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27 Jan 2010 : Column 274WH—continued

Apart from having an entertaining and slightly off-colour sense of humour, the young farmers, a good proportion of whom were dairy farmers, demonstrated to me that however difficult and challenging life in the dairy sector
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has been and continues to be, there is nevertheless immense room for optimism. A new generation of young people are set to become the backbone of a dynamic, competitive and innovative dairy industry. However, the system is not making it easy for them. There is a huge risk that young dairy farmers' ambition, work ethic and talent will be stifled.

As we have heard from many hon. Members, these are immensely difficult times for dairy farmers. Since 1997, the number of dairy holdings has decreased by 50 per cent. and the number of dairy farmers by 35 per cent. In the past three years alone, liquid milk production has dropped by 7 per cent. That is 1 billion litres of lost production. Production levels in this country are at their lowest since the 1970s, despite the fact that the UK population is now 15 per cent. higher and demand is rising. We are losing milk production capacity because farmers are leaving the industry. Some go to the wall; some slip quietly into other work; many wait for retirement. As my hon. Friends have said, they will retire having actively encouraged their children to do anything but follow them.

Supply is tightening, yet the prices paid to farmers are pitiful. The estimated cost to the farmer of producing 1 litre of milk in October last year was 26p, and the average farm-gate price for liquid milk was 24p. The average farmer is making a loss on every litre produced. That is the average, but hundreds of dairy farmers, including dozens in my constituency, get less than 20p a litre. Many of us wander down one aisle in the supermarket and make ourselves feel good by buying fair trade coffee, but in the next aisle we buy milk that might be sourced locally but is anything but fairly traded.

The factors behind the decline in production capacity are complex; we have heard about many of them. Even over-production is blamed, but that is an insult to the intelligence of dairy farmers. Production in this country is declining and demand is rising. To prove a point, to compensate for the steady loss of UK producers, imports of liquid drinking milk rose from 87.7 million litres in 2007 to 134.1 million litres in 2008. There is no question of UK producers over-producing; in fact, they are under-producing.

Mr. William Cash (Stone) (Con): The hon. Gentleman and I took part in a debate initiated by the European Scrutiny Committee only a couple of days ago. Does he agree that the importance of reviving the whole dairy industry in the context of European legislation is essential and that we should ensure that dairy farmers in this country are not only protected but given an opportunity to engage in new milk contracts, as proposed by a series of Ministers?

Tim Farron: The hon. Gentleman makes an important point. Undoubtedly, we need to protect our dairy farmers from unfairness in the market. I do not think that any dairy farmer wants a protectionist system, and I endorse the comments made by my hon. Friend the Member for Brecon and Radnorshire about reforming the common agricultural policy in that respect.

Last summer, the EU Agriculture Committee issued a report showing that farm-gate prices for a litre of milk had dropped 31 per cent. while the shelf price of milk
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had dropped by only 2 per cent. We also know that in the past decade, supermarket mark-ups-the proportion of the price of a litre of milk that goes into the supermarkets' pocket-have tripled. In consequence, farmers are leaving the industry.

One would think that the free market would not allow a situation in which buyers kill off their own suppliers or reduce their ability to reinvest in greater efficiency and productivity. To quote John Maynard Keynes,

That has clearly been borne out within the dairy industry. In any case, an unfettered market is not a free market.

Dairy farmers are effectively forced to accept the prices that they are offered. Supermarkets' and processors' ability to abuse their market power legally must be curtailed. That is why we endorse the setting up of a supermarket ombudsman. I pay tribute to my hon. Friend the Member for St. Ives (Andrew George) for leading on that issue for many years. We as a party championed it for a long time while being ridiculed by others, but it is good news that those others have come on board.

It is important that the supermarket ombudsman should, as my hon. Friend the Member for Argyll and Bute (Mr. Reid) said, be powerful and proactive, not supine and reactive. Hon. Members will know all about ombudsmen and will have had many reasons to make use of them on their constituents' behalf. Ombudsmen tend to be able only to react to complaints, to investigate only one tenth of complaints and to find in favour of the citizen in only one third of cases. That is not a model likely to strike fear or even respect into the hearts of the supermarkets.

We support a powerful supermarket regulator based on a model similar to Ofcom, with proactive investigative and enforcement powers, a remit to go out and look for trouble and the ability to stand up forcefully to those who abuse market power, with appropriate sanctions at its fingertips. Anything less might be counter-productive by providing supermarkets with the necessary political cover to continue exploiting dairy farmers and other producers.

Such exploitation was seen in its rawest and most appalling form after the tragic collapse of Dairy Farmers of Britain in May. Afterwards, some members of the co-operative were forced to accept as little as 10p a litre from buyers who simply took advantage. We have heard of the devastating losses involved. In my constituency, the average farmer lost £20,000 from their May milk cheque and perhaps £50,000 on their investment within the co-operative. The effects of that tragedy are still being felt and have caused unbearable financial and emotional strain among friends of mine who were struggling to get by even before the collapse.

