Agriculture Bill

WRITTEN EVIDENCE SUBMITTED BY DAIRY UK (AB12)

SUBMISSION TO THE HOUSE OF COMMONS PUBLIC BILL COMMITTEE FOR AMENDMENTS TO THE AGRICULTURE BILL

Dairy UK

1. Dairy UK's mission is to promote the consumption of UK dairy products domestically and internationally. We do this through being a strong and influential processor-led organisation with strong partnerships with farmers and stakeholders along the supply chain. Between them, Dairy UK's members collect and process about 85% of UK milk production. Information on Dairy UK can be found at www.dairyuk.org

Proposed Amendments

2. Dairy UK would propose that in:

a. Part 1, section 1, paragraph (2), the word: ‘productivity’ is replaced with ‘economic sustainability’.

b. Part 1, section 1, paragraph (4) the words:

‘"improving productivity", in relation to carrying on an activity includes-‘

are replaced with:

‘"improving economic sustainability", in relation to carrying on an activity, includes, but not exclusively, -‘

Rationale

3. The dairy industries of England, Wales and Northern Ireland will be faced with a very challenging commercial environment over the next ten years. The industry will need the support of Government to succeed. As enabling legislation the Agriculture Bill should give the Government the maximum possible flexibility to support the industry in meeting the myriad commercial challenges that it may face. As currently drafted the Bill does not confer sufficient discretion to the Secretary of State to enable the Government to provide the range of support the dairy sector may require .

4. Productivity is a narrow concept that focuses on the rate of output per unit of input. ‘Economic sustainability’ would be a more appropriate concept as it covers a broader range of criteria that would be relevant to the future of agriculture. It would open up a wider spectrum of policy objectives for consideration than would be available from a narrow focus on productivity, efficiency and quality that is referred to in the Bill.


Commercial Challenges Facing the Dairy Sector

5. The range of commercial challenges the sector will face will include:

a. If the Government’s aspirations for Brexit are met then UK dairy farmers will continue to face zero tariff competition from their EU counterparts whilst EU farmers will continue to enjoy the provision of some measure of income support from the CAP.

b. The Government has indicated its intention to negotiate Free Trade Agreements with the Australia, New Zealand and the USA. All these states have sizeable exportable surpluses for dairy.

Table 1: Dairy Exportable Surplus of Target FTAS

Milk Production: Milk Equivalent of Exports

Million Tonnes %

USA 97.7 15

Australia 9.2 44

New Zealand 21.3 93

Productions costs in Australia and New Zealand are generally below that of the UK which would enable these states to claim market share in the UK through price discounting. Average milk prices in the USA are broadly comparable to the UK but many US states operate a system of end-use pricing under the Federal Milk Marketing Orders. This means that the price of milk charged to dairies is varied according to the market for which the milk is utilised. This again could confer a price advantage on US product in the UK market. These countries are also more minded to permit the use of technologies and production methods that are not always acceptable in the UK.

c. The Government is pledged to phasing out the income support provided to farmers in England through direct payments. These payments play a significant role in ensuring the profitability of dairy farms. Removal of these payments will make many dairy farms unviable.

Table 2: Value of Direct Payment to Dairy Farmers in England

Single Farm Payment

Farm Business Income

2014/15

2015/16

2014/15

2015/16

23,400

20,300

83,800

43,900

d. The availability of EU labour, across all ranges of skills, has been central to the economic sustainability of dairy farming in England. Dairy farmers are suffering from a shortage of labour now. The availability of labour has been identified as the biggest immediate challenge to dairy farmers by Dairy UK’s Farmers’ Forum.

If the Government accepts the recommendations of the report by the Migration Advisory Council then future immigration policy would be based on no preference being given to EU nationals, priority given to skilled labour and only a seasonal labour scheme for the agricultural sector. In the absence of labour from the EU dairy farmers will have to make major investments in labour saving technology which remains generally under-developed for the agriculture sector.

e. Under the government’s Clean Air Strategy dairy farmers may be required to make significant investments in a variety of technologies to reduce ammonia emissions from farms. The Government may also require dairy farms to be subject to permitting by the Environment Agency under the Integrated Pollution Prevention and Control regime currently used in the pigs and poultry sector. This would have a significant cost implications for larger dairy farmers.

f. The Government’s proposed Environmental Land Management System will primarily focus on the provision of public goods. The precise funding mechanism for the ELMS has not been made clear. There is a recognition by Defra that payments based on costs incurred/income forgone is not an adequate basis to ensure sufficient participation in agri-environment measures. However, it is clear that the ELMS is not intended to support the viability of the core enterprise of dairy farms which is the production of food.

6. In this situation dairy farmers will need to significantly improve their competitiveness if they are to prosper in the environment that can be expected over the next ten years. Government support to achieve this objective will be essential if the industry to retain its current scale, let alone reach its full potential. The terms of the Bill need to be drafted in this context.

Measures to Improve Economic Sustainability

7. There are potentially a multiplicity of measures that could be taken to support improving the economic sustainability of the dairy sector. A non-exhaustive illustrative list is given below. Rather than seeking to identify all possible measures now, the wording of the Bill should be sufficiently generalised to cater for a broad spectrum of possible future initiatives.

8. Possible areas for Government support schemes for the dairy sector could include:

i. Big Data

UK governments should be enabled to commit resources to proactively facilitate the digitisation of agriculture and the utilisation of ‘big data’ to enable identification of challenges and opportunities through industry benchmarking.

ii. Grant Aid schemes

Schemes could address specific deficiencies in capital investment. For the dairy sector aid schemes could initially be focused on:

o Animal Health and Welfare measures

o Nutrient management

§ Development of IT solutions (including a replacement the PLANET nutrient management software)

§ Cover crops

§ Soil conditioning

§ Fencing to protect water courses

o Slurry management

§ Rain water harvesting

§ Separating clean and dirty water

§ Slurry removal

§ Slurry storage

o Slurry spreading

o Tracks and troughs

o Maintenance of ditches and hedges

o Renewables

o Staff training

iii. Measures to assist industry restructuring

Policy instruments may be required for facilitating industry entry and exit.

iv. Labour

The possibility should exist for resources to be made available for funding staff training at all levels of the agriculture sector.

v. Research and Development and Knowledge Transfer

This could cover a very broad spectrum of possible areas.

vi. Volatility

The Government should be able to develop measures to assist the industry to cope with income volatility. These could include:

o subsidised or tax efficient saving schemes,

o subsidising income or margin insurance schemes,

o tax breaks to help the industry cope with income volatility.

o assistance for the development of private sector price risk management mechanisms.

October 2018

 

Prepared 24th October 2018