Examination of Witnesses (Questions 40-45)
9 FEBRUARY 2004
MR TIM
BRIGSTOCKE, MR
ANDREW CHADWICK,
MR ROBERT
CLARKE AND
MR JOHN
SUMNER
Q40 Mr Jack: That is a piece of description,
but I am intrigued to know from the retailers' standpoint, given
all the attributes that you would say make up the excellent product
which is UK milk, that if people want to retail—and admittedly
milk is a commodity, but we would argue in this country a very
high quality commodity, produced not without certain costs, and
therefore that might be a persuasive argument to processors and
retailers to recognise that if they want the security of the supply
chain, there is a price that has to be paid.
Mr Brigstocke: Can I just answer
that specific question? One of the points where we have had a
good dialogue with both the processors and the retailers is to
do with the costs of production on the farm, because the industry
as a whole has rather shot itself in the foot by not including
the full costs of production as far as producing a litre of milk
is concerned. The farmers' own input time has not been included
in many costings, as indeed picked up by the KPMG study. In our
estimation, the costs of milk production have been under-estimated
by about 20 per cent. We have gone and briefed that to members
of DIAL and to the retailers and they have genuinely not been
aware of that. So when we are talking about the costs of production,
when we talk about profit figures and things like that, we are
not comparing like with like compared to us versus the rest of
British industry, and that has been a massive problem.
Q41 Mr Jack: Now you have enlightened
them, what do they do?
Mr Chadwick: Nothing, and there
is no legitimate mechanism in this country at the moment for raising
milk prices, short of picketing. That is the sad thing. It is
not the market working; it is power. When the currency goes in
our favour, when the market in Europe goes in our favour, the
price still does not rise. There is plenty of evidence of that.
There is not a proper market. There is no mechanism for raising
milk prices now.
Q42 Mr Jack: Is it not really the fact
that the IMPE puts a floor on the market and that is the price
setter?
Mr Chadwick: Not altogether. There
is plenty of evidence. We have had milk prices below that. Why?
It is power, basically.
Q43 Chairman: Can I just tease out one
example? Again, in the previous session I was asking the NFU how
they get into the value added chain, but it is quite interesting,
if the figures are to be believed, if you look just at cheese.
It is estimated that the profit mark-up on cheese is about a third,
33%, of which the retailer takes 28%, the processor 7% and the
farmer loses 2%. That is a piece of research commissioned by the
Federation of Milk Groups, and undertaken by Taylor Nelson Sofres.
Is that a fair approximation, that farmers on a high value product
are still losing money? One understands they are losing money
on the liquid. That is not a very good industry to be in, is it?
What can be done about it?
Mr Chadwick: Personally, I have
decided to get out. I told my colleagues that today, and we told
the staff on Friday. We are closing down our final dairy herd.
That is my personal solution to it. For the industry, there are
two things as far as I see: either we have a long war of attrition
and it comes down to a shortage, or we have some mechanism of
establishing equilibrium, which I tactfully suggest to you, although
I do not see it happening easily, the Government has to concern
itself with.
Chairman: That is very useful. I am sorry
it is a bit stark at the end, but it is probably quite a good
point at which to leave things. As I said to the NFU, I am afraid
what you have said will stay said but let us know if there are
additional points you would like us to bear in mind, particularly
as there will be other evidence sessions, which you will no doubt
want to read.
Q44 Mr Jack: Chairman, if I may, in one
of the bits of information the Committee has received there is
a table of farm gate prices throughout Europe, from a high in
July last year for Finland at 34.95 euros per 100 kilos down to
the United Kingdom at 23.91. I do not think Finland and the UK
are directly comparable, but on the other hand, if we take Germany,
for example, there is a point of comparison, or indeed France.
France on this measure is at 28.94, Germany 27.25. We have a common
currency argument here. Is it solely value added that makes a
difference of such magnitude in these prices, or is it a much
more complicated series of issues?
Mr Chadwick: I think there are
both elements. France, for instance, does have a price setting
agreement. It is a formalised agreement, so that there is a balance
of power in a way that we do not have at all.
Q45 Chairman: What about Germany? Any
thoughts on that?
Mr Chadwick: I do not know.
Mr Brigstocke: They also have
a more complicated price setting formula. The Milk Development
Council sponsored a whole report looking at milk pricing mechanisms
elsewhere within Europe and in North America as well.
Chairman: The only other point we would
make is that the trend for all countries is downhill, so you will
have to look at that. Thank you, gentleman, for your session.
Farmers for Action, please.
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