Memorandum submitted by the Soil Association
(L19)
The US still has a regulatory body which
fixes prices in different states monthly. The system works.
INTRODUCTION
1. The Soil Association is the main organisation
of the organic movement in the UK, and also the main Government-approved
certifier for the UK organic sector. Our responsibility for organic
farming and food is evident throughout the entire food chain,
from consumers, retailers, processors and wholesalers, to producers,
researchers and policy makers. Membership of the Soil Association
charity (over 25,000) includes members from every link in the
chain and we represent them all in working to develop the organic
sector. The objectives of organic farming are the sustainable
management of soil and the natural production of healthy crops
with high nutrient levels, to produce healthy food for humans.
This is achieved through good soil management focussing on the
maintenance of soil organic matter levels and soil biological
activity.
Certified organic farming accounts for about
4% of UK farmland. The market for organic food is worth £1
billion, with UK organic farmland supplying about 45% of this
and the rest supplied by imports. The Government's target is for
70% of the organic market to be supplied by UK farmers by 2010.
An increase in the area of organic farming is one of the Government's
"quality of life" indicators. The Defra action plan
for organic farming, adopted in summer 2002, supports the development
of the sector, and Defra have published a major paper setting
out in detail the sustainability benefits of organic farming.
The Food Standards Agency have said that consumers wishing to
avoid pesticide residues in food or buy sustainable food can buy
organic, and English Nature wants to see more organic farming
because there is more wildlife on organic farms. The sustainability,
biodiversity and animal welfare benefits of organic farming are
accepted by the Government, and the Government's policy on sustainable
public procurement includes encouraging the purchase of organic
food for those reasons.
GENERAL COMMENTS
2. This evidence is given from a base of
knowledge of the recent growth and development of the organic
sector in the UK. In providing this evidence we have consulted
with key players in the organic dairy sector — notably the
Organic Milk Suppliers Co operative (OMSCo).
3. The Soil Association produces an annual
market report, the Organic Food and Farming Report which documents
organic market and consumer trends, produces quarterly market
and pricing updates via our magazine "Organic Farming",
is in the process of completing a feasibility study assessing
market intelligence and marketing support needs of the sector,
produced a report in 2002 on behalf of the Milk Development Council
looking at the potential for the organic milk market, and is contracted
by Defra to run a proportion of the Organic Conversion Information
Service (OCIS). We are therefore well placed to give evidence
to this select committee on milk pricing issues relevant to the
organic dairy sector.
4. There are around 450 organic dairy farmers
in the UK producing 293.4 million litres of milk in 2002-03. Until
2001 there was a deficit in production ie retail and processing
demand outstripped UK supply. Due to substantial increases in
conversion resulting in more milk being produced in late and post
2001, even though the retail market continued to grow, supply
outstripped demand to a level that only 62% of milk produced in
2002-03 found an organic outlet.
5. Trends over the last decade and more
have led to the majority of raw milk being retailed by fewer and
fewer multiple retailers and major rationalisation of milk processors
at the expense of doorstep deliveries and independent sales (and
wholesaling). This has resulted in milk being sold simply as a
loss leader commodity leading to price pressures at the farm gate
often to a level below the cost of production with a devastating
impact on the viability of UK dairy farms. The arguments of supply
and demand cannot be used as a justification for this action.
While the power of the buyers has become stronger and stronger,
the position of the producer has become weaker and weaker. Retailers
say they need to be competitive in the market place so the price
cannot be put up but their shareholders demand more profits. The
only option left for the hapless buyer is to squeeze the supplier.
It must also be remembered that the buyer is rewarded financially
on the margin achieved between buying the product and selling
to the public. This practice means that whatever the retailer
says publicly, their method of remunerating the buyers speaks
otherwise. The break up of the Milk Marketing Board was immensely
damaging to the dairy sector and there is a strong case for the
re establishment of a central independent pricing body to ensure
"fair play" throughout the dairy food chain.
