Environment, Food and Rural Affairs Committee
Oral evidence: Dairy prices, HC 817
Tuesday 25 November 2014
Ordered by the House of Commons to be published on 25 November 2014.
Written evidence from witness:
Members present: Miss Anne McIntosh (Chair); Richard Drax, .Jim Fitzpatrick, Mary Glindon, Iain Mckenzie, Neil Parish, Margaret Ritchie, Mark Spencer, Roger Williams
Questions 1– 75
Witnesses: Rob Harrison, Dairy Board Chairman, National Farmers Union (NFU), David Handley, Chairman, Farmers for Action (FFA), and George Dunn, Chairman, Tenant Farmers Association (TFA), gave evidence.
Q1 Chair: Good afternoon and welcome. Can I thank each of you for participating in our evidence session on dairy? Just for the record, could you introduce yourselves?
Rob Harrison: I am Rob Harrison. I am the Dairy Board Chairman for the National Farmers Union. I am a dairy farmer from Gloucestershire milking 200 cows.
George Dunn: My name is George Dunn, Chief Executive from the Tenant Farmers Association.
David Handley: David Handley, Chairman of Farmers for Action, a dairy farmer making no money.
Q2 Chair: If you agree, you do not all have to speak, but where you disagree it would be interesting. What impact do you think the latest 2014 decline in farm gate prices has had on the UK dairy industry, from your perspective?
Rob Harrison: It has had a significant impact, and that impact is going to carry on certainly through the early part of next year. We have already seen an 8 pence per litre drop, probably a 30% drop in milk price, so it is really, really significant. We are concerned that there could potentially be further price drops at the early part of next year, particularly when you look at the weakness of commodity markets. It is yet to have a significant impact on production at this moment in time, and you can see from the drop in producer numbers that we have had a real drop in confidence in the UK. We only lost 200 producers in the 2012-13 and we have lost over 400, particularly in the latter part of this year. A lot of producers are giving up dairying, because there is no money in it.
Q3 Chair: Mr Dunn, just particularly on how you think it has impacted on tenant farmers?
George Dunn: It has been a particularly horrendous time for the tenanted sector, which has obviously had to service rent through this period and some of those rents were set when prices were much better than they are this year, and therefore those rents have become difficult to be paid up. Obviously with fixed equipment needing replacement, landlords are reluctant to replace fixed equipment when the industry is going through a difficult period of time. Obviously, the dairy sector has got a greater preponderance of tenant farmers than other sectors of the industry. The dairy sector has been a place where tenant farmers have been particularly highly represented, so it has been a particularly bad time for the tenanted sector.
Q4 Chair: Are you able to predict how many you think might leave the sector who are tenanted?
George Dunn: As Rob says, we have already seen over 400 leave this year, and we are not even at the end of the year yet. It looks like the situation is only going to get much tougher as we head into Christmas and into the new year. I think we have just seen the tip of the iceberg, quite sadly, and we might pass that milestone of below 10,000 dairy farmers in England and Wales just into the new year, which would be incredibly sad.
Chair: Thank you. Mr Handley?
David Handley: I think it is getting to be a very serious situation now; it is actually getting so serious that in the last nine weeks we have passed three individual dairy producers’ details on to Samaritans, because they were in such a desperate state. I do not think the full impact has been seen. We have seen another price cut yesterday, a very severe one of 1.63 pence from Arla. That will put the writing on the wall for an awful lot of people, and I do not think it is just small and medium‑sized businesses we are talking about here. We certainly are in contact with a number of large‑scale operators who have expanded, done everything that was asked of them, and now we are suddenly finding they are in the realms of a milk price that is not giving them a return on their capital invested and labour employed.
Q5 Chair: I would just like to ask one last question in two parts: do we think that the United Kingdom has been more badly affected than elsewhere in the European Union, and is that because possibly there are more co-operatives in other parts of the European Union, like Denmark, amongst our competitors? To what do you attribute their larger export market share than ours? Mr Handley, if we do it in reverse order this time.
David Handley: Yesterday, I spent a fair proportion of the day going back over the last 15 years of dairy production in the UK, and all for about two of those years we were certainly in the realms of literage compared to where we are today. We had very little opportunity for export; we never had a problem. I find it very suspicious—I suppose that is the word—that we are now in a position where we are being told it is oversupply that is causing the problem in the UK when 85% of our milk never leaves these four shores. It does not make any sense.
Certainly Farmers for Action have been asking both the retail industry and the processing industry for a number of months to give us some transparent reasons as to why now, all of a sudden, this has become a major problem. On export, again, talking to my counterparts in the likes of New Zealand, they think it is absolutely ridiculous that they are forced to export 80% of their product, and we are not; we are in the exact opposite situation, yet we are taking probably the hardest hit of most countries.
Chair: Just co-operatives?
David Handley: Our problem has been we have had successful co-operatives. They have been broken up. We have now got two left. One of those is a European one; I am sceptical of the future of that.
Chair: Thank you. Mr Dunn?
George Dunn: I think it is very clear that this is a global issue that has affected member states across the European Union; no one has been immune from the situation we find ourselves in. We have, for the past few years, been talking about how we build a resilient dairy farming industry in the UK, and quite clearly we have failed to achieve that. As Mr Handley says, there is reason to ask that if we have been so reliant on the domestic market for so long, what has gone wrong over the past few years in this country. Yes, you are right: it is not just a UK issue; it is something that is right across the European Union. The last time we had a crisis we were at the bottom of the league table in terms of milk prices; we are certainly not there at the moment, but we need to find a way out of this.
Chair: Mr Harrison?
Rob Harrison: As others have said, it is a global issue. It is difficult to compare directly between different member states, because they have a different balance of products. The majority of farmers are members of co‑ops in Europe, and that has meant that some of those co‑ops have taken the decision to soften the blow. Also they are paying some of those milk prices retrospectively, so actually some of them have not necessarily seen the full effect of milk price drops yet, because their pricing is retrospective and they have decided to cushion that blow. It will then come back at a later date. In terms of within Europe, I think the Baltic states and the countries that were exporting significant volumes to Russia have seen a massive impact on their milk price, and the rest of mainland Europe has been affected marginally because of that. It is the knock‑on effect with the extra product floating around, which needs to find a home fundamentally.
Q6 Ms Ritchie: Moving on to the farming industry response; and this is a question for Mr Handley and Farmers for Action. What impact have the blockades achieved to date, and what outcome would cause you to end your blockades?
David Handley: The impact of the farmer protests has been to bring this issue right to the fore; you will have seen most media have covered it, whether that be local or national. It put the crisis that the industry was coming into right back up on to the agenda. It has given farmers an opportunity to come out and vent some of their frustration and to try to get their message out; we enable them to talk to the media and to explain personal individual situations.
What would make us stop is purely and simply having some honesty and transparency in this industry, because currently there is far too much smoke and mirrors, and far too many people passing the buck. My role in life as Chairman of the FFA is to try to talk to the processors, the retailers and others, and you never get a straight answer or the same answer from anybody. That tells me that this industry needs turning inside out. Until we start getting some concrete evidence to show that what has gone on globally has contributed to a cut of over 8 pence in our milk price, I do not think you will see farmers stopping protests.
Q7 Ms Ritchie: Then to the National Farmers Union representative: in 2012 the NFU backed direct action. Why are you now not supporting FFA in 2014 with its current blockades?
Rob Harrison: The NFU will happily support peaceful protest, rather than blockading. The second thing is in 2012 we very much felt that we had been badly treated as dairy farmers for a number of years, and we were at the bottom of the milk price league table. Although we are in a really unfortunate global position at this moment in time, we do not feel that there is any kind of individual bogeyman, or companies, or whatever, out there that have behaved badly that need to be exposed on that basis. As a union we believe that we need to talk and actually work constructively with processors in order to get a better deal for dairy farmers, and get some value further down the chain to dairy farmers, but we are really concerned about how retailers have behaved and getting more people to buy British dairy products and support dairy farmers as well.
George Dunn: As well as bringing the issue to the fore and to the media attention—and certainly there has been a great degree of focus on this issue nationally—let us not underestimate people’s ability to protest when they feel frustrated, disenfranchised, angry and upset, when they see their livelihoods going down the pan. It is really important that people have the ability, should they wish to use it, to protest peacefully about the situation in which they find themselves.
I am Chairman, some of you know, of the Farming Community Network, and we see the stressful situations that people are under day in, day out. Their ability to vent that frustration peaceably, on protest lines, so that people hear their concerns, is an absolutely vital part of this, as well as the promotional activities that have been going on.
Q8 Neil Parish: Good afternoon, gentlemen. I can understand your strength of feeling. I want to ask you about the voluntary code, the Dairy Industry Code of Best Practice for Contractual Relations. Has it been effective in rebalancing the relationship between farmers and processors?
