Examination of Witnesses (Question number
294-370)
RT
HON JAMES
PAICE MP AND
ANDREW ROBINSON
Q294 Chair:
Minister, welcome. I apologise for the delay, which was partly
because of our business and the vote. Thank you for your patience.
For the record, would you like to introduce yourselves?
Mr Paice: I am
Jim Paice, Minister for Agriculture and Food, and to my right
is Andrew Robinson, head of our livestock division.
Q295 Chair:
We are very grateful to you, Jim, for participating in this inquiry
into the dairy industry. At the outset, would you like to outline
what you see as the current challenges to the industry, and in
particular how the present drought conditions are impacting on
the dairy sector, in addition to other issues?
Mr Paice: I am
happy to give the Committee some of my thoughts. I suspect that
virtually all dairy farmers would agree that the fundamental problem
facing the industry is the price they get for their milk. I have
no doubt that is the origin of your inquiry. Behind that rather
simplistic statement is a range of issues that need to be addressed,
some of which are outside the Government's capability. There
is the issue of the quite divided marketplace. There are those
who have dedicated milk supply contracts with particular supermarkets
and who generally get the higher end of the price bracket, and
those right down at the other end of the price bracket who sell
their milk into, usually, some form of processing outlet—for
example for basic cheddar cheese or even skimmed powder—and
in many cases get 5p or 6p a litre less than the others, which
is a dramatic difference, although that market has been much better
recently. There are issues to do with the costs of production,
competitiveness and a huge variation in the industry between those
who are surviving at what are not particularly good prices and
those who are not.
As you say, the more immediate issues relate to the
weather. It depends very much on which part of the country you
are in. It has been extremely patchy. I understand that the
south-west is reasonably okay. The first cut silage has been
early, which in itself is good. The sugar content is very high,
so it bodes well for the quality of the silage in the winter,
but clearly they need rain to get a second cut of silage to get
the extra volume they need. Other parts of the country have suffered
more and will face shortages of silage or possibly hay.
The other consequence of the drought is that there
will be a serious shortage in the eastern cereal-growing counties
of straw, which is usually then exported to the west of England
to the livestock areas for the winter. I suspect that that will
prove to be very expensive come the winter. Of course, this is
on the back of a particularly hard, long winter over which cattle
were fed. Feed stocks on farms are relatively low; they are not
holding much winter feed from last year. Frankly, it is very
mixed, so it is difficult to draw a single picture that encompasses
a dairy farm in the east of England—there are still a number—right
through to the south-west or up to the north-west.
Q296 Chair:
Perhaps you would clarify one thing for us. We have conflicting
evidence of whether or not there are systemic problems in the
UK dairy industry.
Mr Paice: It depends
on how you define the terms "systemic problems" and
"the dairy industry". If I talk about the dairy industry,
I include the processing sector as part of it, but if we stick
to the on-farm, milk producing side, I do not think there are
systemic problems any more than in any other dairy sector—certainly
across Europe. We have one of the highest average herd sizes
and one of the most efficient dairy producing sectors. It worries
me that, despite that, our dairy industry is finding life very
difficult. We can grow better grass than any other country in
the EU, apart from the Republic of Ireland, and we ought to be
able to compete.
If you extend the definition of the dairy industry
to the processing sector, which I personally would, there are
some very real issues. Obviously, on the liquid side, we have
very large buyers: the supermarkets, which clearly largely control
the liquid market. There are only three major processors that
bottle for those supermarkets, and obviously they have to compete
with each other for those very substantial contracts. Arguably,
there is some imbalance there. The processors would say that
there is no problem; I am not sure I agree with that. In my view,
we have a bigger systemic problem behind that with the rest of
the milk, which is going into either the spot liquid market or
processing sector and is where we have lost ground. We can all
dispute or debate the reasons for it, but the fact is that 43%
of our milk is going into processing and we should be doing far
more than that.[1] We
are importing very large quantities of added-value dairy products—cheeses,
yoghurts and that sort of thing—on which we ought to be
competitive. I think the failure has been one of innovation,
although that is improving consistently, and, more significantly,
of investment in large-scale, modern processing plants. There
are exceptions. Dairy Crest's plant at Davidstow in Cornwall
is absolutely state of the art. It is a fantastic, modern cheese
factory, and that is why Davidstow cheese is such a brand name.
There are others—it is wrong to identify just one but it
is a good example. Generally, we have not got high-capacity,
modern processing plants and cannot compete in that sector.
Q297 Chair:
In my experience, UK farmers tend to be terribly proud and independent
operators. Is there more that we could do to encourage them to
form cooperatives and come together in that way?
Mr Paice: I am
tempted just to say, "I wish." I think the independence
of British farmers is not unique to dairying; it is right across
the piece of British agriculture, and partly because we have always
had larger farm sizes. If you go back to the 1960s and 1970s
when we first joined the EU, there was a massive number of very
small farmers—what we might have called peasant farmers—across
most EU member states. Our farms were smaller than they are today,
but they were still multiple sizes larger. For that reason, there
was greater incentive for them to combine as co-operatives, which
is what they did. There have been so many attempts—I will
not regale you with ancient history—by Governments of different
complexions to encourage cooperation in this country. There
have been some superb successes, but I am afraid the history is
littered with a lot of co-ops that have failed. We now have two
very successful ones: First Milk and Milk Link. As you know,
Dairy Farmers of Britain collapsed a couple of years ago. Milk
Link, which now owns a pretty modern dairy in Devon and a lot
of other facilities, is paying a dividend to its shareholders.
I think that is one thing farmers need to think about as a co-operative.
It is their business, and they should measure its success not
just by the price they get for their milk, which does tend to
be a bit lower than some others, but also by their share of the
profits. They are now getting a dividend. I understand that
First Milk faced some financial challenges a year or two ago.
It is getting stronger now. It has a new and very good chief
executive, and is beginning to claw its way back into the market,
but we have only those two.
Chair: I think we will
return to this a little later.
Mr Paice: I am
sure that we will.
Q298 Neil Parish:
You have already answered quite a lot of my question, which is
very much about adding value to milk. Dairy producers have been
told for years to add value. I go straight to the last part of
my question: what is Defra doing to assist the dairy industry
to move from liquid milk to more value-added products to improve
profitability?
Mr Paice: First,
perhaps I may correct what I said earlier. Some 47% of our milk
goes into processing and 53% goes into the liquid market—I
got my sevens and threes the wrong way round.
I have to face up to the fact that the powers of
Government today are limited in this regard. Clearly, we are
not able to set milk prices. Although there is still the relic
of a basic intervention price for butter, it is extremely low—so
low that it is frankly of little consequence. I am not suggesting
that we should go back on that, but that is the situation we face.
