Examination of Witnesses (Questions 300-318)
8 MARCH 2004
MR BRIAN
PEACOCK, MR
KEVIN BELLAMY
AND MR
KEN BOYNS
Q300 Chairman: If you would like to think
about that, I think that would be quite interesting.
Mr Boyns: Yes.
Mr Peacock: We would be happy
to come back with a considered view on that if that is helpful.
Chairman: Diana, quotas?
Q301 Diana Organ: KPMG did a report for
you about what would happen vis a vis milk quotas and the
cost of restructuring the industry.
Mr Peacock: Yes.
Q302 Diana Organ: We have a situation,
as you know, where the forthcoming support is going to be less
for dairy farmers but the quotas effectively are going to stay
more or less as they are and remain in place until 2015. What
effect is going that going to have, do you think, on dairy farmers,
the two pressures coming together until 2015?
Mr Boyns: I think the quota price
is a factor of supply and demand from farmers, so farmer demand
will set it. If a lot of farmers want to expand initially in an
attempt to reduce their costs of production then potentially it
could be a large amount of quota. If people pay a large amount
for quotas there are two difficulties. Firstly, capital leaves
the industry from existing dairy farmers, ongoing dairy farmers
to exiting dairy farmers and, secondly, it increases the capital
investment in the dairy farm and makes it harder to get a decent
return on capital.
Chairman: Michael, supply and demand?
Q303 Mr Jack: I want to ask one question
about quotas. Do you think the European Union has missed a trick
in not scrapping them?
Mr Bellamy: In terms of restructuring
the cost of quota to the industry it means that capital is removed
from the industry and therefore potentially delays the process
of restructuring.
Q304 Mr Jack: What do you sense the attitude
of UK dairy farmers is to that? Some have quite enjoyed the comfort
zone of quotas. It is bankable, you have got this, you just keep
turning out the milk. Okay, there are problems with price but
at least there is certainty. If you scrap quotas you move into
an uncertain world for some farmers.
Mr Bellamy: Exactly. I would not
suggest I was representing the views of dairy farmers in saying
that capital—
Q305 Mr Jack: Coming back to the thesis
as put forward by the two Professors, I was surprised that 150
was deemed to be large. If you talk to me about large I would
be talking about 250/300 plus, in New Zealand we are talking 1,200,
I know it is a different regime. Given the climatic advantages
we have in the United Kingdom, should we not have campaigned harder
to get rid of quotas so we could really take in our advantages
and push them to the limit?
Mr Boyns: It is KPMG's recommendation
in their independent report that they should be removed, if price
support is removed.
Q306 Diana Organ: What is your view then?
That is KPMG stating that, they are not in the business, they
are just the consultants looking at it. What is your view about
that?
Mr Boyns: The MDC does not lobby,
we try to act within the policy framework that exists.
Q307 Diana Organ: You must have a view
about this?
Mr Peacock: I think in any answer
it would be a personal view.
Q308 Diana Organ: Let us hear that.
Mr Peacock: I have to say, whenever
the MDC Council discusses this issue we are completely split down
the middle.
Mr Breed: Like the NFU.
Chairman: That is very helpful, Brian.
Q309 Mr Jack: As intervention prices
get lower the purpose of having quotas seems to be less relevant
by the day. Milk consumption is declining, what are you doing
about it? Why is it happening?
Mr Bellamy: Part of that decline,
Chairman, is if you are talking about liquid milk—which
I presume you are—there has been a long term decline in
liquid milk. Recently that has been due to the change from doorstep
delivery to supermarket purchase which is accompanied normally
by a decline in volume purchased by the household. What are doing
about it?
Mr Jack: Can I just stop you there. Is
it simply the lug home factor which deters people?
Diana Organ: They lug home the lager.
Mr Jack: Yes. Here we have a sage observation
to my right. Equally wine bottles are quite heavy. We have got
consumption of heavy bottles of wine going up and milk going down,
the two are not quite substitutable, either lager or wine. Why
is it dropping?
Mr Breed: Water.
Q310 Mr Jack: Yes, water. Any more bids!
Mr Peacock: We have this disgusting
term of share a throat in the marketing jargon and liquid milk
over the years has sustained a huge attack from a lot of drinks:
soft drinks, things like Sunny Delight, a whole raft of things.
I should not mention water but certainly there has been a huge
attack on the drinks area and that has had a significant effect
over the years on the way milk has been consumed. I think Kevin
wants to pick something up here.
Mr Bellamy: One of the things
we have done as an industry is understand the consumer better.
If you look at the demographics in the market place then doorstep
delivery is now becoming more confined to the older age range
who have been used to purchasing milk in that way. As we move
into a new generation then there is far more competition, as Brian
said, in the retail sector and, therefore, our share of throat
as a liquid product is going down. What we need to do is to understand
consumer trends and understand what consumers are looking for
and react and build products and new markets based on consumer
needs.
Q311 Diana Organ: In my constituency
I have got a large bottling plant for GlaxoSmithKline who are
making Ribena and Lucosade and all these other health drinks.
What they do is they are putting in to every leisure centre, every
swimming pool and a large number of colleges and schools a refrigerated
machine which sells this drink through the compartments either
in Tetrapaks or bottles. We were talking about this, how much
have you looked into schools, colleges, leisure centres? They
put it in free by the way, the machines? You stick in a machine
and it is refrigerated flavoured or natural flavoured milk sold
in a carton, in a Tetrapak.