Rob Harrison: The voluntary code, which came in in 2012, has been effective to a certain extent. One of the first weaknesses is we have not had enough people sign up to the code, so actually we have got a reasonable amount of milk signed up, but there is a large number of medium‑sized processors who have not embraced the code. In a recent review of the dairy code, Alex Ferguson, who looked at reviewing the code, said that where it was embraced properly it did improve trust and transparency.
It has seen increased power to producer groups and an increase in formula contracts, so opportunities and good things that have come out of the code. I think there is a misconception about what the code is there for: the code is there to improve contractual relationships; what it will not do is affect the market, so there is a lot of misunderstanding throughout the supply chain about what the code is there to do and how it should work.
George Dunn: Quite patently the code has not achieved what it set out to achieve. It was drawn up and put together with the best of intentions, but in its operation it has proved to be pretty ineffective in trying to produce a resilient industry in this country. Part of that is because, as Rob said, not enough people have signed up to it; part of it is because it says little about the processor‑retailer end of life. In the Tenant Farmers Association, we think that we need to give greater strength to the Groceries Code, and to the adjudicator for that, and I know she is a witness later in your proceedings, but we think that is the area that we really now need to be looking at to get this thing moving.
David Handley: Yes, I would reiterate what George has said with regard to the code. I think the code was shown, certainly in the latter part of last year, to be holding back the issue regarding milk prices. Again, I think it has provided more smoke and mirrors for people to hide behind. I can understand processing businesses that are into the export market, which is where everyone is saying that we have got to go, who are looking at two, three or four-year contracts for the product, not wishing to get involved in a contract where they have only got three months’ guaranteed supply of milk. I do not think Ferguson has done a good enough job. I think he has been pandered to by those that set the code up and, again, as George said, I would far rather see the efforts being given to Christine Tacon to be able to get her teeth into exactly what is going on in the supply chain.
Q9 Neil Parish: I have got a couple of supplementaries: is the code the great thing that we believe it could have been, and should it be put on a statutory footing, rather than a voluntary basis? The other part—David, you alluded to Alex Ferguson—he is saying the remit should be extended to apply further up the supply chain. What do the three of you think of those two supplementaries?
George Dunn: Certainly, there is absolutely the need to go further up the supply chain, but whether a voluntary code is the right place to have that issue looked at is questionable, and, as I said, we think the Groceries Code Adjudicator should have the remit extended to look at those issues. There has been a real issue about transparency; we know how much has been paid for milk on farm, we know how much milk is being sold for from retailer shelves, but we do not know exactly who takes what margin from that amount of money.
Q10 Neil Parish: Should it be statutory as well?
George Dunn: Obviously if we want the Groceries Code Adjudicator to have a role here it has got to be statutory. The operation of the retailers leaves some questions to be asked.
Rob Harrison: We believe it should involve retailers, and clearly there is a lot of practice that goes on at retail level that needs to come under some kind of code of best practice, and we think it is the best way of doing that. However, retailers need to make that decision to embrace it. In terms of compulsory contracts, there is the advantage that would bring everybody into it, but there is a certain amount of flexibility in having a voluntary code, in that there are other elements that we have brought into a voluntary code that would not have been in the mandatory EU version. There is more of an ability to adjust it to a UK situation, but what we need to do is get greater sign-up.
Q11 Neil Parish: You have been arguing in some of your written evidence here that the code may allow people to cherry-pick the best parts of the contracts and not the others; is that your view?
Rob Harrison: There has been a misunderstanding of the code, and when you talk to different processors, certainly different processors have individual parts of the code that they like and they dislike, so they are very supportive of those parts and not of others. I think there is an issue that people will utilise to their advantage, I suppose.
George Dunn: Mr Parish, the history of voluntary codes does not look great in relation to seeing this being the great new thing that we need to use in the industry. The Groceries Code Adjudicator was born out of a previous voluntary code, which was seen not to work, because people were able to take the bits of it that they like and leave the rest of it. In the way in which retailers operate they have huge power, obviously, and therefore they will use that power in their operations. We need something that corrects that market failure, and in our view only a statutory code is good enough at this time.
David Handley: Yes, I again reiterate what George has just said. I certainly would not want to see the voluntary code made statutory. I think we should put all the emphasis on the Groceries Code Adjudicator; I think that is what is necessary here. I think the code is just giving opportunities for people to cherry-pick, as you said. It has given some businesses problems. Those that have not signed up to it, if you listen to their explanations as to why they have not signed up to it, it is because they are running long‑term businesses. All the emphasis that I read at the moment is that we should be looking at global markets and more exports; therefore why should we be doing things that are curtailing those processes? They seem to have a good relationship with their producers, and I see no reason why we need a code to go in there and meddle with that. I think we need the adjudicator to be looking at the supply chain as a whole.
Chair: We are actually coming on to the Grocery Code Adjudicator and the EU framework, but I think Richard Drax just wanted to come in at this point.
Q12 Richard Drax: Can I just quickly touch on the statutory code, so far as supermarkets are concerned, and loss-leaders? I do not think we have touched on that yet. I assume that you are insinuating that if you had some statutory code, supermarkets would not be able to offload a loss-leader on to the dairy industry. It would be all at their cost. The contract would say that you get X pence per litre. If the supermarkets want to play silly games with each other and try to provide cheap milk, they take the hit, not the dairy, and that is in statute. That sort of clarity is what you are after.
George Dunn: Some retailers are already saying that is what they are doing. We do not know to what extent that is true or not.
Q13 Richard Drax: It is hard to prove, is it not?
George Dunn: Yes, because there is a lack of transparency, but, yes, that is exactly the sort of thing we would look to be covered.
Q14 Mrs Glindon: Mr Handley, what do consultees think about the FFA’s proposed milk pricing formula?
David Handley: It has had a mixed reaction, but one would expect that. I have always said that, because it has got three letters in front of it—FFA—the industry would look at it in the light of probably it is not going to go forward. We have currently got eight milk processors in the UK that are looking at it very seriously; we have already got one in Scotland, Grahams Dairies, that has signed up to it with immediate effect—a similar principle to what we have suggested. There are a number of other processors that we have met who think that it is a good idea. It is a way of getting control, voluntary control, and if you look at it as a whole, instead of, as some in the industry are doing, just looking at it from the edges and trying to find fault, it actually can be beneficial to all parties.
It gives the processing industry the opportunity to know the milk field and the quantity of milk they have got. It gives the supplier the opportunity to plan his business; he knows he has got a core milk price on a literage, and then he can plan whether he takes advantage of low global milk prices or, if they go in the other direction, he can adjust his business accordingly. It is a no-lose situation, but it has got to be accepted by everybody, and unfortunately, as I said, I think the three letters in the front of it mean that some are not looking at it as they ought to be.
Q15 Mrs Glindon: Can I ask the other two, Mr Dunn and Mr Harrison, what they think?
George Dunn: Absolutely, the Tenant Farmers Association were very pleased to support the FFA proposal for an A-B type pricing system; it was considered by our own executive committee and it was deemed to have real merit. The problem for our members is this is a very long‑term business, and they need some security in terms of their investment. Particularly when you are on a tenanted holding and you need to have that security with the bank in terms of your contract going forward, your track record is very important. Therefore, having the stability of the A part of that system is something that we would value greatly. Of course, our members understand that they cannot be guaranteed a price over the whole of their production, and therefore the B element does ensure that risk is shared between the processor, hopefully the retailer, and the producer. We are very keen supporters of the concept.
Rob Harrison: We at the NFU think that contracts need to be improved, certainly as we are going into a post‑quota world and a deregulated marketplace. We do not believe that you can manage the UK volume, when we are in a global marketplace and we are subject to free trade, so we have got product coming in from other parts of the world and from the rest of Europe, but certainly I think there is an awful lot of work that needs to be done between processors and farmers.
Depending on individual processor situations, depending on what markets they are selling to, what products they have got, whether they are selling brands, whether they are selling retail products, there is a significant amount of that marketplace, which could be somewhere near to a guaranteed price, which would give stability for both sides of the chain. Also that conversation needs to be had between farmers, processors, retailers or others, about the marketplace, and how much milk needs to be produced and where. There is a lot of work that needs to be done to make sure, as a mature, sensible industry, we can move forward, and benefit from the opportunities that might be there in the future.
George Dunn: I think it is quite easy to say that lots of work needs to be done, but here we have a formula around which we could unite and talk to the processing and retailer sector about, and from our perspective in the TFA, we think that it has legs and should be looked at in more detail as a specific proposal. There is not any other proposal on the table, apart from the futures market, which has real drawbacks.