As Minister, I inherited the Dairy Supply Chain Forum that was
invented by one of my predecessors, which tried to bring together
all the sectors involved from the retailers through to the producers,
and obviously the processors, the co-operatives, and the private
and plc processors etc. I felt it had lost its way. I was not
particularly inspired by the first meeting. We had a further
meeting in January-February, and tomorrow I am to have a discussion
about how we can engender far greater interest in it. I really
do think it is for all the industry to share the issue that milk
production is going down for no justified reason and we need to
reverse that. It is obviously important for our own dairy farmers
and also for wider economic reasons, but I think the industry
has to share the problem.
Some sectors of the whole supply chain have not yet
accepted that there is a problem and say that eventually supply
and demand will work themselves out. I think that if we wait
until then, it will be too late for countless small dairy farmers.
I am putting great store in this forum. I have reduced its size,
although not in numbers of organisations. I have said I want
only one person from each organisation—a senior director-level
representative—to try to get some bite into it. I hope
that the next meeting in June[2]
will take that forward, but it is a matter of persuading them—hopefully
this Committee's inquiry will help in this—that the solution
is largely in the hands of the industry. Ministers do not set
prices any more. We cannot force farmers to cooperate,
which is important. I and the Secretary of State have said many
times that we strongly support co-operation and farmers working
together as buying or marketing groups or whatever, but we cannot
force them to do it.
Q299 Neil Parish:
But is it just in the farmers' or processors' hands? Why are we
falling back in the processing market compared with our continental
partners? Is it the fact that supermarkets keep the price of their
valued products like cheese and what have you low? They bid in
the commodity market and keep low the price of a commodity cheese,
for want of a better word, which is one of the major supermarket
brands. Is there not more we can do there so it does not go down
to the lowest common denominator? For instance, will the food
adjudicator be able to do anything about that?
Mr Paice: I do
not think that there is anything we can do to stop supermarkets
wanting to stock low-priced cheeses, and they will shop around
for that. It is not something against which we should particularly
argue.
Q300 Neil Parish:
But it drives down the price, does it not?
Mr Paice: It does,
but the problem is that we are not able to compete. You say that
it drives down the price. It does, but at the same time some
of that market is being filled by countries that pay more for
their milk and they are still able to compete. It is not just
the price of milk—that was the point of my earlier comment—because
there are countries in Europe that pay farmers more for their
milk and then undercut us in the supermarkets. That is where
we are losing out. In my view, we have not had investment in
the processing sector. These processing factories have to be
very large with a massive economy of scale. It is true that mainland
Europe is a better location than the UK because it is not just
for the UK market. Having said that, Müller came here 20
years ago and built a superb plant in Shropshire, and it is continuing
to expand while paying a reasonable price for its milk. Therefore,
that can actually happen, but we need investment in major processing
kit.
You asked about the adjudicator. I do not think
that it is directly a matter for the adjudicator. The adjudicator's
job will be to monitor the grocery supply chain code of practice,
which is all about the terms of trade. He will not be able to
say, "You're not paying enough," or interfere in margins
or the pricing mechanism.
Q301 Richard Drax:
For years, all farmers have been told to add value. It is one
thing to be told it; it is quite another for most farmers actually
to do it. It is extremely capital intensive and expensive. Money
is very hard to get. All kinds of impositions are placed on farmers:
nitrate zones; lack of capital grants; and the high tax that businessmen
face. There are lots of things that are within the control of
the Government to help the dairy industry generally. I am sure
that you acknowledge that most farmers—I think the average
herd is 113 cows—simply will not have the clout to add value.
There is a co-operative element here, but you well know that
farmers are not very good at doing that.
Mr Paice: I hope
that I did not give the impression that I was talking about individual
farmers adding value. Some have been very successful with their
own ice cream, artisan cheese or whatever, but that is not an
opportunity open to most. I was not suggesting that. I think
that the co-operative approach is the way you get the investment.
When First Milk and Milk Link were set up, I know that there
was a lot of resentment among farmers about having to buy shares
and things like that, and there was the obvious tragedy of those
who lost a lot of money when Dairy Farmers of Britain went down.
However, Milk Link is now delivering a dividend—it is working.
It has made some big investment in processing plant, and I think
it is beginning to work out after a very long period of difficulty
in the industry. I do believe that is the right way forward,
but it is not for every individual to set up his own plant. Clearly,
that is out of the question.
Q302 Amber Rudd:
Do you share the NFU's concern that we are losing critical mass
with the number of dairy producers, which will cause a problem
if we then need increased production?
Mr Paice: I certainly
share the overall NFU concerns. I am not sure that I agree that
we are losing critical mass at this stage, although clearly I
do not want to see production continue to fall. It has increased.
The question this begs is: what is critical mass? Is it the number
of dairy farmers? Is it the number of cows? Is it the total yield
of milk we produce? However harsh it might sound, if you are talking
of the overall success of the industry, the key factor is how
much milk we are producing. Over the past year we have increased
milk production by 500,000 litres[3]
over the previous year, so it has turned up a little bit, even
though the number of farmers has gone down, because herds are
getting bigger and cows are producing more milk. I am not too
concerned at this stage. Obviously, I am concerned about the
rural infrastructure and fabric of the countryside—the more
social issues—but my primary concern is to try to get the
industry back in a position where an efficient producer of any
size can make a profit in the marketplace. That is why so much
of what we are doing aims at those areas that the Government can
influence: trying to help them to drive costs out of the business
and to become ever more efficient.
Q303 Amber Rudd:
Is there a point at which you would want the Government to get
involved in any way if the number of dairy farmers who left the
market continued?
Mr Paice: I do
not think that I can give you any threshold figure, if that is
what you seek, as to the point at which the Government intervene.
Q304 Amber Rudd:
The tipping point?
Mr Paice: Basically,
the situation is that increasingly the Government do not intervene
in the agricultural marketplace, and I do not really envisage
that situation changing. The number of dairy farmers has fallen
dramatically over the past 15 years or so, but while the actual
production of milk has gone down, it has been by nothing like
an equal proportion. Indeed, in the past 12 months, it has picked
up a bit.
Q305 Tom Blenkinsop:
Earlier you said that there was no investment in the processing
sector.
Mr Paice: I did
not say none, but it is inadequate.
Q306 Tom Blenkinsop:
In order to try to help the dairy market and also dairy exports,
you want to drive out costs. Do you think that the rise in electricity
and energy prices in general is going to help the dairy industry
and increase exports?
Mr Paice: Of course,
rising energy prices do not help any industry sector apart from
energy, but somebody famously said you cannot buck the market.
Energy prices are rising. I think the counter to it is to reflect
on the role that dairy farming and other sectors of agriculture
can play in the renewables market, and the Government's current
review of anaerobic digestion and the incentive of feed-in tariffs
for AD plants is a factor. It could well be of value to a number
of dairy farmers. Some are already making an investment; others
may wish to, and to use their own slurry and other materials.