Mr Bellamy: We have carried out
research this year on vending as a process. Vending of milk because
of its more limited shelf life does pose some problems but we
are looking into how we can solve those. Let me point you towards
an initiative which we are carrying out across senior schools
across the UK together with First Milk, one of the Co-operatives,
we are putting in—hopefully by the end of this year—1,000
school milk bars which will make milk and flavoured milks available
to school children. We have successfully reversed the trend and
decline in subsidised school milk going into primary and nursery
schools in this country. Since the year 2000 we have been increasing
the amount of milk going down those channels. We are looking at
different channels and we are seeking to understand how we can
bring new products and innovation into the sector. I think you
have to look back over the last ten years where we have seen an
increasing concern about market share of commodity liquid milk
and commodity products and clearly dairy companies and Co-ops
have focused on reducing cost of processing rather than on innovation.
What we have to do is reverse that trend. We have to understand
the consumer better. We have to get that information out there
and we have to encourage innovation, and that is what we are seeking
to do.
Paddy Tipping: You have given us one
example, milk bars, what are the other examples of innovation
and market access?
Q312 Chairman: Why has it taken so long?
Why is this industry so slow off the mark?
Mr Bellamy: I think you have got
to look at the market share argument. Clearly what dairy companies
have needed to do, as they have seen their one retail outlet in
terms of doorstep delivery be transferred to the major multiples,
they have needed to concentrate on winning market share from those
major multiples and that has squeezed out the innovation process.
What we now need to do is encourage a reversal of that trend so
that we can build brands and encourage innovation. That is what
we are seeking to do. You asked me for another example. I think
the flavoured milk area is a marvellous example of what we ought
to be doing in this country. If you go to any other country in
the world and you will see a range of flavoured milks in their
own category on supermarket shelves. If you go into a supermarket
in this country you will see flavoured milk on the top shelf of
the milk fixture. What we are seeking to do is research into flavoured
milks, into flavoured milk additives, and recently we have seen
new products launched really on the back of some research which
we carried out last year. Our strategy is to understand the consumer,
to carry out the research, to look at innovation and then to publish
that as widely as possible so that companies and organisations
across the industry will take that up and carry it forward.
Mr Peacock: Similar things have
happened in the cheese area and in things like dairy deserts and
the use of cream. There is plenty to go at and that is the sort
of thing we are attacking in a similar manner to the flavoured
milk and the liquid milk.
Q313 Mr Wiggin: Can I just ask a question
on the fat content because one of the problems I think milk consumption
has is that it has a percentage of fat within it. That is something
that people do not tend to want. How are you looking at that and
dealing with that because actually the fat free stuff is not really
very milky, shall we say?
Mr Bellamy: I think there is a
lot of confusion about the effect of fat within the market place.
Our belief is that fat is a deterrent to people purchasing milk
and milk products and that the consumer does not understand the
fat content of milk.
Paddy Tipping: Can you just remind us
what it is so it is on the record?
Q314 Mr Wiggin: It depends on the milk.
Mr Bellamy: The fat content of
milk will be somewhere around 3.6 to 4% depending on the cow and
all sorts of things.
Q315 Diana Organ: For the record, can
you tell us—there is semi-skimmed and skimmed milk—what
is the fat content of those?
Mr Bellamy: Semi-skimmed will
be at 2% and skimmed milk will be less than 1% Clearly we need
to get that out as a message to the consumer but again that offers
opportunities and we are about to see Wiseman's—one of the
major dairy companies—launching a product based around one
per cent.
Mr Peacock: The industry does
a survey on a regular basis asking the consumer what is actually
the fat content of milk and about 30% of the people who reply
to the survey say that whole milk or full fat milk, whichever
term you use, has indeed got 30% fat.
Q316 Mr Wiggin: The difficulty is not
just the fat content but when you balance that as to why milk
is good for you, that equation perhaps also needs a bit of pushing.
Mr Bellamy: Yes, I totally agree.
Through our work with the Dairy Council where we are communicating
those messages in co-operation with DIAL to the consumer world
our problem, as always, is that the consumer is even more interested
in the nature of the product rather than health aspects and health
aspects do not sell the product.
Q317 Chairman: Can I just say one thing
and then Diana can come in. But, given that health association
with milk, again have you not missed a trick in terms of some
of the ways in which other products have had their comeuppance
because of the various food scares there have been? Milk, within
reason, has never featured in that and milk has got the benefit
of being seen to be a healthy product and yet the consumer either
forgets or is disinterested in that.
Mr Bellamy: Chairman, we carry
out a usage and attitude survey every year on milk, as Brian said,
and despite people's belief about fat content, the metric on people's
attitude towards milk as a healthy product which is good for them
remains in the upper 90 percentile. Despite the fat issue people
believe that milk is a natural healthy product and continue to
do so.
Q318 Diana Organ: I have just two points,
really. One is why do you not market it at 96% fat free rather
than four per cent with fat? Also there is a real campaign I think
that can be done because young teenage girls are very sceptical
at doing things which are good for them and actually it is crucial
that girls between nine and 13 do drink a fair bit of milk because
otherwise later in life they will get osteoporosis.
Mr Bellamy: Very quick answers.
First of all we are marketing milk as 98% fat free but I have
to point out that is against Food Standards Agency guidelines
because they believe it is confusing the market place. Secondly,
we will be in an application to the EU for structural funds to
help communicate the messages to teenage girls.
Chairman: We have to rush off so as not
to keep the Minister waiting. Any additional evidence please send
to us. Thank you for your evidence this session. I am sorry we
are even more pressed this time because we have to go and vote.
The Committee suspended from 5.34pm to 5.46pm
for a division in the House
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