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22 May 2007 : Column 395WH—continued

11.56 am

Mr. Roger Williams (Brecon and Radnorshire) (LD): It is a great pleasure to see you in the Chair, Mr. Chope. I pay tribute to my hon. Friend the Member for
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Ceredigion (Mark Williams) for obtaining this debate; he has been persistent, even relentless, in his work on the dairy industry. Dairy farming is an important facet of his local economy; indeed, it is the cornerstone of British agriculture in both Wales and the UK.

While there has been a limited increase in UK farmers’ incomes, it has not been on the back of improved returns for the dairy industry. The increased profitability in UK farming has come from the arable sector, where the competition for crops for food and for energy purposes has led to some movement. Dairy farms used to be a step on the ladder for young farmers entering the industry. As the hon. Member for Caernarfon (Hywel Williams) said, they could take on a small farm that did not have a huge number of cows, farm it intensively, put a lot of work in, make a living and bring up a family. However, those days are far gone.

Efficiency and effectiveness have increased enormously through improved nutrition, grazing techniques and breeding. Consequently, there have been increases in output per cow, per acre and per person working in the industry. However, the huge pressure on prices has put more and more dairy farmers out of business; now, there is barely half the number that there used to be. That did not result in a fall in milk production until quite recently because fewer farmers were producing the same amount, but such has been the pressure on price recently that milk production has fallen from 14 billion litres a year to 13.5 billion.

The fall in milk production has focused the minds of supermarkets a little. They know that they cannot import liquid milk into the UK in any real quantities, and that they will really feel the pressure if there is a shortage of British milk. They are also considering the Competition Commission’s inquiry. So there are two pressures on supermarkets: whether there will be sufficient British milk for them to stock their shelves, and the question of the outcome of the commission’s inquiry. That is why they have made certain moves recently. Those moves have given some people confidence, while others think them cynical. I pay tribute to my hon. Friend the Member for St. Ives (Andrew George) for his work in developing our party’s policy of having a fair trade inspector.

One of the real problems in the dairy industry is that although about 7 billion litres of the milk produced is sold as liquid milk and 3 billion litres goes into high-value differentiated products, about 4 billion litres still goes into producing a standard quality product—a basic cheddar. British-made cheddar cheese is of a high standard, but it must compete on a world market and it is not differentiated. Because such a large quantity of our milk goes into that market, there is a downward effect on milk prices. The task ahead is to work out how we can change more of our standard—very high quality—cheddar into a much higher-priced, differentiated product. We have some wonderful products, such as the organic yoghurt and other products produced by Rachel’s dairy in the constituency of my hon. Friend the Member for Ceredigion.

I would also like to pay tribute to the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski), who has done sterling work as chair of the all party-group on dairy farmers. I accompanied him to Brussels,
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where we met the Agriculture Commissioner. She gave an indication of work that could be done in future, and encouraged us to refer to her anything that we felt was undue pressure on the part of the Competition Commission against the interests of the industry.

I should tell the Minister that a number of farmers’ organisations have been threatened with Competition Commission inquiries when contemplating amalgamation and working with other organisations to build up their market share. The mere threat of an investigation is often enough to put people off taking a step that would strengthen their place in the market, make them efficient and lower their costs. I know that the Minister will tell me that the Competition Commission acts at arm’s length from him, but he must have some influence on how it does its work, and on the levels and particular points at which it intervenes.

I believe that the hon. Member for Stroud (Mr. Drew), who is not in his place, told us that we had an efficient and effective system for marketing milk: the milk marketing boards. We saw their demise and the break-up of their successors.

Mr. Cox: Was the hon. Gentleman present when the all-party group held an interesting session with senior representatives of the Office of Fair Trading? They gave evidence saying that until about 15 or 20 years ago, competition legislation in this country enabled the Secretary of State to take into account the national interest in the survival of a crucial industry but that, as a result of competition legislation coming from Europe, we were obliged to amend our legislation so as to be compatible with that legislation. Does he think that there is room to lobby in Europe for the restoration of a provision that would allow the Secretary of State to have some influence over these crucial national interests?

Mr. Williams: Unfortunately, I was not present when those comments were made. I believe that there is room to make such representations to Europe. The market for food is different from the one for manufactured products. For instance, it would be immoral to keep the market short in order to drive up prices, because people need to have enough food to live. It is the purpose of agriculture to provide sufficient food both in the UK and globally for the world’s population. Keeping the market short to drive up food prices is intolerable, so for that reason and for those given by my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron), it is proper to have a regulator within the food market. A number of arguments can be made in that regard.

Andrew George: On international competition, I have never argued that supermarket executives are products of the loins of the devil; indeed, does my hon. Friend agree that their behaviour is entirely rational? Swallowing up their competition and squeezing their suppliers is something that they rationally do, but the question is whether they acceptably use or unacceptably abuse their power. By abusing their power, they are creating a dysfunctional market that is incapable of competing internationally, which is where
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the UK dairy industry should be competing. We need to get our market right first to give us the strength then to compete internationally. That is what we are trying to achieve.

