have
settled down the industry has a really good opportunity to evolve
good and enduring working arrangements throughout the chain. That
might mean farmers themselves going into processing, but a big
feature of this is going to be strategic relationships between
processors and producers. Remember, these are long term arrangements.
Everybody has a vested interest in their security.
764. Do you believe that the inequality does
exist? The smallest dairy farmer is very small fry compared to
even a medium sized processor.
(Mr Brown) That is why I am an advocate of cooperative
arrangements around producers. Indeed, it is difficult to see
how you can run a dairy industry in any other way unless there
was to be some middle organisation or the processors themselves
to take charge of the distribution and wholesaling arrangements.
Chairman: I think that both anticipated and
answered my question. Thank you.
Mr Todd
765. How do you see the future of the dairy
industry in this country?
(Mr Brown) I am optimistic, although I accept it is
going through difficult times at the moment. I think world market
conditions are moving in our direction. Because of our natural
advantages, I think dairying is an ideal agricultural industry
for our country. We are going through a period of structural change
within the food chain and at the same time we are going through
a period of rationalisation on the farm producer side as well.
Things will not look the same in ten years' time as they do now.
I have said this in other contexts. There is a good and secure
future for the dairy industry in the United Kingdom.
766. What should the government do to bring
about that rosy future?
(Mr Brown) The over-arching instrument, as the Committee
will know, is the Common Agricultural Policy. I really do think
that the proposal that was put by the United Kingdom, Italy, Sweden
and Denmark to the Council of Ministers at the time of the negotiation
of Agenda 2000 was the right proposal. It would have meant the
phasing out of the quota regime, a steady increase in quotas so
the market liberalises and the value of the quota comes down and
it would be phased out over a six year period. That is the right
way forward. I attach enormous importance to the review clause
which cuts in in 2003. Our government and the other Member States
are going to have to do a lot of hard thinking in the run up to
2003. This is an important opportunity for us to look again at
the future of the quota regime within the Common Agricultural
Policy. That question overshadows every other question about the
future of the dairy industry in Europe.
767. As I have understood your answers so far,
there is a rosy future for the United Kingdom dairy sector and
the government's main role is to ensure there is greater competition
in that sector through the removal of quotas?
(Mr Brown) No. We must have appropriate competition
policy for the domestic market and throughout the European Union.
At the same time, it is impossible to discuss these matters without
looking at the support regime. The support regime has an enormous
impact on the way in which the dairy industry works and it clearly
has to be reformed.
768. Before BSE, the sector of course had a
significant income from beef byproducts, essentially old dairy
cows who had lived their lives. What about the recovery of that
potential source of income?
(Mr Brown) That is some way away. That is the over
30 months scheme, which is the effective policy instrument here.
The over 30 months scheme does two things. It is a very powerful
public protection measure. That is why it is there and that is
why, although it is a European Union instrument, it is the British
taxpayer who is funding it at substantial cost. It also works
as a market intervention because it puts a floor in the market
which a more liberal market would not have.
769. It is ripe for review?
(Mr Brown) It is being reviewed now. I am waiting
for advice from SEAC. SEAC in turn are waiting for the Anderson
data which they are expecting shortly.
770. What sort of timetable?
(Mr Brown) I have not set a timescale for SEAC. They
are my advisers.
771. Looking at the mathematical process of
calculating what 30 months means from the point at which the animal
food chain is clear of potentially contaminated product, we are
reaching a point where 30 months is a—
(Mr Brown) I have looked at it from the same point
of view that you have. However, I do have to have the scientific
advice first. Although the scheme is only implemented in the United
Kingdom, it is a European Union scheme. It is part of the safeguards
that the European Union—
772. Are you under any pressure from the EU
to clarify how the scheme might work, bearing in mind that it
would appear to have rather a different relevance and be essentially
a market intervention tool rather than a public protection tool?
(Mr Brown) It is essentially a public protection measure
but because of its nature it also works as a market intervention
and when the market is depressed the significance of it is enhanced.
773. I am drawing attention to the fact that
the public protection issue is likely to become rather redundant
beyond a certain point because—
(Mr Brown) I follow your logic but it has not yet.
The first step is the advice from SEAC. When I get the advice,
I am quite happy to share it with others, but we will have to
take the SEAC advice and then discuss these matters with the Commission.
In other words, it is not quite as straightforward as you imply.
774. Looking at the sector as a whole, one of
the issues this select committee and others have started to confront
is how to put together strategies for sectors in agriculture to
ensure that, such as we can as a government—obviously, our
role is limited—we have the correct policy instruments in
place to ensure a vibrant, successful sector and its continuance.
(Mr Brown) The key elements to achieve that objective
are to encourage cooperation within the sector. As a government,
the most important thing we can do is to work for reform of the
dairy regime in the Common Agricultural Policy, to give support
to the three successor organisations of Milk Marque and to make
sure that they are able to market their way to get through the
current difficulties, rather than looking to the supply side.
775. Obviously, it is largely a task of the
industry itself to produce strategies for its survival?
(Mr Brown) These are increasingly becoming private
sector arrangements.
776. Nevertheless, in an area which is subject
to substantial degrees of government regulation and control, the
government and its choice of policy tools are very clearly important.
(Mr Brown) That is right, except that the big policy
instruments are pretty inflexible because they are the Common
Agricultural Policy ones.
777. As we know with the potential changes in
Agenda 2000 there are some flexibilities which you have already
started to consult on and which indicate some opportunities for
greater targeting within the United Kingdom context.
(Mr Brown) That is true but it is relatively small
compared with the fixed instruments under the Common Agricultural
Policy. We can never lose sight of the fact that price supports
and quotas and the use of dairy and import quotas are very powerful
economic instruments.
778. When we had Stephen Byers in front of us
just now, he opened up the prospect of greater assistance to farms
as small businesses for the development of new product and he
pointed to one particular step that he had already taken in this
respect. Is there not greater potential to produce more joined
up advice and support mechanisms for the farm sector to move into
added value activity of various kinds?
(Mr Brown) These are matters that the Milk Marque
successor organisations will want to consider collectively. They
will all have their own strategies and it is for them to determine.
The government does give support to these measures. We have given
the Committee a memorandum setting out the different avenues that
are available for support under the Department of Trade and Industry
schemes and there are some agricultural schemes, but the point
I would want to emphasise to the Committee is that, although these
are important, it is possible now and it will be possible in the
future to have schemes like the 5(b) schemes to enable diversified
farm income to individual farm businesses. If the Committee is
concentrating on the dairy industry, the key and inescapable feature
of support for the dairy industry is the Common Agricultural Policy.
779. The advice and support mechanisms that
are available to farming are much criticised as fragmented in
the sense that you have to approach a variety of different ministries
and their offshoots to secure answers to your questions. One of
the critical issues of this sector, as with any other sector,
is how you join up the advice services and support functions to—
(Mr Brown) I try in the Department to give front line
advice to farmers through the regional service centres.
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