I think there are ways they can balance out some of their energy
costs. Last week I launched the dairy industry's action plan
to implement the road map on being greener as a sector, and a
lot of that is about seriously reducing energy consumption. Dairies
do use a lot of energy in their electrical equipment for cooling
and things like that, but there is a lot they can do. Again,
there are pioneering farmers who have really worked on that, although
others have not.
Q307 Tom Blenkinsop:
Of course, when we purchase equipment or recapitalise so that
less energy is used, there are capital allowances. How do you
think the reduction in capital allowances will affect the dairy
industry and also dairy exports?
Mr Paice: I am
not going to be drawn too far into Treasury and tax issues. Obviously,
the Government face very difficult decisions. The Chancellor
had to make some changes, but there are still serious tax allowances.
Q308 Tom Blenkinsop:
But do you think it will increase exports or not?
Mr Paice: Exports?
Tom Blenkinsop: Yes—or
help the dairy market in Britain per se?
Mr Paice: Of course,
increased tax allowances will encourage short-term investment.
Alternatively, you could argue that Government grants would do
it, but the reality is that today the Government are not in that
flush position where we can necessarily be generous, either in
allowances or more Government grants. There is money available.
The Rural Development Programme for England still runs. We are
bringing it back in-house. It can make grants towards energy
saving. It is a feature of RDPE. If farmers want to invest in
it, they can make an application, so there are grants available.
Q309 Chair:
Are you concerned about the trade deficit, which is more than
£1 billion a year?
Mr Paice: I am
concerned about the trade deficit right across the food sector.
Clearly, there are lots of foods we want and will continue to
import, but we see agriculture and the food industry—not
just dairying—as a growth sector where there are lots of
overseas markets to which we could increase our exports.
Q310 Mrs Glindon:
Will the implementation of the European Commission's milk package
proposals help to stabilise dairy farmers' incomes?
Mr Paice: There
is a lot of debate over the answer to that question about the
package. We are broadly in support of it. I do not believe that
it will make a dramatic difference, but clearly there are bits
that might well help. The key areas relate first to the issue
of contracts, where the Commission is proposing that individual
member states should have the power to make contracts between
their milk producers and processors compulsory. It is stipulating
precisely the issues that should be in those contracts; it is
not stipulating the detail. For example, price should be covered
in the contract. It does not stipulate what price, formula or
anything else—simply that the contract should cover price.
That is the big one, but there are others such as volume as well.
We are relatively open-minded about this. If it
goes through as we currently see it and member states are allowed
to make contracts compulsory, we will consult the industry and
others over it. I am pretty dubious, frankly, as to whether it
would make the difference that I know the NFU believes it would
make. I do not think it fully appreciates how little information
could be forcibly put into the contract. Most British dairy farmers
already have contracts. In a lot of other countries it does not
apply, but most British dairy farmers do. Farmers will complain
about those contracts—they will say they are locked in to
a particular price, cannot get out and have to sell to an exclusive
processor—but that is the nature of contracts and it is
not unique to the dairy industry. I know that a lot of producers
in the fresh produce world are locked in to one supermarket that
will not allow them to sell their lettuce or whatever to another
one, so this is not unique to the dairy sector. We are supportive
of the overall package and trying to make it work—there
are one or two other areas to which we can come back, if you wish—but
on contracts, which most people see as the major part of the package,
we will consult the industry if we end up with the obligation
to make them compulsory. I do not share the industry's optimism
that it is the panacea to some of their problems.
Q311 Mrs Glindon:
In spite of what you have said, do you think the package could
make our dairy industry more competitive relative to the rest
of Europe?
Mr Paice: It could
if the farmers want to take the opportunity. One of the other
issues in it is that it is said in the proposal at the moment
that producer groups—co-operatives, if you want to call
them that—could take over up to 33% of the national market.
We think that is a bit high; we believe it should be 25%, more
in line with other competition law. There are some who think
it should be 50%. I do not know where it will end up, but—and
this is the big but—in the UK, the maximum market share
of each of those two co-operatives is about 10%, so we are far
short in the UK whether the limit is 25%, 33% or 50%. When the
industry asks why I object to 33%, I say that when it gets to
24.9%, it should try to persuade me that it should be 33%. It
is 10% at the moment. That is where the opportunity is. If our
producers got together and formed bigger producer groups, whether
they were based on existing ones or were new ones, so that they
started to have serious clout in the marketplace, up to whatever
percentage is finally agreed, that would be when they would be
able to make a real difference to their own welfare and developing
exports or whatever, and to generate income for investment in
processing. However, I am afraid it is for the industry to come
together.
Q312 Mrs Glindon:
The Commission argues that the milk package proposals would enable
the whole dairy supply chain—down to retailers—to
benefit from greater transparency. Do you agree with that assessment?
Mr Paice: Yes,
we strongly support the transparency proposals—very much
so.
Q313 Mrs Glindon:
Do you think that the lack of transparency is a disadvantage?
Mr Paice: Yes,
it is.
Q314 Mrs Glindon:
Finally—I feel like this is an interrogation on the milk
package—do you think that if there was more transparency
in the dairy supply chain, it would help us to be more comparable
with other dairy and agricultural sectors?
Mr Paice: Yes.
I think transparency is an excellent tool for comparison work,
and therefore for benchmarking to see how well you are doing compared
with another industry. Transparency about stocks is also very
important because the level of stocks can influence price, and
therefore if the stock levels that exist are transparent, it is
easier to read the market. I think there is a lot to gain from
transparency, so we support it.
Q315 Chair:
How can we achieve that transparency when there is a shroud hanging
over confidential information such as price? How would you like
to achieve transparency?
Mr Paice: If I
may, I would like to ask Andrew to fill in some detail about precisely
what the Commission is proposing on the subject, but clearly there
will always be commercial constraints on transparency.
Andrew Robinson:
What the Commission is proposing on transparency is very specific.
It is saying that information about the volumes of milk delivered
from producers to the purchasers of the milk should be conveyed
to the Commission so that it has a picture of what is being produced
by individual member states, which will help particularly in knowing
how production in individual member states compares with those
threshold limits to which the Minister referred.
Q316 Chair:
I am not sure I understood what you were saying. Just for clarification,
you said that certain continental countries were paying their
farmers more for their milk, but that they were going on to undercut
our farmers—?
Mr Paice: No, not
undercutting our farmers but undercutting our processors. In
other words, they can sell their cheese to our supermarkets cheaper
than we can.
Q317 Chair:
Is that allowed? Is that not state aid?
Mr Paice: No, there
is no state money going into this.
Q318 Chair:
This is purely the producer organisations.
Mr Paice: Whether
they are producer organisations or private sector organisations,
it is just efficiency of production. It is to do with their processing
or manufacturing costs of their cheese, if you like.
Q319 Chair:
I just wondered whether countries like Denmark might possibly
give a little marketing money to their milk producer organisations.
Mr Paice: You would
know more than I do about what the Danes do. If they are doing
that, clearly it is state aid.