David Handley: It is a voluntary thing; it is something that farmers would sign up to as regulating their own supply. We do not want to go down a statute route for that, but the way things are going—and what we are being told is this could go on for as long as two years—we as farmers or businessmen have got to take control of what we are producing. It is no good going out there telling people to produce more milk and then basically find that we have to accept prices at the level and probably even less. It has got merit to be looked at, purely on the basis that it is coming from farming industry itself.
Q16 Mrs Glindon: Mr Dunn, you mentioned the futures market, and you did not seem very positive. Could I ask each of you what you think about that, if it would help against volatility?
George Dunn: Futures markets have always been one of those things that have been highlighted as a potential saviour of the many sectors of the agriculture industry. It has not worked extraordinarily well in the cereals market, where it is probably the best developed. What we tend to find is that, when people walk into a price and they take a price that is relatively good, if the price on the spot market moves against the purchaser of that product, the purchaser sadly ramps up the inspections, begins to say there are problems with the quality and passes the product back, and there is the real issue of people trying to guarantee the price that they have got. The other scenario, if there is a weather event or an issue that causes the production to be lower than expected, people are expected to go into the marketplace and buy a product at particularly high prices to fulfil those contracts.
While it has been, in theory, a way in which you can manage risk, in our experience dealing with members day in and day out in the cereals sector, where it is best developed, it has not been a great success. Therefore, we would suggest that a voluntary system, like FFA’s A‑B quota idea, is a better way forward.
Rob Harrison: Managing risk is really, really important. George represents, as does the NFU, the tenant sector, and there are a lot of farmers who have invested and continue to try to invest in their businesses to produce a better quality product, and really supply what the industry needs. Those people have really been let down by the fact that they cannot have any choice or any decision about how and when they are going to sell milk.
They have developed a futures market in Holland and in America; it is not used throughout the industry. It needs to have enough volume going through it, so there is potential to do something with futures. It would not be just on a milk basis; it would be based on constituents, so it would be based on powder and butter, and you would need to marry together both suppliers and end users of the product as well.
There are opportunities there to do that, but there are also lots of other opportunities in terms of risk management. There are opportunities to use formulas, so there is increased transparency throughout the supply chain. We have seen an increased use in cost of production formulas by retailers, which, again, provides a degree of certainty for farmers. The other thing is to have a greater length of contract. At the minute, we have milk prices that change monthly, and we have a strong retail domestic market in the UK which still wants our products, so can we have longer‑term contracts where you have certainty for a period of time, so fixed prices for a certain time? There are lots of ways in which we can manage risk, but farmers need to be given more choice and more opportunity to do that.
David Handley: Just basically talking to futures traders, I think we are probably four or five years away before it could be effective in the UK. Only a very small percentage of dairy farmers would want to play the futures market. Certainly if you look at the grey markets, it is a smaller number than the majority that use that. I think it is fraught with a lot of problems. I think we have got plenty of choice there at the minute; we have just got to be given the tools to be able to do it, and unfortunately we are not being given those tools. It is worthy of investigation; it is worthy of some money being ploughed into it to see if it could work, but I think we are probably four or five years away, and I think you will see 5,000 dairy farmers in the UK if we wait until that happens.
Q17 Chair: Mr Handley, you just made an impassioned plea for dairy farmers to take control of what they are producing, but what seems to be happening at the moment is that every time the price goes up, people flock into dairy; every time the price goes down, we hear hundreds are leaving. How can you prevent that?
David Handley: I think with an A-B situation that would rectify itself, because a farmer would have a core total literage, of which his dairy would attribute a core price, and it then stops what we are seeing at the moment. We have got an imbalance in this country. I am fortunate enough or unfortunate enough to be quite considerably older than Mr Harrison.
Chair: Let us not be ageist; we do not want to go there.
David Handley: I have grown up in an era in the south-west of England and various other climatic areas of UK. We have produced spring milk. What we have now got is an imbalance: we have got spring milk being produced all over the country, in areas where it has not normally been done. We have got a glut of milk coming on the market in the spring. We are not New Zealand; we have not got the export capacity to deal with that, and therefore that is distorting our milk market. We have to bring something in, and the A-B would bring in that situation where a spring calver would definitely have a core price, but if the volatility in the global market is at a low number he may then decide to do things differently. The UK is based on 365-days milk production, and if we got back to that being in balance, I think a lot of the problems that we see at the minute would not be there.
Chair: I think the hills of the north have also historically produced a lot of milk, so we do not want to lose that.
George Dunn: It is also important to say that we have not really seen people flocking into dairy. We have seen the number of dairy farmers decline year on year, and just recently we have seen it decline much faster. We are losing the family farming and the grazing systems that we have traditionally known. There are valleys that have had 20 dairy farmers that have got none in them any more, and the production is being exchanged on to units that are much larger, looking at yield gains. That is something as well that the consumer needs to understand: that the pattern of our dairy production is changing, and the retailers and processors are very keen to use the outdoor family farm system as the way in which they advertise products to consumers, but, in fact, we are losing much of that family farm input, because we are going into much larger units. I am not saying there is anything wrong with that, but we just need to recognise that that is happening and ask questions about whether that is the right thing to be happening.
Rob Harrison: Certainly it is true that 12 months ago, for the first time in my farming life, we saw a lot more positivity in the dairy industry, and that led to a few new entrants, as well as a slowing down of exits from the industry, and as well as people investing in expanding their own production. That was a really good thing and we have not seen that before, so it is not something that has come up and down. Unfortunately, those people have now seen prices drop significantly, because not only has it happened in the UK; we have also seen investment right across Europe, and right across the world, combined with good weather conditions.
I do not believe we have seen a massive increase in seasonal production. If you look at figures, 90% of UK is still all year round calving, and we have had an increase of milk throughout this year, and we have got an increase in calving data this autumn. There is a real need for processors, when they recruit farmers, to recruit farmers sensibly to manage the volumes that they have and the marketplace that they have, and actually to look after them and to work closely with those producers, and, again, for producers to work closely with those processors. That needs to be worked on considerably, and that is what we have always talked about.
Different companies have different policies, and are producing different products. Clearly the majority of UK milk will be consumed within our own shores, and so it is important to have a relatively level supply to satisfy that demand and utilise our processing as best we can.
Q18 Jim Fitzpatrick: Good afternoon, gentlemen. If I can turn to the EU, we have referred to the world market price slump and the impact of sanctions on Russia. The EU milk package was supposed to soften the blows: did it help? Next year, the Common Agricultural Policy is supposed to open up dairy fully. Is that going to make matters even more difficult? Is that worrying you? Should the EU be doing more? Can it do more? Can you just give us your assessment of our role within Europe and the role that Europe plays in impacting on our dairy industry?
David Handley: Definitely we saw yesterday that what has gone on with the EU around Russia has had a major impact; we have suddenly seen 10 cents taken off UHT milk, because there is that much liquid milk floating around in Europe currently, because it cannot be manufactured, processed and passed on into Russia where its normal market would be. I do not agree with the EU package that has been put forward. I think when you put things into storage all you are doing is delaying the pain for another day. If you look at the date of when this package comes out, it is right at the start of another milk year; it is right when some of the financial markets are telling us that China may start to come back into the marketplace. What are we going to do in Europe: say, “Well, hang on. Do not buy from the new market. We have got plenty of what we put into storage”?
That is why the FFA publicly said that we felt it should be a buy‑up situation where we then remove that product from the market altogether, so that it does not depress in future. That would be my biggest fear: that that package that we have at the minute is going to do exactly that. If you talk to traders in powder or in cheese, they will say exactly the same thing. If you look at the package as well, what did it do? It opened up the door to the Italians; they went straight in there and put 80% of cheese in there that was never destined to go to Russia—well planned.
George Dunn: From the TFA perspective, the original milk package was based on the premise that dairy production should be looking to be more resilient in an open-market environment. I would question the extent to which we need to be looking at an open-market environment. Is the open-market environment producing the right sustainable solutions for the dairy industry into the long‑term, and—let us be clear—other sectors of agriculture? I was at a meeting the other day where it was mostly consumers who were in the room, and they were talking about whether it was too important to monetise food production in the way that we do. I am not suggesting a News from Nowhere approach to life in terms of the industry going forward, but we have to question this belief that the open market is the saviour to all our woes.
The response was producer organisations’ written contracts: I do not think that they have actually done much to help us to become a more resilient industry long‑term. I agree with the FFA position on the current round of intervention from the EU: that rather than have a storage scheme we should have a buy‑up scheme where that product is actually transported into the charitable sector, either at home or abroad, in order to relieve the pressure on the domestic market. That would be the best thing to happen.
