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Westminster Hall

Wednesday 27 January 2010

[Dr. William McCrea in the Chair]

Dairy Farming

Motion made, and Question proposed, That the sitting be now adjourned.-(Mark Tami.)

9.30 am

Mr. Stephen Crabb (Preseli Pembrokeshire) (Con): It is a pleasure to serve under your chairmanship, Dr. McCrea. It is good to see so many hon. Members join us for the first debate of the day, on the future of dairy farming in the UK. I know that a number of hon. Members want to make contributions, so I shall be as brief as I can and do a general skirt-through some of the issues.

The first Westminster Hall debate in my name, back in 2005, shortly after I was elected, was on this very issue. I am returning to it in the closing weeks of this Parliament because many of the challenges facing the dairy sector that prompted me to write to Mr. Speaker the first time round have not changed fundamentally. The industry still faces difficult and uncertain times. I accept that the picture is not entirely bleak and there are some positives to talk about, but dairy farmers across Britain and the EU have been through another horrible year.

The seriousness of the situation was recognised by a Welsh Assembly committee report on the future of dairy farming in Wales published shortly before Christmas. The European Union has also recognised the particular difficulties facing the dairy sector in the past year or so across the continent. Its work on the EU dairy market situation was debated upstairs in European Committee A on Monday night.

My starting point today is the same as it was for my first debate, in 2005. It is the simple belief that a vibrant, healthy dairy farming sector is vital to Wales and Britain, both for its importance to the rural economy in many parts of the country and for its contribution to national food security. It is good to see hon. Members present from all corners of the British isles, representing at least four different political parties.

Mr. Lindsay Hoyle (Chorley) (Lab): I thank the hon. Gentleman not only for initiating a very important debate, but for coming back to ensure that farmers have a voice in the House. It is good to speak under your chairmanship, Dr. McCrea. Dairy can play a major role in food security, as the hon. Gentleman just mentioned. The other issue is the need to ensure a long-term viable, sustainable future for farming, instead of farmers living on the edge, never quite knowing what the price will be. Does the hon. Gentleman agree that the issue is farm-gate prices as well as food security?

Mr. Crabb: The hon. Gentleman, who is a doughty campaigner on behalf of the dairy sector in the UK, has summarised the key issues very well. The debate is about exactly those issues. It is about restoring confidence to the sector so that farmers can plan for a stable future, and seeing some profitability come back into the sector.

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Lembit Öpik (Montgomeryshire) (LD): I, too, congratulate the very hard-working hon. Gentleman on achieving this debate. Adding to what the hon. Member for Chorley (Mr. Hoyle) just said, does the hon. Member for Preseli Pembrokeshire (Mr. Crabb) agree that the other consideration, which is more important now than it was five years ago, is the environmental one? My constituents in Montgomeryshire find it quite frustrating to look on to the hills and into the fields and see locally produced livestock-sheep and cattle-and then to observe that the supermarkets are full of produce that has come thousands of miles from the other side of the world. Surely that is bad environmental politics and very bad for our local economy as well.

Mr. Crabb: I agree with the general thrust of the intervention. It is a good thing to be supporting local food, and in my local supermarkets I see an increasing amount of local produce on the shelves, but we need to see more of it. We need to give much more priority to local, home-grown produce.

David Simpson (Upper Bann) (DUP): I welcome you to the Chair, Dr. McCrea, and I congratulate the hon. Member for Preseli Pembrokeshire (Mr. Crabb) on obtaining this very important debate. Does he agree that one difficulty that the dairy sector, along with other farming methods, has faced is that the legislation from Europe has hindered many farmers, who have been put to unnecessary expenditure? Then of course we have the difficulties with the banks at the moment.

Mr. Crabb: There is no question but that one of the things that has eroded profitability in the dairy sector in recent years is the significant increase in production costs, and a large part of that increase has been driven by the increasing amount of regulation.

To return to my speech, I do not look on the decline in dairy farmers as a positive restructuring of an industry in transition and I do not believe that we in this place should be neutral about the forces shaping this important industry. One positive thing that came out of our debate in 2005 was the formation of the all-party group on dairy farmers. I pay tribute to my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski), who is present, for taking a lead on that and, with the assistance of the Royal Association of British Dairy Farmers, ensuring that there is a dedicated cross-party voice speaking up for the dairy sector in this place. When he is not authoring books on Colonel Gaddafi, my hon. Friend is being a powerful advocate on behalf of dairy farmers in his local area and across the UK.

Last month, a consortium of farming organisations, including the National Farmers Union, Farmers For Action, NFU Scotland, NFU Wales, the Farmers Union of Wales, Dairy Farmers of Scotland and the Royal Association of British Dairy Farmers, wrote to me and the other officers of the all-party group to alert us to the very difficult year that the dairy industry went through in 2009. My request to Mr. Speaker for today's debate was in part a response to that sobering letter that we received just before Christmas.

