Select Committee on Environment, Food and Rural Affairs Written Evidence


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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