What do we want from the EU more widely? A greater ability for us to use country‑of‑origin labelling; greater freedom around the way in which we use our funding that we give to DairyCo in terms of promotion; greater ability for our own Government Departments and public bodies to specify British products when they are purchasing food for their own outlets. That is what we need from the EU.
Rob Harrison: In the CAP, the first letter “C” stands for “common”, and increasingly throughout Europe we are finding the CAP is less common. That is a real difficulty for producers in the UK. If we were given a level playing field, I think producers in the UK could compete, but unfortunately we seem to have different regulations and different market supports from Pillar 1 and Pillar 2 given to different countries within the EU.
We have got a very different situation with each country and how they choose to support and manipulate how their farmers perform in each country. In terms of supporting dairy markets, we have some tools that are already available there. Intervention at a level of 21 cents is clearly unsustainable, and even some Baltic states who are down at that level are not putting powder in at that level. We need intervention to be at a level that is sustainable. We need the Commission to send strong messages to the market that they are willing to intervene, and are willing to support dairy farmers to make sure that we do not go out of business in Europe.
If an intervention is available, it is important that it moves either on a cost‑of‑production basis or in line with the market, because we have had something that is 10 years old that is completely adrift from any reference to this moment in time. More can be done in Europe in terms of supporting exports, promotion, and trying to get people to consume more dairy and actually get more activity within our own domestic market. There is an awful lot they can do, and at the minute they seem to want to sit on the fence.
Q19 Jim Fitzpatrick: If I could explore this just a little bit further, we have been told for a number of years that so many dairy farmers leaving the industry over 30 years has been making the UK dairy industry much more resilient, more competitive, and that we are the most competitive in Europe. The Chair mentioned at the beginning co-operatives and situations in Europe, protecting them against the worst excesses of market; if the market is fully opened, are you saying that the British dairy industry is not as competitive as we hoped or thought it was going to be? Mr Handley made the point about the Italians filling up the storage system with cheese, because they were in first, however they managed to get there, to the disadvantage of the rest of Europe. What is the UK Government doing to try to level this out and to make sure that we are not being taken advantage of, or being put in a disadvantageous position, because of other national Governments or other national dairy industries being able to beat us and being able to sell product?
Rob Harrison: On competitiveness, we are up there in terms of the rest of Europe. The Irish probably can produce milk cheaper than us, but the rest of Europe would not be dissimilar. Because we have had years of low milk prices in the UK, we have had a lack of infrastructure investment on UK dairy farms. Over the last couple of years, farmers have tried to play catch‑up, thinking that markets were better, and they have invested, and now they are suffering because of those markets.
I do not think, in terms of whether it is through the single farm payment, that there is an equal spread of support throughout Europe, and some of those tools are there to try to help with volatility. You still see a differentiation in milk prices across Europe, as well as in terms of regulation, so countries such as Italy, where they have a lot of PGI cheeses, command a higher milk price than in other places in Europe. It is important that we try to add value and get the most reward for the great products that we produce.
George Dunn: We all need to understand the whole of the supply chain here. Whilst we are a competitive farming industry in terms of our ability to produce milk, using the grass that we have got, using our temperate climate, using the skill base and the herd sizes that we have in the UK, we operate in a marketplace where the retail sector is quite narrow and those who are supplying the sector in terms of inputs are quite narrow. Whenever there are shocks in the world, the farming community always bears the brunt of that; whenever there is a change in the price for the output, or change in the price for the input, those things are beyond the control, quite largely, of the dairy farmer.
Things like competition for land for maize production: we have seen just recently that AD, with the feed-in tariff, is paying people shedloads of money to grow maize to stick it into an artificial cow’s stomach, so that they can pay in excess of £300 per acre for land for maize production. How on earth can a dairy farmer who is looking to put that maize into the stomach of a cow that is walking around his farm compete with that? There are things beyond their control that they simply cannot change.
We need to bear in mind that, while we have competitive producers, they are impacted massively by things beyond their control, both at the output end and at the input end, and we need to consider how we change that. The market is failing to produce sustainable solutions, and what is happening is that people are moving to larger systems, with more output, at lower margins, and trying to manage the risk on those types of systems. Now if that is the way we want the UK dairy industry to go, much fewer operations and much larger scales, then fine, if that is what the consumer wants to buy. What we are hearing from the consumers is that they do not want that; they do not want large‑scale dairy production for whatever reason. They want to have the knowledge that their milk and their milk products are coming from farms that are based on family systems and grass-fed operations, and we are losing those hand over fist.
David has talked about the lack of investment over a generation; when a tenant farmer goes to the landlord after 25 or 30 years of buildings that he has been using and says to the landlord, “These buildings are shot. We need to find some new buildings,” what the landlord will do is try to find any means whatsoever to say to that guy, “You have got to get out of dairy production; here is some money to get you out,” or, “Why do you not change to a B system, or why do you not do something else?” We are losing tenanted dairy farms, because of the inability to get landlords to reinvest in that fixed equipment. Why? They know the market is stacked against those individuals; we need a new dynamic for them.
David Handley: I think we are probably some of best in the world at what we have done; we have moved from 24,000 dairy farmers down to 10,000; we are still producing milk. There is probably a higher quality; our welfare standards are probably second to none, but I think we have got a total distortion in the marketplace. We have got situations currently with labelling, where UK farmers are jumping through hoops to get a Red Tractor symbol up and running, yet we have got cheese coming into this country from Southern Ireland carrying four countries of origin on the label. It is absolutely ridiculous, and that is something Government could intervene on.
According to our Minister, she is not going to intervene on any of it. I find that unbelievable, when you are asking people to work 24/7, 365 days a year, to deliver a product, to deliver the welfare standard that our consumer wants, then to be kicked into touch and told, “Well, sorry, but you have got to take a global price”. There is no cohesion in any of the messages that are coming out. We have got a fantastic bunch of dairy farmers in the UK; I am proud to represent some of them, and they need to be given the tools. By God, if the Government of the day give them the tools, they produce the goods, but they cannot do it with their hands tied behind their back and the blindfold on.
Q20 Jim Fitzpatrick: My last question was going to be: does the Government understand the situation you are in? Is it doing as much as it can? Mr Handley quite clearly feels that that is not the case; is that so? Could the Government be doing more?
David Handley: It is obvious; over the last two or three years we have gone to Government and we have said, “This labelling issue has got to be addressed”, but nobody is prepared to do it. It just gets pushed to the back all the time. We had the horsemeat scandal, where we were told this would never happen again, and if you look at the dairy industry today I expect we could go into several supermarkets in London, and we could find the exact thing happening with dairy products. It is just a complete and utter joke.
George Dunn: There are other aspects in which the Government could be doing more: for example, in relation to the taxation regime that operates when it comes to reinvestment, we have lost most of the major tax perks that were available for people to reinvest in buildings and to take the hit on that over a long time. Also, with the introduction of things like the new NVZ regulations, there was an opportunity for the Government to look at grant-aiding the slurry storage that was necessary for making those units compatible with the NVZ regulations. Government failed to do that as well.
The Government have a mantra, regardless of what political party, I have to say, that we need to be operating in an open-market environment. My view is that that open-market environment does not produce sustainable solutions, and we need to get off that high horse of saying that the market is the thing that we need to bow down before. We need to find the sustainable solutions, how the market helps us achieve that, where the market failing is, and how we correct that market failure.
David Handley: There is another issue on—
Chair: Could we just hear from Mr Harrison?
Rob Harrison: Clearly we do not think that the Government is doing enough. When it comes to labelling, we have got a £1.27 billion in deficit in dairy. When looking at yoghurt, you look at Activia, Danone, and all of these companies are bringing yoghurts in from abroad. Philadelphia is not produced in Philadelphia. There is a fantastic opportunity to produce more British yoghurt, more British cheese, and actually have consumers enjoy it.
In terms of regulation, we have got to reduce the regulation to make sure that dairy farmers can compete. Farmers in Gloucestershire, right throughout the South West, Wales, and the West Midlands are suffering from bovine TB; nobody in the Government has the courage to stand up and do anything about bovine TB. How can we compete throughout Europe and throughout the world, when you are having cows shot and you are losing money hand over fist because of bovine TB?
Taxation: on tax allowances, why have we got a system where one year farmers feel they have got to spend all their money just to take advantage of those tax allowances knowing that it will not be there? Can we have a consistent approach to investment and a consistent approach to allow farmers to invest? When we are looking at a volatile marketplace and when we are looking at prices that are going up and down, we need that consistent approach to allow farmers to average what they are doing. There is an awful lot more that the Government can do to try to help us and support us to provide a sustainable sector.