Q320 Chair:
I just wondered. If it is a level playing field, there is no
problem.
Mr Paice: We are
not aware of any.
Q321 Neil Parish:
I take you back to the co-operatives. You made some interesting
comments about how, if the co-operatives grew, you would look
at them again. Under the previous Government, when Milk Mark
had 37% of the milk, it was broken up by the Office of Fair Trading
because it was said that they had a monopoly. I never believed
it did have a monopoly, because Arla in Denmark has most of the
Danish milk and is still not considered a monopoly because of
the European market. It is all very well when they have got 10%
or 11% now and get to 20%, but do you see a cut-off point?
Chair: We are coming to
co-operatives in a moment, so do not feel that you have to expand
too much at this stage.
Mr Paice: It does
not apply just to co-operatives. Our view is that under general
competition law in this country—it is still largely a national
issue—market share of about 25% is a pretty dominant position.
As far as concerns the dairy package, we do not think there is
justification for an exceptional rule for agriculture in terms
of competition law, and that is why we would prefer the 25%.
Q322 Neil Parish:
So is Tesco over-dominant at 32%?
Mr Paice: I am
not going to be drawn on that.
Q323 George Eustice:
I want to return to the issue of contracts that you just mentioned.
Correct me if I am wrong, but I detected perhaps a slight softening
in Defra's position. There is certainly a nuance between what
you said and what we had understood previously. You said you
were open to the idea but that you did not necessarily think that
it would help that much, whereas previously we have seen on-the-record
stuff from Defra saying that it could actually be detrimental
and stifle innovation in the industry. Has there been a slight
move in your position?
Mr Paice: Like
so many of these things, as to what would be in the contract,
the devil is in the detail. As the Commission's proposals are
today, I do not think that they would particularly stifle initiative.
Do not forget that these proposals have been changing so, like
with all things, you have to respond to the latest situation.
Part of the root debate with the NFU is that the detail that
is allowed to be put into the contract is now very limited in
the Commission's proposal. The proposal simply says that member
states may make contracts compulsory or not. The contracts aspect
of the proposal stipulates that when they are made compulsory
for all deliveries from producer to processor, they must be made
in advance and written—something with which we would agree—and
include price or formula, volume, timing of delivery and the duration.
But it does not lay down the detail of how you arrive at the
price; it does not lay down the duration—it could be a week,
a year or whatever. It would be up to the individuals to sort
that out, so in that respect it would not be stifling initiative.
Earlier it was thought that some of the terms of the contract
would be laid down at national or European level, which would
be very stifling. As to whether I am softening the line a bit,
I want the dairy industry to be helped by this package. Although
the Government are pretty sceptical about the value of the contract,
I have said publicly that we will consult the industry if this
is where we end up. This is a European matter and none of us
ever knows what it will end up looking like until the process
is over, but if we end up with member states being able to make
contracts compulsory, we will consult the industry on that.
Q324 George Eustice:
To press you, do you not oppose the principle of having a compulsory
contract? Do you not even oppose those elements being in it?
Mr Paice: I do
not like the idea, but if it could really help the industry, I
am open to persuasion. I cannot speak for the whole of the Government.
It is one of those things where, if we get to that stage, the
Government as a whole would have to consider it.
Q325 George Eustice:
Do you oppose the principle that there must be compulsory contracts?
Mr Paice: I think
all farmers should have contracts with their suppliers. The fundamental
problem is that virtually all British dairy farmers have contracts
and most cover these issues. They cover the form of price, how
much it is and the duration.
Q326 Chair:
Is the Commission seeking more transparency? Do you think that
that is what lies behind it?
Mr Paice: I do
not think so. Some countries do not have contracts at all, so
there is no doubt that this would be a dramatic step forward for
a lot of member states, but not for us. The debate is about how
far the Government or Commission go in laying down what is in
the contract. As we read it, if we did make it compulsory—that
would not make much difference because most of them have them—we
still could not say, "You must arrive at the price by x formula,"
or, "The contract must be so many months long." We would
simply say, "There has to be a heading in it—price—and
it is up to you and your processor to haggle over how that is
to be set," which is where we are today.
Q327 George Eustice:
You would not favour something under which there had to be a consistent
formula through which the price was arrived at. The NFU told
us that sometimes farmers were trapped in contracts whereby they
were forced to supply just one processor for a long period of
time with no guaranteed price, and without even a predetermined
formula for arriving at the price. You can see why that situation
could create a very anti-competitive system: you have a processor
with all the clout and a supplier who is locked in but with no
negotiating position whatsoever. The problem is that farmers
just become price takers. If you had a very clear formula to
arrive at the price, or at least one that was set down, it would
be a step forward, would it not?
Mr Paice: It would
be a step forward if that was in the contract, but if you are
suggesting that the Government should lay down that formula, that
is the Government going straight back to fixing prices, which
we moved away from six years ago and would be counter to other
EU legislation. It would be outside the green box and back in
the red box in World Trade negotiations as well. I do not really
see that as being on. If I may say so, that is the weakness of
the Scottish proposal. NFU Scotland has come up with a formula
that it thinks should be adopted across the piece. There is nothing
to stop individual farmers and processors from adopting that formula,
but I do not think that there is any way it can be imposed.
Q328 Chair:
Is not the issue at the moment that the NFU is concerned that
under the present contract the price can be changed retrospectively?
Would you welcome EU law in this regard?
Mr Paice: What
is interesting on this one, because we have not seen the legislation—I
am afraid I do not know the answer to it—is where the interface
will be with the grocery market adjudicator. One of the key points
in the Competition Commission's report that gave rise to the new
code and the adjudicator was to do with issues like back-dating
changes to the contract, retrospective price changes and things
like that. The Competition Commission accepted that that was
wrong, and we anticipate that the adjudicator will have a say
in that. That related to contracts with supermarkets as an example
in terms of the retailer, as opposed to the middle man—the
processor. However, until we see the legislation—it is
not our Department but BIS—we do not know, but we are in
the realms of what the Competition Commission says is wrong in
terms of a contract with a retailer. There is a bit of a read-across
there. My personal view is that it should equally be wrong.
I do not think you should ever have retrospective changes to a
contract. I think you sign a contract and accept it.
Q329 George Eustice:
I am not a huge fan of prescribing either. As a Conservative,
freedom of contract is a very important thing. I pressed the
NFU on this point and asked why it did not publish a standard
contract saying what the terms should be and then get all of its
members to say that that is the contract they are adopting as
of next year and move things that way. It said that it had tried
that but it was warded off it because of competition law—it
was told that this would be an anti-competitive attempt to form
a cartel. It was warded off doing something as simple as that.
It seems to me that we have double standards where we allow huge
power to be concentrated in the hands of retailers so that they
have clout and in the hands of the processors so that they have
clout. They then have powerful negotiations between one another
but, at the other end, any attempt by farmers to come together
in the way you have just advocated is kyboshed and they are told
it is anti-competitive.
