Transparency in the dairy supply
chain
58. The fact that we have been unable to account
for the entirety of shares taken of the retail price of liquid
milk leads us to agree with the NFU that "the dairy supply
chain [is] insufficiently transparent to enable producers to be
certain that the price increase from retailers [is] finding its
way back to them."[53]
When added to the complex structure of the dairy sector, the
lack of transparency in the dairy supply chain means that farmers
have been unable to identify conclusively what proportion of the
2003 retail price increases has passed back to them by way of
increased farmgate prices.
59. Transparency in the dairy supply chain is particularly
important because of the fraught relations within the dairy industry.
This is not a recent state of affairs: in February 2000, our predecessor
committee, the Agriculture Committee, referred to the "institutionalised
antagonism between the suppliers and the dairies".[54]
From the evidence we have heard in the course of our present
inquiry, we are extremely concerned by the poor state of relations
in the dairy industry. We have seen evidence of suspicion and
mistrust, preoccupied self-interest and a lack of constructive
dialogue. Some of the answers we received to our questions were
at best opaque, if not disingenuous, making this a difficult enquiry
to undertake and to conclude. We can only agree with Dairy Crest's
description of the dairy sector as characterised by an "engrained
adversarialism and blame culture".[55]
Sadly, there has been no evidence of an improvement since the
Agriculture Committee inquiry.
60. Relations within the industry will continue to
be poor while there is uncertainty about the proportion of the
retail price retained by retailers and processors. Farmers need
to have the information to enable them to assess whether increases
in the retail price have been fully transmitted; if such information
is not made available, they will suspect that a proportion of
the price increase has been siphoned off along the way. We are
disappointed that the industry itself has not taken greater responsibility
for monitoring the situation; for example, we were surprised to
learn that DIAL feels able to maintain its belief that the market
operates fairly while feeling no need to collect data on matters
such as the retail margins on liquid milk and commodity products
to support its belief.[56]
61. We acknowledge that that Government has attempted
to show some leadership in this respect, by establishing the Dairy
Supply Chain Forum in 2002. The forum is currently chaired by
the Minister for Food and Farming and is made up of representatives
from all parts of the dairy supply chain as well as the MDC and
Government. It meets quarterly and is intended to encourage supply
chain co-operation, increase efficiency and promote the sustainable
development of the industry. The forum's primary function appears
to be acting as a steering group for the three sub-groups which
it has established. The sub-groups are:
- the CAP Reform Sub-Group, which
aims to assess the implications of CAP reform for the English
dairy industry and reviews possible options
- the Industry Development Sub-Group, which aims
to facilitate the long-term sustainable development of the dairy
supply chain
- the Innovations Sub-Group, which aims to stimulate
and co-ordinate innovation for the development of British dairy
products.[57]
We commend the Government for the initiative it
has shown in setting up the Dairy Supply Chain Forum.
62. However, we are concerned that, when we questioned
the Minister for Food and Farming about the forum's terms of reference
and agenda, his response was so vague as to convey the sense that
the Government has no agenda for the forum other than bringing
together representatives of the dairy supply chain.[58]
What is more, the Government has subsequently told us that, during
the course of this year, it foresees itself withdrawing from the
forum as the forum will, by then, "have shown sufficient
progress that participants from across the supply chain will be
willing to continue the forum under industry leadership".[59]
63. We have serious doubts about the wisdom of
the Government's intention to withdraw from its role as facilitator
of the Dairy Supply Chain Forum. We are not confident that relations
within the dairy industry are sufficiently advanced as to be capable
of constructive dialogue and action without the facilitation of
the Government. We recommend that, rather than withdrawing from
the forum, the Government should instead continue to chair the
forum in order to demonstrate the importance that it places on
the dairy sector and the need for further change within the sector.
We recommend that the Government use the forum as a means to:
- take immediate action to
establish what proportion of the retail price of liquid milk and
other dairy products is retained by each of the participants in
the relevant supply chain in order to improve transparency in
the dairy supply chain
- improve the information about the dairy market
that is available and communicate that information to dairy farmers
by way of regular, formal communication; such information should
explain how retail price increases are transmitted down the dairy
supply chain and provide case-specific data in respect of recent
retail price increases
- address, in an open and constructive way,
the engrained adversarialism and blame culture that continues
to characterise the dairy industry.
64. In this context, we note that both FFA and the
RABDF have asked that a regulatory body be set up to oversee the
dairy industry supply chain, to bring greater transparency to
the supply chain.[60]
We understand the concerns that are prompting farmers' groups
to call for such a body, but we believe that the recommendations
we have set out above should go some way towards answering those
concerns. We see no compelling evidence in favour of setting
up a regulatory body to oversee the dairy industry supply at this
stage.
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