Select Committee on Agriculture Third Special Report


The Agriculture Committee has agreed to the following Special Report:—

The Committee has received the following memorandum from the Ministry of Agriculture, Fisheries and Food, constituting the Government's Reply to the Second Report from the Committee of the 1999-2000 Session, The Marketing of Milk, made to the House on 24 January 2000.

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1. The Government welcomes the report of the Select Committee's Inquiry into the marketing of milk as a positive contribution to an ongoing debate on the future of one of the United Kingdom's most important farming sectors. Many, but not all, of the Committee's conclusions and recommendations were aimed at the Government. Its response to these is set out below.

Milk Quotas

Recommendation 1: We reiterate our support for a rapid end to milk quotas which are a constraint on the development of an efficient, market-focussed industry and we urge the Government to press other EU partners to agree an end to the quota scheme before 2003 (paragraph 21).


2. The Government agrees with the Committee that the milk quota system represents a constraint on the sector; indeed, it has been calculated that the additional cost to the industry as a whole of supporting the quota transfer system amounts to around 2.5 pence per litre for every litre of milk produced. This is unsustainable and is why the Government pressed so hard for an end to quotas in the Agenda 2000 discussions. Sadly we did not have sufficient support from other Member States for this but we did succeed in maintaining the planned review for 2003 with the presumption that this would lead to an orderly phasing out of the current arrangements. In the intervening period we will endeavour to convince the Commission and our EU partners that this is the right way forward. However, an end to the system before 2003 seems unlikely.

Monitoring Market Power in the Structures

Recommendation 2: We expect the DGFT to monitor the market structures that now develop in order to check that the decisions taken under pressure from the competition authorities have had the desired consequences and do not lead to excessive concentration of power in any one sector of the dairy industry (paragraph 29).


3. The DGFT has a general duty to keep markets under review to ensure that concentration of market power in any sector of a market does not give rise to competition problems. He has been asked by the Secretary of State for Trade and Industry to monitor the new arrangements for the marketing of raw milk this Winter, by Milk Marque's successors, and report his conclusions by Easter.

Farmers and Processing

Recommendation 4: In the current climate, processing is often presented as instant salvation for hard-pressed farmers. We are sympathetic to their desire to earn a higher percentage of the retail price of their product but rash investments in processing capacity for its own sake, for example, producing intervention products, will not necessarily bring the rewards farmers seek and in the case of the new successor bodies could seriously weaken their financial stability. Investment in products for the retail market by the producer co-operatives, alone or in concert with other companies, is a different matter altogether and we believe that there could be many opportunities which will open up for the new co-operatives in this way (paragraph 38).


4. The Government agrees with the Committee's view that an unplanned move into processing by producers could be counter-productive. Nevertheless, producers should be live to real marketing opportunities and to the possibility of adding value to their primary milk production. As the Minister of Agriculture, Fisheries and Food said in his oral evidence, this could well be achieved by way of strategic partnerships with existing processors rather than requiring producers to set up completely new operations.

Recommendation 5: Whilst we give every encouragement to the development of small, specialist producers of dairy products, we recognise the difficulties involved in the establishment of such businesses. Undeniably, a renaissance of small dairy enterprises could help individual farmers and contribute to the development of regional tourism and we recommend that resources from the rural development fund be applied to support their initial set up. However, for most farmers there is much greater potential for adding value through innovation and investment by the existing dairy companies and, increasingly, the producer co-operatives (paragraph 54).


5. MAFF encourages dairy producers to add value to their produce and provides help in a number of ways.

6. Through 'Food from Britain'(FFB), the Ministry provides financial support for a network of regional speciality food groups as well as national and international trade development initiatives. Many small, specialist producers of dairy products are members of the regional food groups and benefit from a range of business development services. For example, FFB are working to promote speciality food to retailers and food service providers and through the development of e-commerce.

7. On 30 March 2000 MAFF announced that the Agriculture Development Scheme, first run last autumn, would be opened for a second bidding round. This scheme provides support for non-capital projects designed to help farmers and growers in England improve their competitiveness through better marketing.

8. The England Rural Development Plan (ERDP) submitted to the European Commission on 1 February includes proposals for the reopening of the Processing and Marketing Grant Scheme, which will provide capital support for businesses wishing to improve their competitiveness and add value to the food they produce by improvements in processing and marketing facilities. From 2002/03, some £8 million a year will be provided under this measure.

9. The ERDP will also provide support, under the new Rural Enterprise Scheme, for projects to improve the marketing of quality agricultural products. The Government believes that this is a key means of adding value to agricultural output and improving economic returns in rural areas. Projects will normally be assessed at a regional level, but there is also scope for addressing the marketing of quality agricultural products on a sectoral or national basis.