We are pleased by the £25 million in emergency support from the European Union. We lobbied for it from the beginning, whereas the Government did not. We are concerned that that money should be spent appropriately. For example, some of it could be spent to support the co-operative movement. After the demise of Dairy Farmers of Britain, it would be easy for many farmers to conclude that their best bet is to go it alone. I am sure that all of us would agree that that is the wrong
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lesson to learn. The co-operative movement is an important element in providing farmers with the strength to compete powerfully within the marketplace.

In conclusion, abuse of market power is the main challenge to our dairy farming industry, but it is not the only challenge. Unnecessary regulation is also a huge problem. The extension of the European Union's nitrate vulnerable zones directive has caused and threatens to cause immense damage to farmers in general and dairy farmers in particular. That new directive will mean many farmers have to spend around £50,000 on a new slurry tank simply to comply with the measure, with absolutely no benefit to their business. That will be the straw that breaks the camel's back for many farms.

There are more challenges to come. The Government made an announcement this week on cost sharing, and the establishment of an animal disease levy will be cause for alarm for many dairy farmers in Cumbria and across the country. The proposal to charge farmers at a rate of £4.80 per cow to pay for the clean up of disease outbreaks, which in the case of the 2007 foot and mouth crisis was wholly the Government's fault, is unjust and extreme. Such a proposal will help to push even more dairy farmers out of business. We have heard about the Government's failure to tackle bovine TB, and I endorse those remarks. Some 29,000 cattle were slaughtered in England for TB control reasons just last year. Squeamishness over a controlled cull of badgers led to that mass slaughter of cattle, and a failure to deal with that disease is contributing towards making many farms non-viable.

The story of British dairy farming in recent years is one of market failure, and Government failure to tackle market failure, versus the staggeringly impressive resilience of an industry that is determined to succeed against the odds. That battle continues and my money is undoubtedly on dairy farmers to win. I suggest that it is time this House got off the fence and took their side.

10.41 am

Mr. Richard Benyon (Newbury) (Con): It is a great pleasure to serve under your chairmanship, Dr. McCrea. Before I say any more, I refer hon. Members to my entry in the register. Until 14 months ago, I was the only dairy farmer in the House. I left dairy farming for many of the reasons discussed today-not least because of the effects of the nitrates vulnerable zone directive. I also left the industry because I did not invest in my business, for the very good reason that my unit costs of production were greater than the pence per litre I was receiving. That situation is replicated across the country and has led to a dramatic reduction in dairy farmers and the amount of milk we are producing. There is a range of other issues, including food security.

I pay great tribute to my hon. Friend the Member for Preseli Pembrokeshire (Mr. Crabb) for not only securing the debate but speaking passionately about the needs of this important sector of the farming community, which he represents-he has done so in the past and will continue to do so, whichever party is in government. I also pay tribute to hon. Members such as my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski), who have set up the all-party group on dairy farmers. They do great work and hon. Members from all parties who take part in that should feel proud that they have set up something really important.

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As I said, since 1997, I have been one of 14,000 dairy farmers who are no longer dairy farmers-if hon. Members can follow that tautology. Since that time, milk production has fallen by more than 1 billion litres and the National Farmers Union has warned that Britain will lose its "critical mass" of milk suppliers. That is important, because when someone has left dairy farming, it is very hard to go back to it. If someone is growing sugar beet and they stop doing so, they can go back to it easily. In areas such as mine-the central south of England-we have lost slaughterhouses, a large amount of veterinary expertise, cattle markets and all the infrastructure that supports mixed farming units. One does not get that infrastructure back. Such a situation makes a dramatic difference to our landscape and our biodiversity. The issues relating to the subject go much further.

I also pay tribute to the hon. Member for Stroud (Mr. Drew), who made an important point about skills. We are losing skills across the farming industry, particularly in stock farming, and we make a great mistake if we do not understand the need to bring young people in and give them a career in a good industry.

According to DairyCo, if the increasing trend in the consumption of dairy products is extrapolated forward, annual consumption in 2030 could be in the region of 16 billion litres, which is some 23 per cent. greater than the current UK production level. The hon. Member for Westmorland and Lonsdale (Tim Farron) makes a good point: to say there is overcapacity in this industry is completely wrong.

The price that dairy farmers receive for their milk has fluctuated between 15p and 28p a litre over the past 13 years, which has led to wide variations in profitability. The UK average farm-gate price has been consistently below the average for the EU15 throughout the past decade, which partly explains why dairy farmers have under-invested in their businesses compared with their European counterparts. In addition to the fall in prices paid to milk producers, during 2009, more than 1,800 dairy producers suffered significant financial losses. We have heard about the effects that the collapse of Dairy Farmers of Britain has had on many constituents of hon. Members in this Chamber.

The NFU estimates that an average supplying member lost in the range of £10,000 to £15,000 as a result of being left without pay for milk collected in May and up to 3 June. As well as low farm-gate prices, dairy farmers have had to manage rising input costs, which has left little spare for investment. As the hon. Member for Westmorland and Lonsdale pointed out, the unit cost of production of 26.5p per litre is significantly higher than the average milk price at the time of 24.5p per litre.