Mr Paice: I am
not sure I can really comment on that. I was not aware that they
were told that it would be anti-competitive as a cartel. Off
the top of my head, I cannot understand why. I am not sure I
can make a cogent response.
Q330 George Eustice:
That is my memory of the NFU's evidence. Perhaps that is not
so. The final point it made was that there was legislation to
protect consumers for the very good reason that, unlike most businesses,
consumers are quite often in a less informed, weaker position.
Therefore, we have judged that it is important to have consumer
protection legislation; in fact it is quite often Conservative
Governments who have pushed that forward. The NFU says that the
same principle should apply when you have smaller retailers who
lack clout in the market, and that is the principle of having
more prescription in terms of what the contract should include.
Mr Paice: I thought
you just said "small retailers". Do you mean small
producers?
George Eustice: Small
producers, yes.
Mr Paice: I can
follow the argument. If we were one of the countries in Europe
where nobody had contracts, I might take a different view, but
virtually every dairy farmer in this country does have a contract.
There is an issue about how much they can work together, but
despite what the NFU apparently said to you about its contract—of
course, it would be a cartel if they got all their members to
sign it—if it got 20% to adopt it, as I read it, that would
be permissible within competition law. Maybe the fault was that
it was trying to get everybody to do it, but there is absolutely
nothing in competition law today to stop up to 20% or 25% of dairy
farmers from working together as a cohesive group and demanding
the price they want.
Andrew Robinson:
It is around that figure.
Q331 George Eustice:
For instance, if the legislation did not prescribe the exact formula
for arriving at the price but the NFU did for all its members,
would that still be a breach? Obviously it would still require
its members to take it up and run with it.
Mr Paice: I would
not pretend to be an expert on competition law. I can see that
if the NFU was trying to encourage all its members, which would
be 70% or 80% of milk producers—I do not know the figure
but it must be in that sort of area—it could be argued that
that would be an attempt to form a cartel because it is such a
monopolistic situation.
Q332 George Eustice:
You said earlier that most of the contracts already had a clear
formula for price, duration, termination and those sorts of issues.
What percentage do you think do? Have you made any estimate of
that?
Mr Paice: I do
not know. They are confidential.
Q333 Barry Gardiner:
Our briefing said that although most UK dairy producers had contracts,
most of them did not include price or volume. Your remarks seem
to contradict that. I just wonder whether we have any way of
knowing whether your briefing or ours is right.
Chair: Is not the issue
that they are confidential?
Mr Paice: Of course
that is a factor. I defer to Andrew, but it is one of the things
that farmers complain to me about. That is my understanding.
I have been to a number of big meetings. I can think of one
a couple of months ago where they all complained that they were
tied into a price and contract for 12 months. The fact is that
the milk price should have gone up a lot, but it has not and they
are tied into the old price. That implies to me that the price
and the duration were fixed, but—
Q334 Barry Gardiner:
I thought we heard in a previous session that it was not so much
tied to a fixed price as to an amount over the cost of production.
Mr Paice: Yes;
there might be a formula.
Q335 Barry Gardiner:
I say that just for clarity.
Mr Paice: Yes—price
or formula.
Q336 Barry Gardiner:
Absolutely. I agree with your earlier point that the virtue of
a contract is that both parties get a degree of certainty and
that is why you should not do anything retrospectively. Equally,
if you signed up to a contract where you thought it was a reasonable
premium over your costs of production, you should not then moan
about it. It is a contract and it is certainty on both sides.
Mr Paice: I would
not disagree with that.
Q337 Barry Gardiner:
If Defra decided not to make written contracts compulsory, what
incentive would there be for processors to include the elements
of price and volume in their arrangements—let me call them
"arrangements" if they are not written contracts?
Mr Paice: I cannot
see why a producer would say, "I'm going to sell you all
my milk but have no idea what you will pay for it." If you
say that there is no written contract, that would be effectively
what they would be doing. If we were in a country where there
were no contracts, we might take a different view.
Q338 Barry Gardiner:
If we go to the nub of the decisions that you have to make here—I
accept that you do not control this market, but there are decisions
that you have to make in respect of what Europe has recommended
here—you seem to be saying that most do have contracts and
most seem to have a formula or price mechanism that is delivering,
and that you do not want to interfere in the details of those
contracts, but that whether or not they are compulsory, you are
glad they are there.
Mr Paice: Yes.
Q339 Barry Gardiner:
What levers do you have as Minister that can improve the situation
for the producer? What can you do? We know that you have a decision
to take about whether or not it is compulsory and whether it should
include price and volume.
Mr Paice: If there
is a compulsory contract, price and volume will have to be in
there—or a reference to it.
Q340 Barry Gardiner:
So what can you do? Do you have any lever that you can pull in
and around this issue that will make a blind bit of difference
to the farmer?
Mr Paice: I think
that you know the answer as well as I do, Mr Gardiner: not a lot.
Q341 Barry Gardiner:
That's not what you used to say to me when you were on this side.
Mr Paice: As you
are learning, that's the joy of opposition—irresponsibility.
Chair: That is now written
into the record.
Mr Paice: The reality
is that we no longer fix prices, and nor should we. I do not
have weapons immediately at my disposal—or if I do, no one
has told me what they are—to change the market, the structure
or the price. What I can do with the commitment that I am trying
to show to the industry is try to influence it to find its own
solutions, which is why I come back to what I said about the Dairy
Supply Chain Forum. At meetings involving lots of discussions
with individuals and groups, I am trying to put some meat into
that organisation, to mix my metaphors, and to make it want to
face up to the challenges facing the industry and start producing
its own solutions so that the industry itself tries to resolve
things like retrospectivity in contracts, or any of the other
weaknesses we have identified, and persuades the processors that
that is not a satisfactory way to operate. Obviously, like any
Minister, hopefully I have access to Parliament and the law if
we ever got to that extreme, but if you ask what powers I have
at my disposal today, the honest answer is not a lot.
Q342 Richard Drax:
I think that you have answered this one already. The NFU says
that if other dairy producing member states adopt compulsory contracts,
it will disadvantage the UK business. Do you agree with that?
Has any sort of risk assessment been done? I recall that you said
earlier that if they did that, you would look at it.
Mr Paice: No.
I said that if a package was approved by Agriculture Council Ministers
that requires member states to decide whether to make contracts
compulsory, we will consult the industry and other interested
parties on whether that should be compulsory. I make no bones
about the fact that we start from the position that we do not
think they should be compulsory but, like on anything, we have
to consult and therefore be prepared to be persuaded of a different
view. As for what other countries do, I cannot immediately think
of any reason why that should necessarily affect our competitiveness.
I do not know whether Andrew has any views.