David Handley: I was just going to touch on the example George mentioned about grants. If you look at Scotland in particular, 40% grant aid offered to dairy farmers to expand to do various other things, yet nothing from Government for the processing industry, which needs to expand and grow at the same time as the dairy farmer, because without one the other one does not operate. I would suggest, again, this is where we come back to the Groceries Code Adjudicator, that we need to look at the supply chain as to why milk processors have unfortunately been squeezed so tight that they cannot invest.
Q21 Roger Williams: The system of direct payments to farmers is often very much maligned, but apart from a passing reference by Mr Harrison, we have not talked about that. Would the people before us not agree that actually direct payments to farmers are a good way of getting through short‑term market failure, or adverse weather conditions, and still remaining in production and being able to take advantage of that when the market gets back to equilibrium?
George Dunn: Mr Williams, I would say that there is a real need to retain Pillar 1 payments for individual farm businesses. Whether the current system is the right system I would not necessarily agree, but there needs to be a continuation of support to businesses, because of volatility, because the market does not factor in the high environmental, high animal welfare standards that Mr Handley was talking about earlier, because the market is stacked against the producer. The mantra that we have from successive Governments of finding a way of getting rid of Pillar 1 needs to come to an end. We need to realise that our industry needs supporting if we want those sustainable solutions.
Those payments this year, when they come, will probably be paying off debts that have been amassing over the year for feed, and other costs that have been paid already; next year, we could see some real difficulties with people once all that money has gone. I absolutely agree; I am not necessarily agreeing that the system is the right way to do it, but these payments are vital; Pillar 1 is vital. We need to retain Pillar 1.
Rob Harrison: I totally agree; it is going to be absolutely vital for dairy farmers over the next couple of years, but whether we like it or not we are moving to a system where that is being reduced, and we need to be in a place where the market will support British dairy farmers.
David Handley: I would agree with that, Mr Williams, without a doubt. It is not handouts we want, but a level playing field and a market that works. I think if the supply chain was made to work as it should, dairy farmers and farmers in general would be a lot better off.
George Dunn: Left to its own devices the market will not benefit.
Q22 Richard Drax: You have answered the question about if the UK Government should do anything else to help you; I think you have said very vociferously that you think it should, and you have listed a whole lot of things. Can I ask you quickly: we are talking about money from Europe: if the UK leaves the EU in 2017, let us say it does, I am assuming you would expect national subsidies to return to prop up the agricultural and dairy industry, would you?
George Dunn: There is a real discussion to be had in that period of time, if the decision is made that we leave the European Union, about what we put in place of the systems that we have operating. Clearly we might have more control over the way in which we do that. Our concern from the Tenant Farmers Association perspective is when you listen to any of the major political parties in the UK, they appear to have very little time for supporting agricultural production, supporting farmers through Pillar 1, and we need to change that mentality. We need to have a proper discussion about, if we do leave the EU, what would be put in place of the Pillar 1 payments that we are currently receiving.
Q23 Richard Drax: Very simply, some form of support would be needed; is that correct?
George Dunn: Absolutely.
Rob Harrison: Yes. Clearly the UK would save an awful lot of money that they are paying into Europe, and some of that money should be used to either make sure that markets work correctly, or to make sure that farmers in the short term are supported to make sure that we stay in business. You do not want to take away any support to British dairy farmers, but still have to compete with farmers across Europe who are benefiting from that support, because that will clearly drive us all out of business.
David Handley: There has got to be more emphasis on the supply chain in general. I think if the supply chain was working correctly, if we got all the issues that we have discussed this afternoon in place, yes, some form of support would be needed in the early days, but this industry can stand on its own feet. We have got to put tools there to enable that to happen and currently Governments have failed to do that.
Q24 Richard Drax: Finally, has Defra done enough to support the establishment of producer organisations, and what more could it be doing?
David Handley: My view on producer organisations is that it is just taking the limelight away from the problem. Putting a bunch of farmers together and saying, “You have got to co-operatively work together; the volume of product will give you a better place in the marketplace,” has just been proven to fail, time after time.
Q25 Richard Drax: Fantasy land really, is it?
David Handley: It is just another thing that was brought out to make everybody think that that was the way forward for us to be profitable. It is the supply chain as a whole that needs to be addressed.
Richard Drax: Mr Dunn?
George Dunn: I would not disagree at all with what Mr Handley has to say. You only have to look back at where we were some years ago with the Milk Marketing Board. I am not saying necessarily that that was the right thing, or the correct thing, but that was when we had real power, as dairy farmers in the marketplace. What we are talking about now, as David says, is a sideshow.
Rob Harrison: I would certainly agree that it is supply-chain issues that need to be addressed. There is little evidence that the funding that Defra has provided for POs has provided a return as yet. However, we agree that actually producers need to work together, and having some strength, either as producer organisations or as co‑ops, provides some strength to farmers, and certainly working together in lots of different ways helps farmers. There is more that could be done on that front.
Q26 Mr Spencer: We have drifted into the Groceries Code Adjudicator several times, and now is your opportunity really. Clearly the supply chain is very complicated, with some farmers supplying direct to supermarkets, some going to a processor then to a supermarket, some even go through processors, then to food producers. Is the remit of the Groceries Code Adjudicator broad enough to take into account those complicated relationships in the supply chain?
George Dunn: The simple answer to that question from my perspective is no, and it needs to be improved. That will take time; it is not going to be the solution for now, but, as David said, if we are going to get the supply chain operating correctly we need to ensure that we have an adjudicator—who, by the way, I think is doing a tremendously good job—with a much broader remit to look at those issues in the round.
David Handley: If you look at where we are currently, we can track very easily the producer price to the processor. Where we come adrift is we cannot track the money between the retailer and the processor, and that is where I think the adjudicator needs to be given the teeth to be able to do that. She has to be able to see the paper chain, and I think if that was to happen it would expose an awful lot of the issues we have discussed this afternoon.
Rob Harrison: Definitely we agree; I think the adjudicator does need more teeth. It needs to be extended out to cover processors, and to cover the whole supply chain. I think the way that supermarkets do tendering, rider payments and all the smoke and mirrors that David has talked about, unfortunately clouds the issue. We really need to understand and get to bottom of that, so that actually we have a transparent trading relationship that means that farmers are treated equitably and fairly.
Q27 Mr Spencer: Given that she has not got enough teeth, what about the teeth she has got? Is the Groceries Code Adjudicator using all the tools available to that role to get into places and try to tackle some of these loss-leaders that supermarkets are passing down the supply chain?
George Dunn: Obviously we have not got a “Track the adjudicator” like we have “Track Santa”, but we do know that she is in and out of discussions with major retailers on a very regular basis, and is making a real difference to some of those issues where there are direct supply contracts. Clearly the retailers are responding, but we need to make sure that they respond in a much greater range of relationships, and at the moment those are quite limited.
Rob Harrison: One of the issues which will always be there for the supply chain is that suppliers do not necessarily want to give away their trading relationship to their customer for fear of losing business. It needs to work in other ways potentially. In terms of the devaluation of our product, I think it is absolutely criminal and some structures need to be in place to make sure that the price paid is realistic, and that nobody in the supply chain is paying for that.
Q28 Mr Spencer: Is there anything that she should be doing that she is not doing currently that is within her remit?
David Handley: It comes down to the issue of being able to follow the paper chain from processor to retailer, and in the other direction. You have got a prime example of that at the moment: you have got a major retailer who has a direct supply base for milk. Those producers are currently getting 32 pence a litre for their milk, but who is paying for the balance? I suggest to you that the rest of the industry is paying for the balance, not the retailer. If the adjudicator could follow the paper chain, she would immediately be able to see who is paying, and I think then it would expose what is going on in the marketplace currently.
George Dunn: The impression I get is that the adjudicator is pulling all the levers that the adjudicator has available to her, and perhaps is constantly reminded by civil servants and others where the levers start and finish. I cannot believe that there are any levers that the adjudicator is not pulling that are available to her.
Q29 Chair: Can I just ask: would you like the adjudicator to have the right of own initiative and perhaps do spot searches?
David Handley: Very much so, totally agree.
George Dunn: Absolutely, yes. It works well in Ofsted. Why can the adjudicator not say to a retailer, “I am coming to see you tomorrow; I want your books.”
Q30 Chair: Why do you think the processors and the dairy industry were left out of the remit in the first instance for the Groceries Code Adjudicator?
George Dunn: It is the processor-retailer bit that has been left out, so it is not just for the dairy industry; it is right across the piece.
Chair: You would like to see that?
George Dunn: Definitely.
Q31 Chair: Are you concerned about Dairy Crest selling out to Müller? Are you bothered?
Rob Harrison: From our point of view, having strong processing businesses in the UK, which can negotiate well with retailers and provide cost savings in terms of the structure, is really good for the industry, but it is important that farmers are well‑represented as part of that. Clearly when we look at the liquid milk industry in the UK as it is now, it is unsustainable when milk is being sold for a pound or less; that needs to change, and this may be one way that that might change.