Mr. Williams: My hon. Friend makes a good point; indeed, he has been at the fore in putting those views forward. Most of the Members present come from the western part of Britain. Its higher rainfall and ability to grow grass means that it could compete internationally as well as any nation.

Mention has been made of the fair trade movement, which has been spectacularly successful in addressing poverty in third-world countries. I draw Members’ attention to the fair trade for British farmers campaign, which has been launched by Country Living magazine, Waitrose and Farmers Guardian. Members can still sign up to it on the website—they could even sign my early-day motion on the matter. On Friday, I am debating the issue at the Hay-on-Wye festival of literature with representatives of the fair trade movement. Please come to Hay-on-Wye to support the tourism industry and the wonderful food that is produced in my constituency.

The case has been made that supermarkets are abusing their power and position of strength in this marketplace and in the food industry in general. The Minister has a role to play, in the sense that where abuse is identified, we need to have systems in place to ensure that proper competition exists. In a perfect market there should be many sellers and many buyers, and everybody should know how much product is being produced and what it is being sold for. We are reaching the stage where we have the knowledge, but abuse remains very much present in the system, and the Government have a role to play in addressing that.

12.7 pm

Mr. James Paice (South-East Cambridgeshire) (Con): I, too, congratulate the hon. Member for Ceredigion (Mark Williams) on securing this debate, which, as he rightly said, is long overdue. It is great pity that we do not have regular debates on agricultural issues in the main Chamber any more—we always used to have them. We seem to have all sorts of Adjournment debates on weird subjects—

Helen Goodman: It is your choice.

Mr. Paice: The hon. Lady says that it is the Opposition’s choice, but if she were to look at some Order Papers, she would see how many Adjournment debates are chosen by the Government—on some pretty weird and wonderful subjects.

As has been said, the industry is in a parlous state, and I do not intend to rehearse all the points that have been made. As the hon. Member for Brecon and Radnorshire (Mr. Williams) said, the reduction in the number of farmers was initially compensated for by increased production by others, but overall production is now falling. Some people argue that that in itself will solve the problem, but I do not take that view. I do not believe that this is simply an issue of the oversupply of the marketplace.

I want to concentrate on three specific issues in the hope that the Minister will respond to them, but before I do so, I want strongly to endorse the point made
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about the advertising of cheese. A ludicrous decision was made, and it does so much to damage the image of cheese as a wholesome food.

There has been a lot of debate about the issue of regulation and intervention. The hon. Member for Westmorland and Lonsdale (Tim Farron) suggested that Adam Smith was wrong, but if he were to study Adam Smith, he would find that Adam Smith was right, because he said that a proper market operates only when there is a large number of both buyers and suppliers. That is what we do not have, so Adam Smith was right, but we do not have a proper market.

We can all spend a lot of time looking back into history, but this Government’s decision, early in their days, to break up Milk Marque when it had only 37 or 38 per cent. of the market was absurd, particularly when one compares that with the share of the market held by a number of the retailers. There are now a number of major farmer-owned groups or co-operatives, call them what you will, which is good, but they are very small in comparison with the major retailers and particularly with the major processors, such as Arla and Dairy Crest.

I share the concern about the Office of Fair Trading’s attitude. My proposition is that the dairy industry should be a European market. There has been a lot of comment about Europe, but the OFT judges competition in the domestic market, so whenever a milk group wants to acquire another cheese plant and so on, it is threatened with reference to the OFT, because it will have too big a market share. The OFT should understand that the dairy sector, particularly the processing sector, is a European-wide market, and it should look at market share throughout Europe. Reference has been made to Arla’s share of the Danish milk industry and to Frontera in New Zealand. Europe is supposed to be a single market, and competition rules should be based on that.

My second point is the milk price. Making co-operatives more sustainable, and allowing them to integrate more and merge if necessary would go some way towards redressing the balance in the marketplace. Obviously, I welcome the Competition Commission’s investigation, and I strongly welcome its interim findings, which were published in January. It is a pity that its final report will be delayed, but I hope that it will be as robust as those findings.

Supermarkets have clearly been making excessive margins, but I urge a word of caution to hon. Friends and colleagues who think that the solution is intervention and some sort of regulator. I am less enthused by that because we may end up with a belief that supermarkets make too much profit, so consumers should pay less, which would not help the dairy producer. Simply looking at the share of the retail price that the supermarkets take works both ways. It does not necessarily guarantee that it is passed on to the producer. It is more important to ensure that the market is working properly. As several hon. Members have said, fresh milk comprises only 50 per cent. of the market; the rest is made up of processed products, the major part of which is imported. That is where we should seek to make a real difference.