Andrew Robinson:
The concern would be if another country set a contract and it
was allowed to have, say, a minimum duration that made it difficult
for UK farmers to be able to sell milk or take opportunities that
arose from time to time. At the moment, the proposition is that
if a member state does make a contract compulsory, it could not
set a minimum duration. That would be the concern.
Mr Paice: Do not
forget—this is much more relevant to us than any other part
of Europe—that very little liquid milk goes into or out
of the UK because of transport costs, whereas transporting milk
is much simpler in mainland Europe. There is much more relevance
elsewhere in Europe as to what each country is doing compared
with us. We import and export very little; there is some but
it is marginal.
Q343 Chair:
If the NFU is saying that the price under the present contract
can be changed retrospectively, I think that you said that the
grocery supply code of practice would enable a contractor to complain.
No one is going to do that because they will lose the contract.
I get the impression that at the moment the contract disadvantages
the producer because the price can be changed retrospectively.
Are we relying on the EU package of measures, or can we have
a standard contract from the NFU, just to make sure that the price
is for a fixed period and cannot be changed retrospectively?
Mr Paice: If I
may say so, I think that there are two or three separate points
here. The first point—I hope that I have not confused the
Committee—is that the role of the adjudicator and the grocery
supply chain code of practice is between retailers and their suppliers,
so strictly it does not affect the dairy industry. Even if the
milk producer knows that his milk is part of a dedicated supply
chain to, say, Sainsbury's, his contract is with the bottler,
not Sainsbury's. Therefore, strictly it does not apply, and I
would not want the Committee to be misled about that. However,
there is obviously a huge similarity in the situation. It is
quite clear from the report of the Competition Commission and
the code of practice that some of the practices adopted by supermarkets
of retrospective price changes and changes to terms of the contract
are deemed unacceptable in that context. I think it is reasonable
to read across. We have not seen the legislation that BIS is
drafting. Although, as we understand it, the power of the adjudicator
will not directly affect the relationship between a dairy producer
and a milk processor, I think it is reasonable to say that there
will hopefully be a spin-off or spill-over—however you want
to describe it—of the principles that are being adopted
at that level. As I understand it, third-party complaints will
certainly be possible. If a dairy farmer believes that the contract
between the processor and supermarket is disadvantaging him, he
will be able to complain to the adjudicator. We have to be clear
that the adjudicator will not have a direct influence over a contract
between a milk producer and a processor, but I think there will
be spin-off.
The second point is about the word "retrospective"
that all of us have used. In my view, that is clearly wrong.
Another issue is that it is retrospective in terms of the date
of the contract, but quite a lot of producers will have a contract
that allows the processor to change the price—in other words
the price is not fixed. It is not retrospective in terms of milk
that has been previously delivered, but in terms of the duration
of the contract. In other words, you sign a contract that says
that the price is 25p a litre, or whatever, but the processor
has the right to change that at any stage. I paraphrase, but
that is what I am saying. We can argue about whether or not that
is retrospective, but, to pick up Mr Gardiner's point, it provides
no certainty to the producer.
Q344 Chair:
To turn to Mr Eustice's point, what is a little concerning about
the NFU producing a template contract for its members to abide
by is that the evidence it gave us was that, as a trade association,
it was bound by competition law not to bring together individual
undertakings—individual farm businesses—to do something
that might constitute a cartel. The question is how we can get
round this.
Mr Paice: I am
afraid I am not a competition lawyer and I do not feel able to
comment on that.
Q345 Chair:
I cannot believe that it would corner such a big part of the market
given that there are other sources, but you might want to think
about it and write to us.
Mr Paice: We can
certainly ask our lawyers to produce a note on it.
Q346 Chair:
I am still not clear about which aspects of UK or EU law it is
frightened of breaching, if it would help individual contractors.
Mr Paice: I will
write to you because I am afraid I do not have the knowledge to
answer that.
Q347 Neil Parish:
Earlier, when I asked about cooperatives, you talked warmly
about the need for more cooperatives of dairy farmers.
What is Defra doing to facilitate that?
Mr Paice: It is
exhortation, frankly—it is the only instrument we have.
As far as we know, there are no legal or other obstructions.
To go back to Mr Gardiner's earlier jibes, before the election
I looked very carefully at it. There are some issues about cooperative
law that ought to be modernised to do with shareholdings, voting
rights and retained profits, but I do not think that they are
serious enough to discourage people from forming a cooperative—it
is simply a case of whether they can be persuaded to do so. If
there is evidence to the contrary, or if the Committee comes to
the view that there are things that we should be doing, I would
obviously be delighted to know that. However, to the best of
my knowledge, there is nothing to discourage or prevent farmers
from working together as a co-operative, if they so wish.
Q348 Neil Parish:
One of the solutions could well be to have a big cooperative
and processor in the dairy industry to try to help with the overall
price. You have 10% or 11% for the two co-operatives at the moment.
If they combine together, that takes it to 20% to 22%, so if
they are successful, it is not too long before they get to the
25% threshold. I am not going to let you off the hook. If a
national retailer has 30% of the whole retail trade, in your eyes
that is not a monopoly, but you are saying that if a milk co-operative
goes over 25%, it could well be. You can't have the penny and
the bun. If Tesco at 30% or 32% of total retail trade in the
country is not a monopoly, a co-operative with 30% or 32% of the
milk trade in the country is not a monopoly either. That is a
direct question and, I think, a fair one.
Mr Paice: My first
point is to clarify that the 25%—or whatever percentage
one wants to use—is about an individual organisation. When
you talk about the two existing cooperatives together making
22%, adding them together is wrong. It is not 25% that belongs
to cooperatives; it belongs to one co-operative.
Q349 Neil Parish:
But if they combine.
Mr Paice: If they
were to combine, yes, the issue might arise. Do not forget, on
that subject, that the last time they discussed merging, the Office
of Fair Trading agreed to it. They decided not to pursue it,
but it was agreed. As far as concerns Tesco, you will know that
competition laws are applied by the Competition Commission and
the OFT, and they have to decide the way forward. But my understanding
is that you are comparing a bun with an apple inasmuch as we are
talking about a single commodity—milk—whereas your
32% of the total grocery trade, or whatever it is, is just that:
the total grocery trade. Therefore, the issue that the competition
authority would look at would be what percentage it had in a commodity
or particular sector rather than the whole retail group. That
is my understanding of competition law, but I stress I am not
an expert in competition law.
Neil Parish: I still do
not accept the situation, but I understand your answer.
Mr Paice: I understand
your question.
Q350 Neil Parish:
We have two farmer-owned co-operatives at the moment that almost
compete against each other. You could argue that that keeps the
price down rather than drives it up. Therefore, ultimately, is
the solution a bigger farmer-owned cooperative that could
have a benchmark and a base price in the market that helped to
produce that?
Mr Paice: I do
not wish to see a headline in the farming press saying "Minister
urges coops to unite". I am afraid I am going to duck
that question; it is for them to decide.
