Memorandum submitted by Richard Pool (L3)
1. SUMMARY
1.1 Milk production in the UK is in gross
excess. Surplus is disposed of by Community dumping on world markets,
at taxpayer cost and to farmer, national and Community shame.
1.2 Production must be limited by the normal
market mechanism of price.
1.3 Two issues currently militate against
normal market forces:
(i) old ex-MMB ideas of "co-operative"
marketing, derived from the use of monopoly powers, to use the
[captive] liquid market to fund other uses and to fund farmer-owned
dairies. Such funding is both deeply abusive of consumers, and
illegal. Supermarkets, caught in these attempts, are damned whatever
they do. The old concept of equal farm gate prices for all producers
is still deeply ingrained.
(ii) Quotas. Besides acting to encourage
production, albeit at a loss, fulfilled quotas are seen as the
inevitable basis for decoupled Single Farm Payments in the dairy
sector. This is a major factor in supporting illogical, loss-making
and irresponsible milk production and a massive barrier to any
rational reduction of milk production.
2. BACKGROUND
2.1 Others will no doubt have pointed out
the mechanism of price formation in the milk market and the chronic
over-supply of this market both at Community and at national level;
not least the over-supply of the national liquid milk market,
the only market able to distort prices by commanding a premium
over present CAP support levels for butter and smp. (and, by necessary
implication, for bulk cheeses). The present Pricing Inquiry is
itself a consequence of this over-supply.
2.2 This note looks at three responses being
urged to "remedy" this over supply and its normal market
consequences:
(i) demands to restore, in some form or other,
the old cross-subsidy from the liquid market to other uses, both
by capital transfers and by milk price transfers. Both are bitterly
abusive of consumers, and illegal;
(ii) the malignant effect of the near universal
assumptions that milk production must always be maintained to
fill quotas and that future entitlement to a de-coupled Single
Farm Payment will be based, not on a uniform land rate, but on
historic "entitlement"; and
(iii) continued disregard of dairy farmers
selling direct to consumers.
3. NOTES
3.1 Liquid demand. The Waterhouse Committee
(a committee under the old Agricultural Marketing Act, chaired
by the then Mr later Sir Ronald, Waterhouse) considered the size
of "buffer" needed to support the MMB liquid milk market
to be 15%. This suggests UK national milk production should drop
to about 55%-60% of UK national quota.
3.2 Milk producers do not contest their
dependence on dumping. When, recently, Westbury Dairies took over
the running of the dairy, a spokeswoman is reported as saying
"We are delighted to confirm that Westbury will stay in farmer
control. The deal marks a milestone for the UK dairy industry,
with the three leading co-operatives, Dairy Farmers of Britain,
First Milk and Milk Link, working together in a unique joint venture
to secure vital access to intervention markets". (Ignoring
the obvious errors in the above quotation, the obscenity of the
producer thinking behind it is remarkable).
3.3 Farmers For Action, on the BBC recently,
attacked Wiseman Dairies for making profits rather than paying
farmers. When asked to note that Wiseman paid a high milk price,
the reply was that, since they were selling more in the liquid
market than others, they should pay more. Westbury (noted above,
but in various of its recent manifestations) has made various
calls for support for plant etc. Producers have contributed very
large sums to co-operative and other dairies, both in low-or no-payment
for milk and in dishonoured shareholder funds, bonds etc. Dairy
Crest has repeatedly shown disregard for the interests of its
farmer funders, first, under MMB control, by building dairy plant
funded (illegally) by abuse of MMB compulsory powers, later by
withdrawing plant so funded from the milk market to reduce the
price it (and others) had to pay for milk on end of the MMBs,
more recently by evading farmer shareholder control by RMMB handling
of, amongst other funds, its old "Roiling Fund". The
list is long, and repeated in Scotland.
3.4 Major dairies and supermarkets seek,
properly, to put milk and dairy products on their shelves at the
lowest price, to the extent that they speak for their consumers,
it would be wrong for them to do otherwise. Only when they can
not restock their shelves can they be said to have taken their
duty too far.
3.5 One long term and stable development,
expected when the monopolies ended, has not occurred. Individual
producers, or small groups, have not contracted with specific
supermarkets to supply (and the buyer to take) milk; the supermarket
taking responsibility for arranging the contract packaging of
this milk by whatever dairy it wishes. The opportunities for developing
quality farm standards, regional loyalties and public association
of identified farms with specific supermarkets have not—yet?—been
explored.
3.6 One small group of farmers do provide
useful competition to supermarkets, on price, and also on quality
and on service—those who sell the milk of essentially their
own production direct to consumers, as retail "bottled"
milk or as cheese, yogurt, cream etc. Such direct farm sales,
getting closer to consumers, farmers markets etc., have been greatly
encouraged recently for most farm produce, but not for milk. A
wide divergence of support for, or opposition to, these milk producers
has been shown by many organisations; RMMB treated them most improperly;
Milk Marque and its successors were positively helpful to them;
some local authorities hate, some love them; many in the Intervention
Board, dealing with quotas, looked on them as rogues, a view reciprocated
by many direct sellers, but now calming down; and many standards,
appropriate to large organisations, may be very damaging when
imposed on these often single family organisations.
4. CONCLUSIONS
4. This Committee should urge government:
4.1 to reject all calls, however
disguised, for any cross-subsidy by the liquid market to the benefit
of milk producers supplying other uses, as deeply abusive of consumers;
as against the national interest; and as probably illegal under
current national and Community legislation.
4.2 to support a distribution of
the de-coupled Single Farm Payment, for milk at least, on an area
average basis, and not on an historic entitlement basis.
(Alternatively, to make clear now that supplies after March 2003
will play no part in these calculations).
4.3 to encourage and to protect
from incidental damage, those dairy farmers who market direct
to consumers the milk of their own production.
January 2004
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