The latest figures show that, in 2006, we imported 352,000 tonnes of cheese, 154,000 tonnes of yoghurt, and so on. Those are huge amounts, and are partly an
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inheritance from the Milk Marketing Board which, for all the good points that some people claim for it, prevented innovation and investment in processing during the years of its existence, when the big co-operatives in Europe were so investing. That is why they now have the volume of scale and have penetrated our domestic retail market with processed products, yoghurts, ice creams and so on, yet they are paying their milk producers the same, if not more, for their raw milk as our milk producers receive.

If the supermarkets really care, as they profess to, about the future of our dairy industry and the need to retain a British dairy industry, they should work with the major processors to develop our own domestic lines of processed products—the high-value desserts, yoghurts, ice creams and cheeses that we import instead of, as the hon. Member for Brecon and Radnorshire said, the low-value, mild, bog-standard Cheddar.

The final issue that I want to raise will not be a surprise to the Minister. We have been trying for some time to have a debate in this Chamber on tuberculosis, but to no avail. He knows that I and other hon. Members have a real complaint about the Government’s lack of concerted effort. If he is honest, I suspect that he would accept in private that the issue is serious and that more can be done. Over the past 10 years, we have seen a piecemeal approach to dealing with TB. Recently, there has been a small but welcome increase in the use of gamma interferon and the introduction of pre-movement testing at considerable cost to the farming industry, but without the commensurate actions that the industry believed were part of the deal in accepting pre-movement testing. We have had the Krebs report and the triplets trials, and we are now awaiting Professor Bourne’s final conclusions.

We need a comprehensive, all-enveloping strategy, and to roll out the gamma interferon test across the board to ensure that the skin test, which is pretty crude, is as accurate as possible. We must increase the frequency of testing, particularly in the frontier areas where the disease is spreading. I am sorry that the hon. Member for Bishop Auckland (Helen Goodman) has left. It is all very well for her to say that, from Durham’s perspective, we are all wrong about TB, but she has no significant problem with it in the Durham area.

We must, of course, continue with research into badger and cattle vaccines, and I hope that the Minister will tell us where we are with that. We are told that they are getting closer. I also think we need much more research into mineral deficiencies as a precursor to TB infection. It has been argued that selenium deficiency in particular makes cattle more prone to TB.

Biosecurity is obviously important, and the Minister will not be surprised to hear me say that we must do a lot more on the polymerase chain reaction test. I am concerned that the Government are not addressing the matter as urgently as they should. I know that they have commenced a three-year study programme with Warwick university, which has done much of the work, but last year DEFRA was presented with a proposal, which included the central veterinary laboratory, the Veterinary Laboratories Agency, University college London and a private company, to develop a specific real-time PCR test for the detection and quantification of mycobacterium bovis in the environment—that is
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exactly what the Opposition have been calling for—to detect whether badgers and badger families in their sets are carrying the infection.

I do not believe that culling badgers is a silver bullet to solving the problems of TB, and I reject the argument that that is the sole solution, but as Professor Bourne has told me publicly, unless we get rid of the reservoir in wildlife, we will never get rid of bovine TB. It is part, but only part, of the overall package of necessary measures. It is more than a year since the Government’s consultation closed, and we need a decision. Even a negative decision would be of some reassurance that the Government were addressing the issue rather than, as it seems, trying to keep it in the long grass.

Those are three specific areas in which the Government could take a leading role to address what all hon. Members who have spoken agree is a very serious crisis in the industry.

12.19 pm

The Minister for Local Environment, Marine and Animal Welfare (Mr. Ben Bradshaw): I start by apologising for the absence of my hon. Friend the Under-Secretary of State for Environment, Food and Rural Affairs, who is engaged on duties connected with his biodiversity responsibilities. He usually speaks on these matters in the House.

I congratulate the hon. Member for Ceredigion (Mark Williams) on securing this debate on an important topic. I agree with him that while it is important to accept that the industry faces serious challenges, it is also important not to talk the sector down. He acknowledged that many of the recent developments have been positive. We must encourage new blood into the industry, as well as innovation and ideas. I believe, as one or two hon. Members here have acknowledged, that our natural advantages in dairy production should mean that our dairy industry has a good future. I hope that we can all agree on that, although we may differ in our opinion of how to arrive at that good future.

I must say to the hon. Gentleman, however, that the pressure on farm gate prices will remain; it is simply a fact of life. Dairy production exists in a competitive market, and there will always be pressure on costs. However, the acknowledgement of the increased cost pressures borne by dairy farmers, and the resultant action by a number of retailers to increase prices paid for liquid milk, is welcome. It follows discussions that Lord Rooker and I have held regularly with the chief executives of the major retailing companies.

The Government believe that it is in the supermarkets’ long-term interest to ensure sustainable arrangements for dealing with their suppliers. Several Members have acknowledged that those retailers have recently put in place initiatives to encourage closer working relationships with identified suppliers, some of which attract a price premium. There have also been positive developments in the contractual arrangements between processors and producers, which should help to develop greater transparency and trust. They are to be encouraged.

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