George Dunn: Clearly there is concern about greater concentration, as I have said before, and the ability of the individual farmers to negotiate their position when things are tied both with who are supplying them and who they supply to. That is an ongoing concern. We hear that Müller Wiseman is going to do great things; we will wait and see whether that transpires, but, again, we cannot expect people with real power in the marketplace to operate in ways that are necessarily sustainable for the wider base of our country. Therefore, that supply chain needs to be managed.
David Handley: I am deeply saddened that we have lost Dairy Crest. I think there has been a lot of mismanagement. I think Müller is a very commercial businessman; he has looked at that business and sees how very quickly he can turn that around to profit. The sad part about that is, although it is going to employ a lot of people in the UK, that profit is going to go back to Germany. Talking to my counterparts in Europe who trade with them, I do not think we are in a good place, and I do not think we will be in a better place going forward with Müller and Arla being the only two major companies we have got in the UK.
Q32 Chair: In 2011 the Committee reported that we would like to see written contracts between farmers and processors, specifying either the raw milk price or the principles underpinning the price, the volume and timing of deliveries, as well as duration of the agreement. How much closer are we, since 2011, to achieving any of that?
David Handley: I think we are a lot closer than we were in 2011 in respect of contracts, and more so in the fact that there is a growing respect between processor and the primary producer. I still think there is a lot of work to be done, and over the last three years we have probably slipped on it, but it is certainly better than it was in 2011 in terms of contracts in general.
George Dunn: I would agree; nothing to add, Madam Chairman.
Rob Harrison: Yes, certainly it is a lot better than 2011, but there is still more work to be done, certainly in terms of certainty of price and in terms of managing volumes as well.
Q33 Richard Drax: Just quickly, has the housewife got to accept that she is going to pay more for her milk in the future?
George Dunn: I do not think the consumer necessarily has to consider they are going to have to pay more. What we do not want is the sort of loss-leaders that we have seen sometimes advertised, which devalues the product for everybody concerned. The question that we have been asking is: where does the money go? Who has the money? It may not be that we need to find a higher price; it might be that we simply have a fairer share of the marketplace that is there already. Let us work on that basis first, and then we can look to see whether we need a higher price for the consumer to pay.
Rob Harrison: Certainly I think all the consumer needs to do is go back to paying what they were paying six to 12 months ago. I think retailers were making an obscene amount of money on liquid milk, and what has happened is the discounters have decided to take a lower margin on that, undercut them and then that has created the battleground that we have got now. It is very sad for us as a dairy industry that they use our product, which is of fantastic nutritional value and really important for children and families and everybody to consume for their long‑term health—as a society and as a country, we should encourage people to consume dairy products. One of the issues is talking between Departments. We had problems with Change4Life and trying to stop people consuming British dairy products back in the spring. There should be more talking between Government Departments.
Q34 Iain McKenzie: Just quickly, you said that the solution was possibly the end user and how much they are actually paying for milk. You touched upon, Mr Harrison, the fact that if you go back six months, that price would sustain or help sustain the dairy industry. My question would be: do you think the public understand or are sympathetic to dairy farmers’ situation?
Rob Harrison: Certainly the public are sympathetic to the dairy farmers’ situation. There is a mixture of understanding, because the marketplace and what we do is quite complex. There are issues in the fact that what consumers say they want to do and what they actually do are often different. Certainly in terms of public sympathy it is very much up there.
George Dunn: I would absolutely agree with Mr Harrison that, in conversations that we have with representatives of consumer organisations, they absolutely understand the issues. I do not think it is pejorative when you say people do different things when they get into a supermarket from what they say when you interview them. Clearly they are going into a supermarket to buy a range of products. They take seconds to select products from the shelves. They expect retailers to be playing the game properly with processors and with producers, and sadly retailers do not. We need to find a way of resolving that issue, because obviously people are busy and they will make selections pretty quickly. I firmly believe that there is an understanding of the plight of the dairy farmer.
David Handley: I agree. I think the consumer definitely understands the issue, but I think it is an indictment on this industry that we have not sold our product. We have a levy board that we pay into called DairyCo. We have the Dairy Council that is short on money for advertising. The consumer needs to know more about what it actually costs to produce a litre of milk. We have the tools there to do it, but unfortunately the money is not being directed in the right place. I hope that that view will be shared by Dairy UK as well. There is money there that should be out there promoting our product and basically telling the story of dairy. We have just recently secured some money from DairyCo. We have put a leaflet out and we have handed out just over 1,500 of them in the last 10 days. It gives four or five different directions that the consumer can go in to find out the true story of dairy. I do not think the issue is price with the consumer, if they understand what the dairy industry is all about. We have the money there to do it. It is not being directed in the right way.
George Dunn: We have found, and I am sure with the new chair of DairyCo, who I have been in direct correspondence with about this issue, that for such a time as this the £7 million each year that we give to DairyCo needs to be used for promotion, for putting value back into our commodity that we are producing. It appears to us and the TFA that DairyCo is two years out of date with their thinking. We need DairyCo to be more accountable to the levy payers.
Q35 Chair: Could I just put one last question to Mr Handley without you going into outer orbit?
George Dunn: I will hold him down.
Q36 Chair: For what reason did the Secretary of State refuse to take up the issue of labelling? Would it not be a matter better dealt with at EU level?
David Handley: We start at home. That is the way I have always been led to understand how it works. We have got a Minister who has got the ability to investigate why the labelling issue is not working correctly. If she then thinks, with her expertise, that she needs to go to the EU, that is her job. To sit on the fence and say, “We are not going to intervene with retail. We are not going to intervene with processing and producer relationships,” to me is: “We are not going to do anything”. I am afraid I do not believe that, in the crisis that the dairy industry is facing today, that is an acceptable answer.
Chair: On that positive note, can I thank each of you, Mr Handley, Mr Dunn, Mr Harrison, for being so patient and generous with your time?
Examination of Witnesses
Witnesses: Dr Judith Bryans, Chief Executive, Dairy UK, and Christine Tacon, Groceries Code Adjudicator, gave evidence.
Q37 Chair: Can I welcome you both and thank you for contributing to our session on dairy? Just for the record, starting with Christine Tacon, can you say who you are and what you do?
Christine Tacon: Good afternoon, everybody. I am Christine Tacon, and I am the Groceries Code Adjudicator. I think you have heard my name and my role mentioned a few times so far.
Dr Bryans: I am Judith Bryans, and I am the chief executive of Dairy UK.
Q38 Chair: Excellent. I am sure you will have plenty of time to make any comments you wish to during the course of the session. Just a couple of preliminaries, if I may: you have heard the interest in the Groceries Code Adjudicator. Can you understand the reason why you were not given the remit to cover processors and retailers at the outset, and why you were not given the right of own initiative? You are probably aware that we would have liked to do the pre-appointment scrutiny, but it fell to a different Committee. We fed in a number of concerns, amongst which was that you should have the right to do own initiative and the right to spot-inspect. Do you have any idea why you were not given those powers at the beginning?
Christine Tacon: It is a complicated set of questions. May I just quickly lay out what I can do at the moment, so that you can put that all in context? I think that might be helpful. I am grateful, given the obvious interest about my role in this area, to be able to raise awareness of what I have got the powers to do. The Groceries Code Adjudicator was set up under the Act in 2013. It was to enforce, monitor and ensure compliance with the Groceries Supply Code of Practice, which I will call the code, and is not to be confused with the dairy code, which was established under the Groceries Market Investigation Order in 2009.
It only covers the 10 large retailers with a turnover of over £1 billion, so it is by no means all the retail market. It only covers 15 practices that the Competition Commission flushed out as areas where they thought the retailers were using their strong position in the marketplace to put excessive risk and unexpected costs on to their suppliers. The sorts of things that are listed are actually in your written evidence. They are things such as delaying payments and demanding retrospective lump sums, and not compensating for getting forecasting wrong. They were practices that were happening in many cases unexpectedly to the suppliers. However, it has got no powers and nothing in the code that relates to price or share of margin, or any practices that are about the indirect suppliers, which is why you have been hearing talk today. It is about the direct suppliers to the retailers.
The order that created all that comes under the Competition and Markets Authority. They established the code and they decided what the retailers had to do to comply. Every retailer has a code of compliance officer. I mention that because that has actually been quite key to me in getting the progress that I have. I wanted to do the role because I am an engineer. I worked in fast-moving consumer goods, I worked in farming, and I was getting very frustrated about the inefficiencies of the supply chain. I am sure you have heard about some of that today. My passion is about trying to get the supply chain working well.
Chair: If you pause there, because I think there will be plenty of opportunities to tweak out more when we come to the questions.