10. In addition, the new Small Business Service will be able to provide assistance to micro and new business start ups. Further, as announced in the Strategy for Agriculture, £6.5 million is being allocated to provide one-to-one farm advice through the service.

Competition Restraints on the New Co-operatives

Recommendation 6: There seems to us no reason why any regulatory limits should now be placed on the activities of the successor co-operatives beyond those of complete independence from one another. The co-operatives are not yet free of the competition authorities since the restraints on their expansion into processing will not be lifted until Mr Byers has received the advice of the DGFT which should be "round about Easter time" this year. However, a speedy decision in favour of processing, on advice from the DGFT, would be in everyone's interest. We recommend an early decision by the Government that will allow the successor co-operatives to consider processing milk. We note that the past references to the competition authorities have resulted from complaints originating within the industry. To that extent, freedom from competition restraints lies in the hands of the industry itself and can be realised only if the habit of appealing to the outside bodies for redress of internal grievances is broken (paragraph 40).


11. The Government welcomes the Committee's recognition that it is necessary for the three successors to Milk Marque to operate completely independently of one another. The Government notes the Committee's view that a quick decision should be made on allowing the successor bodies to process their members' milk if they wish to do so. Any decision to allow them to enter into processing will be dependent upon receiving a favourable report from the DGFT on the new arrangements for the marketing of milk by the successor bodies. The Secretary of State hopes to be able to make a statement before Easter.

Conclusions on the New Structures

Recommendation 7: In general, we believe that the new structure for the marketing of milk in England and Wales will give the industry seen as a whole an opportunity to adapt to the market, to increase its competitiveness and to achieve better returns for participants prepared to meet the challenges (paragraph 41).


12. The Government welcomes the Committee's positive endorsement of the new arrangements for the marketing of milk in England and Wales. Suppliers of raw milk and their customers now have the opportunity to work together closely and constructively to their mutual benefit, and to improve the competitiveness of the sector.

The Future for Dairy Farmers

Recommendation 8: There is without doubt a crisis in dairy farming and, sadly, there are likely to be more casualties before any real recovery is felt (paragraph 43).

13. The Action Plan for Farming announced on 30 March indicated that, amongst other measures, agrimonetary compensation would be paid to dairy farmers this year. This will amount to some £22 million. The Government will also support a range of measures to give farmers better advice and support to promote diversification. This will include the creation of a free consultancy service available to any farmer who wishes to seek approval from the planning authorities for a diversification project under the England Rural Development Plan. Taken as a whole, the measures should provide the dairy industry with some short term relief during which the longer term action it needs to take to ensure continued viability can be addressed.

Government Assistance for Dairy Farmers

Recommendation 9: We recommend that the Government commission research into the implications for the rural economy and the environment of further structural change in the dairy sector (paragraph 44).


14. Whilst it may be appropriate to monitor the impact on the rural economy and the environment of structural change in the agricultural sector as a whole, it would not be as meaningful to undertake such research for particular farm types as this would provide an incomplete picture.

Recommendation 10: We further recommend that the Government identify areas where small farms are at risk as priority areas for help under rural development measures (paragraph 44).


15. The England Rural Development Plan (ERDP) includes three measures which will help to encourage enterprise and employment in the countryside and support rural communities. The Rural Enterprise Scheme will provide project-based support to assist the adaptation and diversification of the rural economy. The Scheme would cover, for example, projects to develop farm diversification and tourism initiatives, marketing of quality agricultural products and small scale projects to underpin rural economies. The Processing and Marketing Grant Scheme will provide capital support for businesses wishing to improve their competitiveness and add value to the food they produce by improvements in processing and marketing facilities. Vocational training initiatives will complement these schemes and other measures in the Plan by helping people who work in farming and forestry develop appropriate skills.

16. Each of these measures will be available to help small farmers who wish to adapt to changing economic conditions by taking up new marketing opportunities or improving their competitiveness through, for example, collaborative projects with other small producers. However, the Government does not believe that such assistance should be based on the identification of priority areas for small farms. Instead schemes will be project-based, and projects will be supported on the basis of the merits of the application, taking account of regionally assessed priorities and objectives.

Recommendation 11: Other appropriate vehicles for supporting small farms could include assistance with collection charges, which are proportionately higher for small producers, and Government funding of dairy hygiene inspection charges in England and Wales as is already the case in Scotland and elsewhere in the EU (paragraph 45).