In 2009, DairyCo's farmer intentions survey revealed that only 18 per cent. of dairy farmers intend to increase milk production-down from 35 per cent.-with 13 per cent. intending to exit the industry within the next two years. An increase in production is forecast on some farms, but the reduction in the number of dairy farmers will result in a further fall in milk production next year. With demand for dairy products increasing and domestic supply declining, it is vital that the Government act to put the dairy industry on a secure and sustainable long-term footing.

I suggest to the Minister that there are five steps we need to take to improve the outlook for the dairy industry. I hope that he will have time to deal with them
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in his remarks. First, we have heard talk of supply chain fairness but, in recent years, the price for raw milk has dropped by 27 per cent. and the consumer price has risen by 11 per cent. Government documents on the dairy market state:

On Monday, there was a European Committee debate in which my hon. Friend the Member for South-East Cambridgeshire (Mr. Paice) asked the Minister a question. I will repeat that question, because it needs a full answer from the Minister. He said

That is a really important matter. My hon. Friend the Member for Shrewsbury and Atcham talked about Arla in Denmark, which has an 80 per cent. share of the market in that country. We broke up Milk Marque when it had only 37 per cent., which has had a detrimental effect on the ability of producers to work together to get a fair deal.

We have heard about a need for proportionate regulation. That is so important. As I said, I have experience of the impact of the nitrates vulnerable zone directive. None of us wants impossible levels of nitrates to be in our water supply, but we know from the Government's figures that the changes imposed by the directive in respect of muck spreading will lead to a 1 per cent. drop in nitrate leaching. That has a massive cost-an impossible cost for some businesses-for the farming community.

We need effective action on disease. Much has been said about TB but, of course, Johne's disease is also having a large impact on production. On TB, the Minister was wrong to say in his intervention that those of us who support a limited cull consider that to be a silver bullet and that is all we talk about; we are talking about a cull as part of a much wider approach. The hon. Member for Stroud talked about vaccination but, frankly, it will be 2014 before an oral Bacillus Calmette Guérin is available. What state will the dairy sector be in in many areas of this country by then? It is vital that the Government grasp the nettle and get a grip of the TB issue.

That point was poignantly made on "Countryfile," which is a programme that sometimes irritates me because it considers the matter through the prism of a rather more urban view. There is a man called Adam on that programme, of Adam's farm, and he showed precisely the frustration, depression and anxiety caused during TB testing.

We need a stronger focus on research and development. When R and D is so fundamental to the immense challenge of increasing food production while conserving our natural resources, it is critical that we get the most from our world-class science base. That will require the Government to do everything they can to help our universities, institutes and scientists to maximise their
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contribution to strengthening food security, both here and across the world. They need to do that by equipping farmers with the tools necessary to produce more and impact less. Smart solutions must be found to translate research more effectively into practical use at farm level, so that yields and quality in all sectors improve. I do not have time to go into details, but I would very much like to take that point up further with the Minister.

My final point is on honest labelling. We have heard much about that in the debate and we have been talking about it for a long time, so I hope that the Government can come on board and understand the problem. More than 408,000 tonnes of cheese are imported into this country, and imports of cheese have increased by 60 per cent. in the past 10 years. There is real concern among dairy organisations, such as the Royal Association of British Dairy Farmers, that the ability to put dairy products on our shelves without telling the consumer where they come from is not fair on our farmers.

There is much more that I would like to say on the subject, as it is one that is close to my heart. I can assure hon. Members that if we are in government in a few weeks time we will take the plight of the British dairy farmer to heart.

10.51 am

The Minister of State, Department for Environment, Food and Rural Affairs (Jim Fitzpatrick): It is a pleasure to see you preside over the debate today, Dr. McCrea. I begin by congratulating the hon. Member for Preseli Pembrokeshire (Mr. Crabb) on securing the debate and on his excellent opening speech. I agree, as clearly many colleagues do, with much of what he said, although not all of it. The only thing that spoilt his speech was his reference to Chelsea FC-I do not know why he wanted to go there, but it was entirely up to him, as it is his debate.

It is clear from the three debates that I have attended in Parliament on the subject within the past week that the future of our dairy industry, and of our food industry more generally, is a prominent issue on the parliamentary agenda, and rightly so. I have listened carefully to the comments raised during the debate. Despite some of the concerns expressed, I believe that the sector can and does have a positive future and that it will play its part as an important and valuable element of the agricultural sector and the food chain, contributing to both the economy, rural areas and the wider environment. I think that the underlying tone of the majority of the contributions made today agrees with that optimism and positivism, despite the concerns that have been raised.

I recognise that the medium-term challenges facing the UK and EU dairy industries are real. I meet with the NFU and other groups regularly to talk through concerns. Yesterday, I attended a meeting with the board of Dairy UK, at which we had a lengthy discussion and I responded to questions on a range of matters. As colleagues will know, I also chair the Dairy Supply Chain Forum, where all the stakeholders play a full part.

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