Memorandum submitted by John Tuck, Dairy
Farmer (L7)
Previous inquiries into milk marketing by both
the Monopolies and Mergers Commission and the Agriculture Committee
of the House of Commons have not recognised the intrinsic weakness
of trading position of dairy farmers wholesaling milk. The Government
of the day in 1933 did, and set up a statutory Milk Marketing
Board to protect the supply of this component of a healthy diet.
While this did restrict competition to some degree, its benefits
were not only to the farmer. Complacency among milk processors
and retailers as a result of wartime price controls, which lasted
decades after hostilities had ceased, had more to do with the
lack of competition in the dairy industry than the existence of
the MMB. Currently low prices for milk are encouraging husbandry
methods that are deleterious to the welfare of dairy cows, the
environment, and the social structure of the countryside. The
current high price of milk quota is I believe, an aberration that
many will regret. The dairy processors offer neither realistic
premiums for level deliveries throughout the year nor invest in
plant to take advantage of cheap seasonal milk but they were instrumental
in the financial collapse of the United Milk plant at Westbury.
1. Milk production is a specialised process
requiring high levels of capital and labour input, and also a
long-term strategy and commitment, but the output is necessarily
continuous, sometimes variable, but above all perishable. These
are the facts that make milk marketing uniquely difficult. The
Milk Marketing Board, a statutory monopoly, was formed in 1933
to protect the financial well being of the producer from the predatory
dairy industry, and to ensure a continuing supply of nutritious
milk to safeguard public health. Despite being a monopoly the
Milk Marketing Board served both producer and consumer well, particularly
through the Second World War, and evidence of benefits to the
consumer in lower prices since it's demise is hard to find.
2. Of concern to everyone should be the
intensification of dairy farms. Increasingly high yielding Holstein
dairy cattle, bred for conditions that prevail in places like
California and Israel, are being fed rations that largely consist
of intensively grown arable crops, particularly maize and other
cereals. Cattle are herbivores adapted to convert large quantities
of forage, particularly grass either fresh or conserved, into
milk and the consequences for the environment and for animal
welfare of this intensification should not be underestimated,
nor should the social consequences of the demise of dairy farming
in areas not suited to growing arable crops.
3. The fact that this consideration of milk
marketing by the Environment, Food and Rural Affairs Committee
of the House of Commons follows reports by both The Monopolies
and Mergers Commission and the Agriculture committee of the House
of Commons since the break up of the Milk Marketing Board, indicates
that an equitable solution to the problems that beset the milk
producer and the supply chain to the eventual consumer has not
been found. In fact before The Monopolies and Mergers Commission
published their report on Milk Marque in July 1999, the wholesale
price of milk was already falling, disproving the conclusions
they had reached, and the report of the findings of the Agriculture
Committee of the House of Commons published in 2000, which broadly
supported the findings of the MMC can only be described as perverse.
The history of milk marketing since vesting day only makes sense
if it is viewed as a continual application of a "divide and
rule" strategy by the major milk processors, augmented by
a policy of reduction in processing capacity in order to maintain
the fiction of surplus output in order to justify reductions in
prices paid to farmers. The statutory powers of the Milk Marketing
Board were removed because it was considered to be in the consumer's
interest to do so. Consequent reductions in the retail price of
milk are hard to find. Excuses for failing to reduce, or even
raising the price are a legion.
4. Contradicting the otherwise gloomy outlook
for dairy farmers is the current buoyant market for milk quota.
This is due in my opinion to a combination of desperation, wild
optimism, and clever salesmanship by quota traders. The desperation
stems from farmers who have expanded their output in the hope
of trading their way out of difficulties, thinking that nationally
our quota would not be fulfilled and that their overproduction
would not be penalised. Now that production figures indicate that
national quota probably will be fulfilled in the current year
they need to acquire quota simply to receive payment for milk
they have already delivered or will deliver before the end of
the quota year. Wildly optimistic are those farmers who foresee
large handouts as a result of the Mid Term Review of the CAP based
on the amount of quota held by individual farmers, and those who
believe that trading conditions are likely to improve in the near
future. Clever salesmanship is persuading potential customers
that what I have described as wild optimism, is good commercial
sense.