Q351 Amber Rudd:
The NFU has proposed some amendments to the Commission's proposals,
such as the use of independent facilitators. Are you arguing
with the Commission for their inclusion? I am taking us back to
the producer organisation proposals. The NFU has proposed some
amendments to the proposals, including an independent facilitator.
I wondered whether you would be pushing that case.
Andrew Robinson:
It is not a point we have argued. I presume that it is for the
facilitator to help a producer organisation to negotiate the sale
of their milk with a buyer. If that is the case, it is not something
that we have argued for.
Mr Paice: Are we
aware that it was pushing for it?
Andrew Robinson:
We have been asked whether we would make help available to assist
organisations to improve their negotiating abilities, specifically
in relation to RDPE funding. What we said was that in terms of
the direct employment of negotiators, we did not think the programme
allowed us to provide direct help. That sort of help does not
seem to be eligible under the present rules, but it might be possible
to give help for the employment of consultants to help with that
process.
Q352 Barry Gardiner:
We heard from Christine Tacon—you adverted to this when
you talked about liquid milk not being exported or imported—that
by and large we could produce for our liquid milk consumption—we
are self-sufficient in that.
Mr Paice: Yes.
Q353 Barry Gardiner:
But there might be sense in treating all the rest—powdered
milk and so on—as part of the commodity market and, therefore,
not producing so much milk within the UK. I think she argued
that very rationally on good economic grounds, but what she did
not mention, which is why I want to give you the opportunity to
counter it, in effect, was the impact that that would have from
Defra's point of view on landscape, biodiversity and countryside
management.
Mr Paice: I am
familiar with the case that you relate. I come back to your specific
point. I would say that there is an economic argument as well.
If you accept my earlier assertion that we can produce milk more
competitively because of our good climate and grass growing, in
theory we ought to be able to turn it into a retail product at
a price the consumer will pay and that will be competitive—that
makes economic sense to me. Therefore, I think it would be bad
for the economy if we accepted Christine's philosophy. However,
you are absolutely right to move on to the issue of what we would
do if we did cut our dairy herd by close to 50%, which would be
the consequence of that if we let it happen. It would not be
a decision; it would happen through the marketplace. The big
question then is: what would be the replacement land use, assuming
that most of those producers are stuck with grass and are not
in areas where they could convert? If they could convert to arable,
I am sure that they would, as many already have. Others, obviously,
would look at other grazing stock—beef and sheep—and
some may well turn over. It is difficult to be specific about
whether they would alter the biodiversity of the landscape because
it would depend so much on the farm and what alternative enterprises
were available to them. You may find in some parts of the country—I
think we will begin to see this—an increasing growth of
energy crops, for example miscanthus on very poor land, which
feed-in tariffs will encourage, and perhaps short rotation coppice
on wetter lands. It is very difficult to draw a conclusion.
Some might say that the land would not be farmed at all—I
do not accept that as an argument—which would be advantageous
for biodiversity. I think it would be farmed in some way or another.
I take the view that a mixed, varied landscape is good for rural
tourism. It is what the public want to see, but I also think
it is good for biodiversity. In terms of biodiversity, a monolithic
landscape—whether it is grain, grass or anything else—is
not the best environment.
Q354 Barry Gardiner:
In a debate in European Committee A, you said that "the share
of the retail price taken by the retailer has risen considerably
over the past decade…whereas the share taken by the processor
has remained roughly static and the share taken by the producer
has declined." Do you consider that trend fair or sustainable?
Mr Paice: No.
Q355 Barry Gardiner:
Do you consider that the farm gate price of milk should be more
closely related to the retail price?
Mr Paice: I do
not want to get into a debate that could be construed as wanting
to fix a formula, but I think that the producer deserves a share
of a retail price increase. Obviously, there are other factors
that cause a rise in retail prices, because the cost of buying
the milk from the processor is only part of the retailer's expense
and there may be other reasons why they have to put the price
up, but when the product is still pretty close to the material
that left the farm, as opposed to a quiche or something, it is
difficult to justify such a substantial increase in the retail
price without increasing the price to the producer.
Q356 Barry Gardiner:
In that case we are back to levers in a sense—not necessarily
new ones but others. How could that be achieved? With liquid
milk, for example, how could one ensure that the farm gate price
more closely approximated to the retail price?
Mr Paice: I am
not sure that there are any very clear levers if we exclude Government
intervention in the market by dictating margins, formulae or something
like that. The real answer to your question is that the market
itself would resolve it. A lot of people are speculating that
if dairy farmers continue to cease production and production continues
to decline—I have heard it advocated, and that might be
an angle of Christine Tacon's proposal—supply and demand
will work out and the cost to a retailer of importing milk from
abroad will be such that they would rather put up the price to
a domestic consumer, but we are so far from that point that I
do not think it is particularly helpful.
Q357 Barry Gardiner:
Neither you, I nor the entire Committee would want to see a yo-yo
effect whereby we see farmers going into liquidation before European
imports come in and the price goes up. That is a counsel of despair.
Mr Paice: It is.
I am not advocating it; it is a view.
Q358 Barry Gardiner:
Given the problem that you acknowledged and clearly identified
in your speech in European Committee A, and given that you want
to see those prices more closely approximated, is it only an ideological
reluctance for the Government to be seen to be interfering in
the market that is stopping you from providing a resolution to
the problem that farmers are facing?
Mr Paice: I think
it is more than ideological. I made the point that it was the
same policy that your Government pursued, but we are not going
to argue counter-ideologies. We would certainly be in breach
of EU legislation—and probably international legislation—were
we to start dictating margins or interfering in proportions of
the retail price that the farmer got, which is what you would
be doing. I will look to Andrew to make sure that I have got
that right.
Andrew Robinson:
I think that is right.
Q359 Barry Gardiner:
Mr Docherty has arrived and I know he was very keen to ask this
question of you.
Thomas Docherty: No, carry
on.
Barry Gardiner: In that
case I shall continue.
Will the Commission's milk package proposals affect
the share of the retail price of milk that is received by farmers?
Mr Paice: Only
if the farmers use the opportunities within it to form cooperatives
and producer groups, and that is down to them, not the Government.
It creates the opportunity for it to happen.
Q360 Amber Rudd:
What is Defra's view of the appropriateness of super-dairies in
the UK?
Mr Paice: We do
not have a particular view on the subject. In the one application
that was made—it has now been withdrawn—at Nocton,
we studiously avoided any comment that could be construed as support,
primarily because, under current legislation, it is a planning
issue. Frankly, even if we had supported or opposed it, we would
have no regulatory levers to pull. In terms of the ethics and
all the rest, which I suspect you are thinking about, we have,
as I have told the House on a couple of occasions, some research
going on related to these very large-scale dairy issues to do
with zero grazing, the concept that cows do not go out to grass,
and levels of lameness and animal welfare conditions. There is
separate research—we are not funding it but it is still
very relevant—going on at Harper Adams in Scotland into
behavioural issues of cows in large-scale dairy units. Do they
want to go out to grass? How far will they go to get grass compared
with silage in a trailer in front of them? We are trying to ascertain
real facts and scientific evidence with all of these kinds of
questions.