THE EFFECT
OF MILK
PRICING ON
ORGANIC DAIRY
FARMERS
6. At first sight the organic dairy sector
may be assumed to have been less affected by general market price
improvements not being passed back to the farmer. Healthy organic
milk price premiums have been well documented and this fact has
clearly contributed to the increase in organic dairy conversions.
However, nothing is as straightforward as it seems, and there
are several factors which mean that the organic sector has been
negatively affected:
(a)
Well publicised price premiums and promises for organic
milk backed by widely reported volume contracts with a major multiple
retailer, poor financial returns in the non organic sector, and
an attractive Government organic conversion package all contributed
to a sudden increase in organic milk production with expectations
that the organic dairy sector offered a more secure future.
(b)
Over the last two years 30-50% of all organic milk
produced in the UK has had to be sold onto the non organic market
at non organic prices. These prices are well below the cost of
organic production, particularly when much of that milk has been
sold at low price spot values. That improvements in general retail
milk prices have not been passed back to the producer has been
very damaging to the organic producer in this respect.
(c)
The supermarket chain who gave volume contracts at
set prices to the main organic dairy cooperative reneged on this
contract when other milk groups started to secure organic milk
from their members and were prepared to undercut the organic market.
The power of this retailer in the market place enabled them to
walk away from this contract with no redress using the threat
of continued business. This is totally unacceptable behaviour,
and is provoked by other producer groups selling at below market
price.
7. The result of all of these factors is
that while the organic sector offered great hope to many dairy
farmers (many of which are medium sized family farms with recognised
landscape, environmental, and social benefits), attracting a substantial
number to start conversion in 1999-2000, these hopes are now being
dashed. Unless something is done about the relationship between
the major retailers, processors and milk buyers we risk an exodus
of the farms converted at a time when the retail market for dairy
products continues to grow. The only route left open then will
be a return to import reliance at the expense of our own dairy
sector.
RECOMMENDATIONS
8. A thriving dairy sector in the UK is
desirable for food security, health, economic, social, landscape
and biodiversity reasons. Within this, organic dairy production
offers the potential to maximise and lead these benefits. There
are no long term advantages to the nation in allowing unnecessary
price pressures (that have more to do with retailers competing
for market share than any desire to offer the customer a better
deal) to damage the viability of a strand of agriculture that
is so well suited to our climate, contributes so much, and has
been such a central part of our agricultural activity. Our recommendations
include:
— Re establish a central Milk Marketing/Pricing
Board. This would not need to take over the role of existing wholesalers,
processors and co operatives. Rather, it would give them a fair
framework within which to work.
— New trading bodies should be considered
that overcome difficulties with the Monopolies and Mergers Commission.
These could be structured around formally constituted co operatives
with transparent trading relationships. There should be no objection
to one central marketing group or co operative handling 100% of
an organic agricultural product providing that there is a wide
enough group of stakeholders and that prices and trading is transparent.
This may be the only way of redressing the balance of power between
a few well organised multiple retailers and a large number of
small and medium sized farm businesses. This is particularly relevant
as we expect organic agriculture to not simply produce food, but
deliver many wider benefits to rural and urban society.
— Milk prices should be such that encouragement
is given to farmers to add value to milk through milk quality,
seasonality, processing and marketing as individual rather than
commodity products (single estate milk, breed specific etc), and
major processing suitability. Prices should allow the continuation
of the small and medium sized herds that still exist, and encourage
the establishment of new small and medium sized dairy herds along
with the use of a wider pool of genetic material (this will aid
food security and improve animal welfare through avoidance of
strain/breed specific problems). We should avoid the extreme rationalisation
of the dairy sector that is currently being experienced.
— The establishment of an organic ethical
trade label for organic milk as being piloted by the Soil Association
(November 2003). This initiative would ensure a fair deal for
both consumers and producers, leaving a margin for the wholesaler
and retailer. In addition it would start to increase public understanding
and knowledge of organic farming issues.
January 2004
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