Christine Tacon: Yes, but it was just about the code and the order. I thought it was important to describe that.
Q39 Chair: If I could just ask both of you, perhaps starting with Dr Bryans: do you think that we are disadvantaged by not having more co‑operatives in this country? Is it something you would like to see in the dairy sector develop further? I just see in my own area that they are very proud, the farmers, and independent, and they do not see this as a natural move.
Dr Bryans: We have three very strong co‑operatives across the UK, when we consider Northern Ireland and GB. As farmer owned and led organisations they are very strong, but I also see that our PLCs are very strong, and they have their own dairy farmer supply chain groups. I do not think that the farmers in either of those are any less proud of the organisations they represent.
Q40 Chair: Any comment you want to make, Ms Tacon?
Christine Tacon: No.
Q41 Mrs Glindon: I would like to direct my questions to you, Dr Bryans. What do your members report as being the impact of the 2014 price drops on farmers and processors?
Dr Bryans: It is a really serious situation at the moment for everybody—for both farmers and for dairy processors. If you look at the GlobalDairyTrade auction last week we have seen prices weaken even further. They are the markets that processors are trying to sell product into, on behalf of the dairy industry. It is obviously a global market situation related to oversupply. It is exacerbated by Russia. It is exacerbated by China not purchasing very much stock at the moment. In relation to GB, I think the impact is reduced profits for both dairy farmers and dairy processors, and actually hampering people’s investment plans going forward.
Q42 Mrs Glindon: Is it worse than 2012?
Dr Bryans: We think it is worse than 2012, actually. We are not, as an organisation, in the business of predictions, but when we look at forecasts from people like Rabobank and those that do, we are looking very much, going forward, at this continuing well into 2015. If you look at the published AMPE price for milk in October and you make an insertion for the GlobalDairyTrade auction last week, you are really putting a price there somewhere around 17.6 or 17.7 pence. With intervention just below 17 pence, if that continues, let us be clear about the fact that we may have issues around intervention early in 2015.
Q43 Mrs Glindon: How far, from the crisis in 2012, do you think the industry has been able to respond in improving exports and processing capacity?
Dr Bryans: The industry has done an awful lot since 2012. We have invested, and our members would have invested approximately £100 million in capex every year over the last five to seven years. The industry is trying to export more. It is trying to open up new markets. What we have to remember is that as a country we have not previously really had a culture of exporting in the way that many of our competitors have in the Netherlands or New Zealand or Ireland. Nonetheless, we are trying very, very hard to open up those markets, and there is no reason that they should not open up for us. There are certain things, if you wanted to help us, you could do. Certainly making export certification a one-stop shop would be a particularly useful thing for the industry, and resources to UKTI to help the industry with trade missions would be very helpful as well.
Q44 Mrs Glindon: Has the rationalisation of the industry affected the viability of the dairy farming sector?
Dr Bryans: This industry has evolved and will evolve further. The rationalisation has been driven by the need for efficiency within the sector. I do not think it has hurt the dairy farmer. What has hurt the dairy farmer and what has hurt the dairy processor is the extreme volatility that we see in dairy markets. This is a cyclical feature of the market, and obviously as an industry we need to develop instruments to deal with that better going forward. However, I do not think we can blame what is currently happening on rationalisation.
Q45 Mrs Glindon: Finally, how do you think the sale of Dairy Crest’s liquid milk business will affect farmers or impact on them?
Dr Bryans: It will have a significant impact on the supply chain in the UK, but it is something that the businesses feel is very important. It is important for the supply chain in this country.
Q46 Ms Ritchie: Again for you, Dr Bryans, has the EU milk package helped to stabilise milk prices and farmer incomes?
Dr Bryans: No, it has not. Obviously the dairy package was designed to try to help the farmer have more negotiating power within the supply chain. Very few countries have taken up putting in place producer organisations. Where producer organisations exist, they have not necessarily stabilised the milk price. I do not believe they can do; even if a producer organisation was in place and could help with negotiations, they are still going to be exposed to what is happening within the world market.
Q47 Ms Ritchie: The EU is opening up the dairy industry fully to the market under CAP post 2015 approaches. Would you support reconsideration of this under the current exceptional circumstances, with the Russian ban on EU dairy imports skewing prices heavily?
Dr Bryans: There are a couple of things. The Russian ban is a really interesting one. I talked to a member last week who had done a calculation saying that the milk in the EU that went into the product that should have gone to Russia was about 2.1 billion litres. If we put that in context in terms of the UK, that is probably five large creameries all rebounding onto the EU market. Has it been a problem for the dairy industry? Yes, it has impacted significantly on prices. Has it exacerbated this period of volatility? Yes, it has, but it is exceptional. As an exceptional event, I do not think that we would let it interfere with the fact that we think that abolition of quotas and opening up of the markets is the way to go.
Q48 Ms Ritchie: Does the EU need to provide significant short-term funding, for example for storage capacity, to get the industry through the immediate crisis? I have talked to your equivalent, Dr Johnston, in Northern Ireland, and they are looking for EU intervention, because the larger amount of milk actually has to be exported from there.
Dr Bryans: Private storage aid is not enough and is not well managed enough. We have seen examples of that and we have heard examples of that, in terms of Italy getting in there first with all its cheese. Beyond Italy, it is just the fact that if private storage aid had continued it was too short. It would have been putting product back out into the market in April, where there was a spring flush. However, we think that we are getting to a stage where the EU may need to intervene. It really needs to look at the intervention price, because the intervention price is far too low at the moment. I know intervention is politically sensitive. Nobody wants to think about butter mountains, but that is not what we are asking for. As we move in a transition from a regulated EU market to an unregulated EU market, we just need the European Commission for a short time to be able to help manage the volatility, and looking at intervention is a way to do that.
Q49 Ms Ritchie: What should the UK Government be arguing for from the EU to support UK dairy farmers?
Dr Bryans: A few things, I think, from our perspective. Yes, it should be looking at intervention, but it should also be looking at various other things. We have within the European Union a wonderful thing—the regulation for the promotion of agricultural products. Mike Johnston, who you mentioned, has made great use of that in the past, as have we, in terms of promoting the integrity of our products—the nutritional integrity—to the consumer. That promotional pot we fight for with every other commodity within the European Union.
In 2012, when there were issues, there was additional funding put into that pot, specifically for dairy. The Dairy Council for Northern Ireland and the Dairy Council here and in the Republic of Ireland were beneficiaries of that and were able to promote to the consumer increased consumption of dairy products. Helping us to increase the consumption of dairy products is really important, whether that is done through promotion or through, for example, schools, hospitals, Government Departments being willing to buy dairy products.
Q50 Neil Parish: Good afternoon. How successful has the code of best practice been in rebalancing the power between farmers, processors and retailers of dairy products? We talked quite a bit in the last panel. What are both of your views on that?
Dr Bryans: There are a few things there. The voluntary code of practice has been very useful in improving relationships across the supply chain. This is because it has removed some of the concerns and stresses of dairy farmers—things that they were worried about in terms of the contractual relationships, such as retrospective pricing. However, it is really important for everybody to mention, and I know my colleagues mentioned it earlier, that it was not ever built to deliver a price and it cannot address pricing issues. I am not entirely sure that there is any code in a free market that can address a pricing issue. In terms of the voice of the dairy farmer within the supply chain, we have some very strong co‑operatives in this country, and farmer-run businesses. We also have dairy supply groups attached to our PLCs. I think there is greater trust along the whole supply chain, and I think the code has really helped with that, but we must not misunderstand what it can do.
In terms of your retail question, the code currently does not address any issues in relation to retailers. To be perfectly honest, we would not necessarily advocate, even though it was a recommendation, the code being used with retailers, because we think at the point where a retailer makes the code a condition of supply, it goes from being a voluntary code to being a mandatory code. At the point where the voluntary nature of the code goes then the dairy package kicks in, in terms of regulation. At the moment we have dairy farmers who, for the vast majority, have evergreen contracts with certain security of supply. Under the dairy package, Defra have always interpreted the requirements to mean that every time a price changes, whether it is up or down, a contract is terminated. In that particular circumstance, particularly with the volatility at the moment, that would actually give insecurity to the dairy farmers.
Q51 Neil Parish: What about the point about transparency? If there is a price war between large retailers, can we be absolutely certain that they are actually paying for this, or are the farmer and the processor paying for it? This is one of key issues to all this.
Dr Bryans: From our own perspective, we do not have sight of how supermarkets set prices. There are a couple of things that need to be considered. The processor and the retailer are the major route of dairy products to market from the dairy farmer, so they are an integral part of the supply chain. They are not the only part of the supply chain in the picture. There are lots of other routes for dairy products to reach the consumer. The dairy industry’s other customers would again be hospitals, schools, Government Departments. So a simple farmer, processor, retailer model does not really represent the whole industry.