The advice that we have received so far from the
Farm Animal Welfare Council, which is endorsed, I believe, by
the RSPCA—I do not want to use its name incorrectly—is
that animal welfare is a function of the quality of management,
rather than size. You then move into ethical issues about whether
cows belong outside, to adopt a short phrase that a number of
people use. My view is that you have to recognise that today's
cows have been genetically developed for a very different lifestyle
from perhaps even when we were kids. They are much more genetically
driven for the key features of yield and the ability to convert
feedstuffs, particularly concentrate feeds, into milk. I think
we are talking about a different type of animal.
The final point I make—this may sound pejorative—is
that I think the public debate over the Nocton proposal demonstrated
the gulf of misunderstanding among the general public about today's
dairy farming as it is, let alone that proposal. Quite a lot
of the criticisms people were making—that this would mean
x, y and z—already apply.
Q361 Amber Rudd:
Do you see it as Defra's job to try put the record straight and
communicate some of these facts so that there is a smaller gulf
between the need to innovate and consolidate on the one hand,
and the public's perception on the other?
Mr Paice: We will
certainly wish to make the public aware of the results of this
research.
Amber Rudd: Good.
Mr Paice: I think
I have said in the House that if the research shows that, given
the present picture, there are very good welfare reasons why large-scale
dairying is wrong, or that cows should be able to go out to graze,
we would have to communicate that and probably bring it into our
policy, but we are working on the basis of our knowledge at the
moment.
Q362 Neil Parish:
I turn to milk quotas. We are not hitting quota at the moment
in this country, so ending quotas probably will not make that
much difference to us. But what will the difference be across
Europe if other member states—Holland perhaps—increase
their production and that production finds its way here? Do you
think that would then drive down our prices further?
Mr Paice: It certainly
could do. Because of the point I made earlier about the costs
of transporting liquid milk, it would almost certainly be processed
products that penetrated our market. That is why I feel so strongly
that we have to fight back against this import penetration by
developing our own products and investing in processing so that
we can compete at price.
Q363 Neil Parish:
In New Zealand, for example, although there is not actually a
quota, they always have to make sure that Fonterra and other co-operatives
have the processing capacity to deal with the amount of milk produced.
There is almost a quota through that system. Do you think that
we will move to that type of system here? You would always have
a buyer anyway, but in a way the buyer would dictate the amount
of milk produced.
Mr Paice: I am
not sure that it is really any different. I assume that nobody
will suddenly put up a big dairy and produce a lot of milk without
having a buyer already in hand, and that buyer will exist only
if there is a market for your milk as liquid or a processed product.
I think, in that respect, that it is no different from New Zealand.
In New Zealand we have seen a dramatic increase in dairy production,
so I do not think you can argue that there is any form of quota.
The only issue is whether Fonterra—as it is 95% Fonterra—has
the processing capacity to dry your milk to export it. I read
recently that it is talking about putting up yet another new drying
plant, so it does not sound as if it is up to any sort of notional
quota. I do not see that particular read-across.
Q364 Neil Parish:
Summing up with the quota, we have got four years to get the processing
sector right in order to get a decent price for our milk so we
can resist that when it comes.
Mr Paice: That
presumes other countries will suddenly dramatically increase production
when quotas disappear, which may be a rash presumption. Frankly,
no dairy farmer in Europe is making a fortune. They are all complaining
about their prices, even though they may be better than ours.
Q365 Thomas Docherty:
I am sorry to be late, Minister.
Very briefly, your written evidence to the Select
Committee said that you were looking separately from the European
Union's work at a range of measures, one of which included the
voluntary principles on country of origin labelling, which might
include the dairy industry. Could you briefly outline for the
Committee what benefit you think country-of-origin labelling would
bring to the dairy industry in the UK?
Mr Paice: It provides
the opportunity for effective marketing, because it is the foundation
of it. Whether it is a dairy or any other product, it is pointless
marketing "British is best", if I may use that sort
of cliché, to advocate British quality milk products or
anything else if the consumer goes into a shop and thinks they
are buying British as a result of that marketing campaign only
to be buying, perhaps unwittingly, something else masquerading
as British. That was why in opposition we always used—we
still do—the phrase "honest labelling" so that
people are not misled into thinking they are buying a product
from one country when it is from another. I think that if you
have got that right, you can justify upping your marketing. Again,
it is not for the Government directly to do it, but there are
ways in which we can stimulate it and encourage the industry to
market its products very effectively. I think that that is important.
We all know that the majority of consumers buy largely on price,
but some—increasingly more—are influenced by the provenance
of what they are buying. That is my answer to why I believe the
dairy industry could benefit from it.
Q366 Thomas Docherty:
Obviously there has been some exchange on this issue before.
Do you expect the forthcoming Government buying standards to increase
the procurement of British dairy products and, if so, by how much
in your estimation?
Mr Paice: I am
afraid that I do not have an estimate, but the answer to whether
or not they will increase it is yes. When we publish them, we
have made clear that they will be mandatory on all of central
Government, subject to there being no increase in cost. I think
there is now ample evidence from case studies that there is no
reason why the cost should increase. As far as the rest of the
public sector is concerned, we propose that it should be a matter
of exhortation, encouragement and local pressure to encourage
our schools and hospitals, many of which are already doing it,
to follow suit. I think that there will be an increase; obviously
not in liquid milk, because it is all British, but in some cheeses
and other dairy products.
Q367 Thomas Docherty:
Would you expect your Department to lead by example?
Mr Paice: I sincerely
hope so.
Q368 Thomas Docherty:
Was that a yes?
Mr Paice: I can
assure you Ministers are already pretty hot on that subject.
Q369 Chair:
Finally, how do you think the voluntary approach to labelling
is working at the moment?
Mr Paice: The honest
answer is that it is too early to say. The voluntary agreement
was signed in the late autumn. We commissioned a benchmarking
survey, which was done in April, to take the baseline so, frankly,
it is far too soon to be able to measure. Mr Docherty mentioned
forgetting what's going on in Europe. I do not think that we
can do that entirely because the food information regulations
that are being negotiated in Europe hold out the prospect—indeed
the probability—of the mandatory country-of-origin labelling
of a number of products.
Q370 Chair:
Minister and Mr Robinson, you have been very generous with your
time. We are very grateful to you for participating in our inquiry.
There were a couple of questions on research and development.
Perhaps we may write to you on those and other issues.
Mr Paice: Of course.
Chair: Thank you.
1 See witness correction at Q298 Back
2
Note by witness: The date for this meeting is 5 July 2011 Back
3
Note by witness: This should be 500 million litres. Back
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