5. The rise in the farm gate price of milk
which followed the deregulation of the market in 1994 had very
little to do with Milk Marque's commercial strength but was almost
entirely caused by processors offering what amounted to bribes
to tempt farmers away from the co-operative. At that point Milk
Marque had no processing plant of it's own, nor did it have, or
any prospect of having, control of the output of milk. Without
these, the commercial muscle of Milk Marque, allegedly feared
by the Dairy Trade Federation was almost entirely illusory.
6. Milk processors complain with some justification
that the Milk Marketing Board insulated dairy farmers from the
realities of the market place, but they do not admit that for
around half of the life of the Milk Marketing Board that they
were even better insulated than the farmer by Government Price
Controls instituted in the Second World War, and the last such
controls to be removed decades after the war was over. In successive
price reviews through the 1950's and 60's the price of milk to
the farmer was reduced in real terms, by effectively penalising
him for increasing his efficiency, while the retail price was
steadily increased to give the dairy trade "cost plus"
improvements to their margin, guaranteeing their returns without
the need on their part for enterprise, innovation or their attendant
risks. However the dairy processors have been very successful
in passing the blame for this back to the farmer as is witnessed
by the introduction to the Second Report of the Agriculture Committee
of the House of Commons, published in January 2000, which states
that historically "few farmers saw any need for a commitment
to marketing"; a ridiculous statement to make about the people
who created Dairy Crest.
7. Milk producers are criticised for failing
to react to the demands of the market place. I would argue that
they have. First and foremost processors buying milk demand that
it is cheap. The cheapest milk to produce is that from cows that
calve as the grass begins to grow in the spring. The processors
then complain that they do not have, and are unwilling to invest
in, the processing capacity to deal with the "spring flush"
of cheap milk. The New Zealand dairy industry, which is held up
as an example of high efficiency, has a manufacturing sector geared
to take advantage of cheap seasonal milk. They have sufficient
manufacturing capacity, almost entirely farmer owned, to deal
with a massive spring flush after which production gradually tapers
off through the year, until most plants are idle for a month or
two in the winter. There is a premium (despite my best efforts
I am as yet unable to quantify this. I will forward the information
as soon as I have it) paid to some farmers in New Zealand
who provide "town milk" ie milk for liquid consumption,
which necessarily needs a level production profile all the year
round. The British dairy processors at present wants cheap milk
and a level production profile. This simply cannot be done. They
must make up their mind, and will either need to invest in the
plant to deal with a spring flush, or they will need to pay a
realistic premium for level production. The alternative is that
British dairying must contract so that it only fulfils the liquid
market, at which point the processors will have no option but
to pay a decent price for level deliveries unless they are prepared
to see the industry disappear entirely.
8. The story of the processing plant installed
by the United Milk co-operative at Westbury in Wiltshire has been
an unhappy one. It was not the best conceived plan, but it was
a brave attempt to give farmers a plant of their own. Of all the
problems that beset it, the one that was insurmountable was failure
run it at full capacity. There were a proportion of the farmers
who contributed capital to the scheme who failed to supply milk.
Milk producers who invested capital and were direct suppliers
to processors, when they announced their intention to resign their
existing contracts, were offered extra money by their current
buyers to continue to supply, thus denying the new plant vital
throughput, effectively and cynically making certain the eventual
demise of the scheme. Note that the only people who had the strength
and commitment to rescue the plant, to the benefit of all milk
producers, were those condemned by the processors to receive
the lowest prices; namely those committed to co-operation in bodies,
now enlarged, but formed at the break up of Milk Marque.
9. This is a 200 acre dairy farm that has
been worked by my family for at least 6 generations and over 200
years. I am now 61 and my wife and I are working as hard and long
as we ever have in our lives. Much of the extra work is connected
to another enterprise, pressing apple juice and making preserves
to sell at farmers markets. It is this enterprise that keeps us
afloat and we keep our milking herd as a hobby. Our son Stephen
is in charge of the herd. He is 27, has a degree in agriculture,
experience of dairy farming in New Zealand, and despite the present
difficulties wants to make a future in dairy farming. An article
he wrote in 1996, that won the David Shead Award for young journalists,
offered by The Dairy Farmer magazine, financed Stephen's
trip to New Zealand. The subject of the article was Dairy Farming
in 2006, and he predicted that by then, after years of low prices
farmers would be agitating for a new Milk Marketing Board. I think
he was right in everything but timescale. What dairy industry
will this country have in 2006?
January 2004
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