17. The Government announced on 30 March that it would remove charges for dairy hygiene inspections in England as soon as the necessary legislation could be put into place. The Welsh Assembly had already announced, on 1 December last, its plans to remove dairy hygiene charges. This action will benefit the dairy industry in England by some £1 million annually.

Recommendation 12: It is worth noting that the review of the Over Thirty Month Scheme (OTMS) will have a material effect on farm incomes. The removal of the Calf Processing Aid Scheme (CPAS) has particularly affected dairy farmers, and marketing assistance to find customers for dairy bull calves would be welcome ( paragraph 45).


18. The Spongiform Encephalopathy Advisory Committee (SEAC) advised Ministers in November 1999 that the over thirty month rule should be retained, but should be kept under review. The Government has accepted that advice. Until such time as SEAC has completed its review and made recommendations for changes to the rule, the implications for the OTMS and consequential effects on farm incomes cannot be assessed.

19. The Government, with the National Farmers' Union, is supporting initiatives which aim to utilise some of the calves that are currently available to produce veal in the UK which could be exported under the Date Based Export Scheme to the continental market. The Government is also encouraging trade initiatives to utilise surplus male calves from the dairy herd to rear on and sell as young bulls. These animals could then supply parts of the meat processing sector which will be short of home-killed beef this year (there are no intervention stocks to fill the gap in the market). If these initiatives are successful, the demand for calves for veal production or further fattening could be significantly increased. The question of marketing in general is further addressed in the response to the recommendation at paragraph 60, below.

School Milk

Recommendation 14: We recommend that the Government review the school milk subsidy and examine whether a revised scheme, allied with industry initiatives such as generic marketing, might boost demand for milk (paragraph 51).


20. As the Committee is aware, the question of the continuation of the school milk scheme has been under discussion in the Council of Agriculture Ministers. At the same time, MAFF has initiated discussions with industry and other interests to determine what changes, if any, need to be made to the detailed operational rules or the way in which they are administered in the UK. It is for the industry itself to decide whether this scheme or other specific targeting at schoolchildren should form part of its planned generic marketing campaign.

Organic Milk

Recommendation 15: We recommend that the Government review the amount of organic aid given to dairy farmers and ensure that the sector as a whole supports the development of organic milk (paragraph 52).


21. The Scheme under which aid is given to farmers to help them convert to organic farming is being reviewed with a view to establishing how it might be adapted to make better use of available resources. A consultation document was issued on 17 December 1999. The targeting of aid under the Scheme is one of the issues for consideration in the review and on which consultees were asked to comment. The Committee's views on this issue in respect of organic milk and on the wider question of synergy with support from non-Governmental sources will be taken fully into account as the review proceeds.

Generic Marketing

Recommendation 17: We believe that generic marketing of milk and subsequently of other dairy products has great potential to increase or at least maintain sales in the UK but that it can only work with a well-funded, imaginative campaign to which all parties are committed. We would welcome a clear undertaking from the DIF to support the campaign and we call for early implementation of the necessary legislation for a producers' levy by the Government (paragraph 58).


22. The Order amending the Milk Development Council Order 1995 to extend the functions of the MDC and raise the maximum levy was laid before Parliament on 14 February with the intention that it should come into effect on 1 April. It was debated in both Houses in March.


Recommendation 18: On balance, while we support the development by the industry of a label linked to quality assurance and British identity, we believe that at the moment greater potential for adding value lies in promoting regional and branded products. For small producers, who are particularly in need of support to remain viable, we recommend that the Government encourage a marketing strategy based on the marketing of "small farm milk" as a brand (paragraph 60).


23. The Government welcomes the development of industry-led food assurance schemes and fully supports the initiative of the NFU to develop a linked 'Kitemark' so that consumers can identify assured products.

24. We also acknowledge the importance of branding as a means of differentiating products in order to obtain a marketing advantage. The development of brands is a matter for individual businesses to take forward as they are best placed to know the strengths of their products and how best to position them in the market place.

25. MAFF is encouraging the better marketing of products through promoting collaborative marketing among small businesses in order to realise the benefits of scale, through promotion of the EU protected food names schemes and through grant in aid. Financial assistance will be available to support projects concerned with improving the marketing of quality agricultural products under the Rural Enterprise Scheme which will form part of the England Rural Development Plan.

Recommendation 19: MAFF should ensure that the labelling requirements do not conflict with any form of innovative branding concepts (paragraph 60).


26. The Government draws a distinction between 'food labelling' which refers to an area of regulation under European and national legislation whose principal objective is, in the widest sense, consumer protection and 'product branding' which is a voluntary practice adopted by industry for the purposes of marketing.

