Select Committee on Environment, Food and Rural Affairs Minutes of Evidence


Examination of Witnesses (Questions 280-284)

8 MARCH 2004

MR ALAN HINTON, MR JIM BEGG AND MR PETER DAWSON

Q280 Mr Jack: Just to go back to the point you were talking about in relation to innovation. The perceived wisdom is that continental dairy producers are better at value added products than producers in the United Kingdom. Is that correct? If it is correct, what are we not doing that we should be?

Mr Hinton: There is a very good point that should be made that we are ending up virtually with four major brands in this country and the majority of them are not British based. Having said that, from these big brands will grow opportunities. Once you have created these big mass brands there will be opportunities for smaller players, indeed farmers possibly, to come in on a localised basis with regional products and brands and start up. I think we are going to get to a point where there are going to be only four or five large brands that will probably come from the continent but that in itself will create opportunity, an opportunity we need to grasp and encourage in the industry, be it small processors, as DIAL represents small members as well, or farmers who may well see this as an opportunity to move out of the mass, if I can use that term, 650 cows or whatever, and into an area or product which could be sold locally very successfully.

Q281 Mr Jack: Just give me some examples because on a national scale the question I asked in terms of dairy products was what are our continental competitors doing that we are not and you have just put the proposal forward that there may be opportunities for a farmer, or a group of farmers locally, to do something distinctive. Just flesh that out a bit more. Clearly if there is more value to be added in the types of products to which the question refers then the ownership of the added value part of it is very important. If it is a big branded manufacturer then there is not the same responsibility, if they are adding the value, to pass it back necessarily to the farmer, but if the farmer is doing it then has got control of the value chain up until the point of sale. Just help us to understand a little bit more how these two scenarios work?

Mr Hinton: One of our colleagues who, unfortunately, got called away today is an ideal representative for that, a representative from Müller, which is now a British organisation which spent a huge amount of money in building a very successful brand. As he was very keen to point out, that is a British organisation. It may have roots elsewhere but the success depends totally on having the product and if you want to have that sort of brand the monies need to be spent. I am thinking now of dairy deserts rather than cheeses and things like that and if you pick out the major ones it is a very high capital spend on branding initiatives and building a brand. I think that is our problem in this country, we started very late in building brands due, unfortunately, to the Milk Marketing Scheme which stifled the growth of brands because there was a

Q282 Mr Jack: Just to be specific; am I right in saying that the problem is not so much the catalogue but the ownership of the value added chain? In other words, you are saying that it is continental companies like Mu­ller who effectively are repatriating money back to their centre and it is not necessarily available for UK-owned and UK-based companies. I am still trying to get to the bottom of this because all of the evidence we have had says that continental dairy producers are much better at innovative, novel products, making more money because they are adding more value and the poor old Brits are late to the game not having any access to this value chain.

Mr Begg: You put it in very stark terms. As Mr Hinton has said, we have a little bit of history there in terms of our approach to the Milk Marketing Scheme which we have spent some considerable time trying to move on from. The crucial thing now is that we get as much of our product and as much milk as possible utilised in the added value sector. Who gets the benefit of that is what I think you are asking.

Q283 Mr Jack: No. Let us be very specific. I am sorry to labour the point. I go back to the evidence we have received. The evidence is that continental companies are doing better in this field, so in other words they are extracting more value out of the milk they are processing. Brits are not in the game, therefore we do not seem to have access to that better value chain that our continental counterparts do. Mu­ller is a German company and they have put a fantastic amount of money into their Shropshire plant but, if you like, that is going back to the centre, to Mu­ller HQ, and not somewhere in Brit dairyland.

Mr Begg: Mu­ller in the UK is a British dairy company using British milk and employing British people to produce British products but there are many other examples in the industry where our members are doing the same. There is new, you might call it Johnny-come-lately stuff, a new focus, a real interest and a real desire to develop added value products, branded products, in our marketplace as the way to the future. It is not a new thing in the sense that it has happened today, it has been happening for a couple of years now and we are moving forward positively in that sense. Ultimately, and indeed currently, that will deliver better returns for milk producers and that must be the right way.

Q284 Chairman: Just to finish with that, give us a notion of what sort of products we are talking about? I can understand about Mu­ller and their yoghurts, I can understand about Dairy Crest and FRijj, but what is out there that nobody else has thought of? This is really putting you on the spot but what is the sort of thing where Mr Farmer can think "We are in with something here; this is worth hanging in there"? There must be something we can do with milk.  Mr Hinton: Certainly if there was a product out there that was ground breaking I would not tell anybody else, I would be doing it myself. One of the things Jim touched on was we have a very basic product called milk, which we do fantastic things about and we, as an organisation, start with the cow and go right through to cheddar cheese and everything in between. One of the things we have not been able to do is to brand things very well. If you take cheddar cheese, there is about 300,000 tonnes a year and only about 50,000 tonnes of that is branded, the rest is sold as "me too". That is a great step forward if we can move away from the commodity, even on the cheese, because as a commodity, and the Committee mentioned it earlier on, we are inviting imports into the country to fulfil a commodity product. Brands on old products are important and the initiatives on new products are very important. I look at the two or three brands coming out in cheese this year already and it is very important to move away from the commodity side. New developments are not easy even on liquid milk. One of our members has just launched a different type of milk to take a different edge and spin on these things. There is an awful lot of initiative out there but as a nation we are quite conservative when it comes to dairy products. I have seen some terrific products which have failed because the British consumer does not quite understand them at this minute in time but they will keep coming back until we have a mature market and that is exciting. There is a lot of work going on in relation to branding and new products. People feel that is the real way of putting value back into the industry.

Chairman: Gentlemen, thank you very much for giving evidence. Certainly as Mr Begg has heard me say before, what is said cannot be unsaid but if there is additional material that you wish to give us to supplement your evidence then feel free to do that. Thank you.





 
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