If we look back over the past five years, it is clear that the sector has been shaped by a number of events and trends. The volatile milk price hit healthy heights in 2007-08, but has since collapsed, leaving many farmers once again receiving a price for their milk that is well
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below their production costs and leaving them unable to plan investment in the new kit that they need to stay competitive. Bovine tuberculosis has continued its destructive spread through many dairy farming areas, decimating dairy herds in the process.

Mr. Oliver Letwin (West Dorset) (Con): Does my hon. Friend agree that for those of us who have dairy farmers in TB hotspots, that has become one of the major issues now and we urgently need effective action from Government to eradicate the source of the problem?

Mr. Crabb: I agree absolutely. I shall make some comments about bovine TB later, but it is clear that that disease is having a devastating impact on many farmers in many parts of the UK and we need urgent action.

Last year, we saw the collapse of the Dairy Farmers of Britain co-operative, which rocked the sector and left many farmers facing losses of tens of thousands of pounds each. That shook confidence across the board. Meanwhile, Britain's supermarkets have continued to expand and increase market share relative to other outlets for dairy products, and the question of their market power and strength within the supply chain persists.

Mr. Letwin: My hon. Friend has touched on both points to which I hoped to draw his attention. Does he agree that in relation to the supermarkets, there is now an urgent need for an ombudsman properly to enforce the code?

Mr. Crabb: I agree; that is a key point. I am pleased that the Government have finally responded positively to that recommendation by the Competition Commission. My party has been campaigning for that for some time, as have other parties. There is no question but that we need a serious neutral body that can look clearly at the way in which the supermarket supply chain is working, make recommendations and take remedies where appropriate.

On the point about supermarkets, we have also seen some positive trends in the past few years. I am thinking of the move by Tesco, Asda, Marks and Spencer, Waitrose and others towards direct contracts with milk suppliers, which has meant that some farmers are receiving an economic return for their production, although I accept that others who are outside those contracts are left struggling. We have seen continuing attempts by the major processors to create higher-value-added brands, which can achieve better prices for products, but set against that, we have seen the Food Standards Agency persist with its campaign against dairy products-its vilification of dairy products as part of its campaign against saturated fats.

Mr. Hoyle: One supermarket that the hon. Gentleman did not mention is Booths Supermarkets in the north-west, which deals with local farmers. I do not know whether he has seen the same in his own area, but a new Asda supermarket is coming to Chorley. There is nothing wrong with that, as long as it plays its part. I have suggested to Asda that it ought to have a local purchasing
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agreement to buy local farm produce in order to reduce the number of food miles. Does the hon. Gentleman agree that that would be a good way forward and show that Asda, or whichever of the big supermarkets is involved, is playing its part to support our local community?

Mr. Crabb: That is an excellent suggestion and I hope that Asda responds positively to the recommendation that the hon. Gentleman is putting to it.

The backdrop to the debate has been a changing one, and I shall describe some of the challenges in more detail in a few moments. First, however, I want to say a few words about my constituency, which is part of the great west Wales milk producing region, where dairy farming has been part of the fabric of economic and social life for generations. In that respect, we are not debating just an economic activity, but an activity that sustains the very social structure of rural life in Pembrokeshire and many other parts of the country.

What has happened in my constituency is a microcosm of what has been happening to the dairy sector right across the UK in recent years. Some of the dairy farmers in my constituency who briefed me before the 2005 debate are no longer producing milk; some have switched to beef farming, while others have quit the industry altogether. Still others have retired because their children did not see a viable future in dairy farming, and their farms have been sold or merged into much larger farming units. Pembrokeshire is also a key bovine TB hot spot, and a number of our large dairy herds have been devastated by the disease. In addition, several of my constituents were directly affected by the collapse of the Dairy Farmers of Britain co-operative.

However, the picture in my constituency is not entirely negative, and there are some positive things. I would point, for example, to the dairy processing plant in Haverfordwest, which is owned by First Milk. The co-operative uses the brand name The Pembrokeshire Cheese Company to create high-value-added cheese brands and will, I hope, create a better future for the local dairy farmers who supply it.

Lembit Öpik: The hon. Gentleman mentioned the collapse of Dairy Farmers of Britain. Did he, like me, experience the outrage felt by farmers in his constituency, who basically acted in good faith and who were of the impression that the organisation was allowed to trade long after it had become insolvent? Many of my constituents lost tens of thousands of pounds as a result. Sadly, the same probably happened in the hon. Gentleman's constituency and in the constituencies of other colleagues.

Mr. Crabb: The hon. Gentleman is right. Some troubling questions remain to be answered about Dairy Farmers of Britain, although it is important to say that the company is not entirely reflective of farming co-operatives and that we should keep faith with co-operatives, which are one vehicle for farmers to achieve a greater return on their product. The Environment, Food and Rural Affairs Committee is carrying out an investigation into what happened at Dairy Farmers of Britain, and some unanswered questions will need to be addressed.