27. Responsibility for food labelling in the UK rests with the Food Standards Agency, which will be paying close attention to ensuring that labelling legislation and practices provide consumers with clear and unambiguous information about the foods they buy.

Farm Assurance Schemes

Recommendation 20: The proliferation of farm assurance schemes to differing standards could act as a barrier to competition as direct suppliers become bound to one dairy company. This is an issue which the OFT will need to keep under review (paragraph 62).


28. The industry has developed a number of assurance schemes covering different parts of the food chain. While these are a matter for the industry, MAFF welcomes the adoption of European standards in the EN series and UKAS accreditation which are becoming increasingly standard practice and the steps being taken by industry to rationalise the number of assurance schemes, to avoid potential problems of the kind referred to by the Committee.

29. All assurance schemes may raise competition issues and the Ministry encourages the industry to notify their schemes to the competition authorities in the UK and in Brussels. A number of assurance schemes have been cleared by the competition authorities on the basis that they do not give rise to a negative effect on competition.

Secondment of Government Officials

Recommendation 21: We welcome the secondment of a MAFF official to the Specialist Cheesemakers Association and recommend that the initiative be extended to other speciality sectors (paragraph 65).


30. MAFF was pleased to be able to second an official to the Specialist Cheesemakers Association (SCA) and will review the benefits to both organisations in due course. The SCA has given the secondee a range of duties concerned with the promotion of specialist cheesemaking. The Ministry aims to promote and encourage the exchange of staff and good practice as part of its work on the 'Modernising Government' agenda.

31. The speciality sector, including cheesemakers, receives considerable assistance from the Ministry. Through support for 'Food from Britain' (FFB) who have day to day responsibility for the development of the speciality sector, the Ministry provides financial assistance for trade development. FFB supports the speciality sector by providing funds for regional food groups who provide a wide range of business development services for their producer members. At national level, FFB provide complementary services through sponsorship of national and international trade exhibitions and 'meet the buyer' events.

32. The speciality sector also benefits from grant aid and other initiatives run by the Ministry to encourage the better marketing of agricultural products.

Specialist Cheesemaking

Recommendation 22: We deplore the unimaginative and damaging prejudice that the very existence of small food producers such as cheesemakers is inherently a threat to public health and look to Ministers in MAFF and the Department of Health, and to the new Food Standards Agency, to combat such attitudes with vigour and urge the Agency to follow the example of MAFF and appoint an official to act as liaison with the industry (paragraph 65).


33. These are serious allegations which the Government does not accept. There is no such prejudice against small food producers. Food safety can be assured by enterprises of any size, and cheesemaking is no exception.

34. The principal food safety issue in respect of cheese made with unpasteurised milk is that the cheesemaking process cannot be relied upon to destroy any pathogens that might be present in the unpasteurised milk used as raw material. Thus it is important to avoid contamination of the milk, e.g. by bovine faeces, during milking. It follows that hygiene standards in the production of unpasteurised cheese, both of milk used as raw material and the cheese itself, must be scrupulous.

35. Far from holding damaging prejudice against small cheesemakers, the Government has in fact given more assistance to raise hygiene standards in the small cheesemaking sector than in any other part of the food manufacturing industry. A campaign to promote good hygiene practice in the production of dairy products on farms under which cheesemakers can obtain free advice began in February 1997, and is on-going. The Specialist Cheesemakers' Code of Best Practice was funded by the Department of Health, and produced with advice from both DH and MAFF. The latest initiative is a further £50,000 programme to increase food safety awareness among small cheesemakers, and help them meet the legal requirements for food safety management systems based on hazard analysis.

36. The Food Standards Agency will make appointments as it considers appropriate. However, the official seconded to the Specialist Cheesemakers' Association by MAFF was not specifically appointed to act in a liaison capacity with the industry. The Specialist Cheesemakers' Association are free to give the individual concerned any duties it wishes.

37. When the Food Standards Agency is established, the responsibility for the sponsorship of the cheesemaking industry will remain with MAFF.

Recommendation 23: We recommend that the Government, including MAFF and the Department of Health, prepare a cross-departmental audit of all regulations bearing on the specialist cheesemaking sector to ensure that they are equitable and necessary. We further recommend that the implementation of the new regulations on dairy hygiene be delayed until there is convincing proof of the relevant scientific basis and the consumer benefits of the new microbiological standards (paragraph 65).


38. On the first recommendation, the Government does not accept that a case for such a review has been made. The evidence reveals burdens in the following four areas.

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