My constituency has witnessed the outstanding success story of Laurence Harries, who farms near Cilgerran in the north of my constituency. His award-winning Daioni brand of flavoured organic milk drinks is appearing all
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over the UK and internationally. As I am sure you are aware, Dr. McCrea, Daioni is the Welsh word for goodness. Laurence Harries says that a few years ago he

Last year, he secured a deal to supply the academy and youth teams at Chelsea football club with Daioni milk drinks. He also supplies the Welsh rugby union. A year ago, I was on a Eurostar trip to Paris as part of a Conservative joint working group meeting with French parliamentarians from the Union for a Popular Movement, and the milk that we were served was Daioni organic milk from my constituency. Although it is a high-value, niche brand, it is an example of what can be achieved when good farming skills and excellent business acumen are combined. However, even Laurence Harries would admit that he is exceptional. For the larger number of milk producers in my constituency who supply the generic liquid milk market, the last few years have not been happy.

The dairy sector constitutes 18 per cent. of the agriculture industry in the UK and more than 30 per cent. of agricultural production in Wales. However, the falling number of dairy farmers and the decline in milk production are continuing across Wales and the UK, with a growing concentration of milk production in particular geographical areas. I have seen figures that suggest that the number of UK dairy farmers has halved since 1997, and the Welsh Assembly Government have estimated that 26 farmers leave the dairy industry on average every week. One in 10 farmers say that they will leave the industry within two years. Over the past five years in Wales, the number of producers has fallen by a third.

We are therefore seeing falling numbers of farmers, accompanied by falling numbers of dairy cattle, falling milk production and the closure of processing plants. UK milk production has fallen by 8 per cent. since 1997 and is now at its lowest level for more than 30 years, although Dairy UK, the trade body representing the dairy processing sector, takes an upbeat view and believes that production has now stabilised and may even be creeping up again.

Wales has seen a 7 per cent. fall in cattle numbers in the past five years, and more than 900 redundancies have been announced in the Welsh milk processing sector, resulting in major changes to regional processing capabilities. In his response, I am sure that the Minister will maintain that milk production volumes have remained broadly static in the past 10 years, but as far as I can see the trend has been downwards. I would therefore welcome his comments about where we stand on dairy imports and about what the trend is, particularly in the context of national food security.

David Simpson: There is a school of thought in the industry that believes that one way forward would be completely to remove subsidies to allow the market to deal with the issue by creating a level playing field across the whole of Europe and the UK. What is the hon. Gentleman's view?

Mr. Crabb: Most of the farmers I speak to in my constituency say that, ideally, they would not want to be in the game of receiving subsidies; they want to compete in the marketplace and to be business people first and foremost, and that means receiving a fair price for their
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product. They want to receive a price that fairly reflects the economic value of their produce, but that is not happening. I am wary of saying that we should move quickly to remove all support for farmers, which would leave them desperately exposed in a difficult, volatile market, and we need to tread carefully. However, I reiterate that most of the farmers I speak to want to be business men first and foremost, not recipients of subsidies.

Mr. Letwin: That touches on the vital question of decoupling subsidies from production in other EU countries. Does my hon. Friend agree that it is an urgent necessity that the Government put pressure on other EU countries to achieve that decoupling?

Mr. Crabb: Yes. My right hon. Friend makes his point very effectively.

There can be little doubt that the fluctuating price of liquid milk and the increasing cost of milk production have contributed significantly to the lack of confidence in the dairy industry in recent years. We have seen milk prices move from a low in 2006, when the average dairy farmer was estimated to be losing almost 5p per litre, to a high in 2008, when prices soared by up to 40 per cent. However, in the last year, as I said, the price has fallen back dramatically. Today, the price paid for milk is once again falling below the cost of production for many farmers. At the same time, production costs have increased by 27 per cent. since 2006, undermining much of the confidence that the industry regained in 2007 as prices increased.

The think tank Open Europe has stated that the cost to farmers of UK regulation has more than tripled since the Department for Environment, Food and Rural Affairs was created in 2001. I would welcome the Minister's response to that point and his comments on how he sees the future of farm regulation and what can be done to minimise the additional production costs that farmers face as a result of regulation.

It is clear that this is not an isolated trend in the UK, and dairy farmers across Europe have faced challenging conditions. I spent part of last summer on a dairy farm in northern France, and the farmer and his family described a situation very similar to the one experienced by farmers in the UK. However, one difference in the French situation is that French agriculture receives huge political support across the board. No one can be a serious politician in France unless they are willing to stand time after time and speak up for French agriculture. Although hon. Members are well represented here, those present largely have significant dairy interests in their constituencies, and we need far more colleagues to speak up for farming who do not have dairy farms in their constituencies, but who nevertheless recognise the importance of dairy farming to the UK.

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