Neil Parish: Can I just say to the Groceries Code Adjudicator, you talked a bit about what your present rules are. To what degree can you help in the present situation?
Chair: We are coming onto that aspect.
Neil Parish: Yes, we are coming onto that, but it is just really on where the rule is now and what you can and are doing about it.
Chair: Can we come onto that in a moment?
Q52 Neil Parish: All right. Just one final question then: does the code need to be put on a statutory basis to extend coverage from the current 85%? There is obviously 15% not covered at the moment.
Dr Bryans: Again, I think if you put the code onto a mandatory basis it ceases to be a code. Those elements of the code that can be there because it is a voluntary code and not regulated, and not falling under the dairy package, would disappear. So that is difficult. Also if you look at some of the people who have not signed up to the code, a lot of them are very small family businesses who have been in relationships with their farmers for generations. A lot of those people would not have signed up to the code because they do not see that code as being relevant to them, because they have known their farmers for so long. They do not feel that the code represents them, because they feel that they never engaged in practices that it was put there to deal with. Again, as I said earlier, if you make the code mandatory, the security of supply becomes a problem.
Q53 Roger Williams: Could you tell us how the code could be extended up the chain and what would be the practical barriers of doing that?
Dr Bryans: For us we see a few barriers in doing that. The first one would be if you look at those very small businesses who have not signed up to the code—it is, after all, a voluntary code—you are very often talking about small artisan or speciality cheese-makers. If the retailer requires somebody to be code compliant in order to supply them, you could find an awful lot of those people losing their contracts and going out of business. In practical terms, when the recommendation was made in terms of extending to retailers, we took competition law advice on this because we were slightly concerned about it. The competition law advice that we received was unequivocal that extending it up the supply chain would be counter to competition. I am very happy to share with this Committee the full competition law advice that we received in written form, for your consideration.
Roger Williams: That would be very helpful, actually. Thank you.
Chair: Now moving on to the Groceries Code.
Q54 Mr Spencer: You have laid out a little bit as to where your remit is, but I think it is fair to say there is confusion as to how far you can go. Can you just lay out, in fairly simplistic terms, where you see your remit, particularly where applicable to the dairy industry?
Christine Tacon: It is absolutely clear that any direct supplier anywhere in the world to any of those 10 large retailers is covered by the Groceries Supply Code of Practice. So any processor that is a direct supplier to the retailer is automatically covered. I have spoken to quite a few of them. I have spoken at Dairy UK events and have met quite a few as well. The processors themselves are covered. I think we have confusion largely because there were many, many people lobbying for many years for the code and my role, and the NFU was one of the big lobbying organisations. I think very many farmers thought I was going to be there to get involved with price. I have been asked to get involved in the price of beef and milk and fleece. None of these can I get involved with: first, because I cannot get involved on price, and secondly they are very rarely direct suppliers themselves. However, a dairy farmer who supplied a retailer directly would be covered. It is just about whether it is direct.
Q55 Mr Spencer: Is it fair to say, then, that when supermarkets go on price promotion and they pick milk as a price promotion target, clearly in a fair world everybody’s margin would get squeezed a little bit. However it appears, from the outside, that some people in that supply chain have their margin protected. Is that something you would support? Is that the model that you recognise?
Christine Tacon: No, it is not, and it is not something that I would actually get to know the intricacies of how it worked. Where I would hear about it is if a processor had a supply agreement and had maybe arranged for a certain number of promotions and a certain way of doing things, if the retailer was varying that supply agreement and not giving them sufficient notice. Then they could come and say to me, “We have agreed this for the following year and they have changed this and they have changed that”. In fact, the sort of things that they generally talk to me about is that the retailer is making deductions from payments or holding money back that they are due. That does come under my remit, but not what the retailers might be doing with price. It is about a variation to the supply agreement that they come to talk to me about.
Q56 Mr Spencer: So the issue basically is the contracts, not the interpretation of those contracts?
Christine Tacon: Exactly. It is whether they have reneged on the contract or are varying them without proper notice, or the other things like holding back money, or various other things that I have heard about.
Q57 Roger Williams: There has been a lot of support from farmers about having an extension to your remit to cover the dairy industry. What are the pros and cons of extending your remit to cover relationships between third parties, such as farmers, and supermarkets? That is brought to a head really by a change in the share of the market from many supermarkets, and trying to regain that share. Are their suppliers being used to achieve that, rather than taking it from their own resources?
Christine Tacon: I am not an expert on the dairy market, so I do not think I can really comment on that at all. The issue at the moment is the fact that I have a very clear order, which has got the code defined in it, and actually I have got enough things in that code to go for. There are things to work on on that. The Competition and Markets Authority told me which of the retailers I have to work with, and I cannot really make recommendations to change that. I feel in a very awkward position in all this. I have got a very clear code and retailers to work with, which has been defined by the Competition and Markets Authority, and my role has been defined by Parliament. I sit here listening to this and feel a bit helpless because of the role that I have been given.
Q58 Roger Williams: That is very helpful because, as you understand, farmers have got some real expectations, which you cannot really fulfil because of the reasons that you have put forward. Could I ask whether you have had any discussions with Government or indeed the Competition and Markets Authority about the possibility of extending your role?
Christine Tacon: The truth of it is that I have not. Under the Act that sets out my powers and statutory functions, change is up to Parliament to decide. Any proposals, as the Chair mentioned before, should come from the Department for Business, Innovation and Skills. They are my sponsor Department, although I am independent as a regulator. I think you will understand it is not appropriate for me to promote or comment on whether my job should be changed. I am doing the job I am given. However, I am able to make representations to the Competition and Markets Authority if there is anything in the code that I think needs to be added. Everything that has come up so far I have been able to put under one of those 15 practices. Particularly, one of the practices is “no delay in payments”, and there is a load of different practices I can put under that heading. So I have not yet made any recommendations as to where I think the code is inadequate. In discussions with the Competition and Markets Authority on this theoretical situation, they said it may well be that if I did make a recommendation they might have to do an investigation in order to write it in, because all those 15 practices came from investigations.
Q59 Chair: Can I ask you an indelicate question? Do you believe you have any real teeth in the present powers that you have? Because we would like to help you, and give you real teeth.
Christine Tacon: In relation to the job that I have, I am really pleased with the package of teeth that I have got. I can launch an investigation, and an investigation has incredible powers in terms of demanding records of emails and contracts and everything else to be able to look at. If I find a breach of the code in that investigation I can either make a recommendation, name and shame, and, as you probably all know, because it was debated very heavily in Parliament, I have the power to fine. The only thing is that, at the moment, the maximum level of fine has to be laid as a statutory instrument, and that has not yet happened. However, the knowledge that I have the power to fine, the fact that, when I put it out to consultation, I put out a very large figure as a mechanism for a potential to fine means that I am getting full co-operation from the retailers. At the moment I very much feel, in the remit that I have got, that I am really pleased with what I have got. The threat is enabling me to make the progress that I am, without actually having to use it.
Q60 Chair: Can we ask how many investigations you have commenced, and how many you have concluded?
Christine Tacon: I have not launched any investigations yet.
Q61 Chair: Is that not very bizarre, because you very kindly provided some written evidence, for which we are very grateful. As you will be aware, the written evidence has the same value as any oral evidence. To be absolutely brutally frank, it is list of meetings that you have had and people that you have addressed. Where we got very excited in the previous Committee where we submitted our letter to the BIS Committee, we really felt that you should have real teeth and, as I said earlier, that you should have the power to undertake proactive investigations. The difficulty you have is that those areas outside beef, milk and fleece, where you have the powers, no one is realistically going to approach you, because they tend to be such small suppliers that they can be identified, and they would therefore probably lose their supply chain. No one is going to come to you, realistically, in the terms and conditions that were given to you—this is what we said at the time—if they can be identified. We had some very strong recommendations from amongst others the NFU, the CLA and the CFA—the farming organisations. It was particularly welcomed that you would look at the relationships between the small growers and vegetable producers in this country, but we are not going to get any developments because they are not going to come to you if they can be identified. You are not allowed to proactively investigate, so where are we?
Christine Tacon: I just want to clarify something. Firstly, I cover groceries, so it is everything: I often talk about “alcohol, toilet rolls and apples”. I have spoken to a vast number of vegetable and fruit growers who tend to be direct suppliers, so that is why I am able to cover them. I have been collecting all sorts of stories and anecdotes about things where people believe that the code is being breached. As I get sufficient evidence of those, I am raising them with the code compliance officers and have been going very public on my top five issues, which I was saying have repeatedly come up when I speak to people. Although I have a duty to protect anonymity, the great thing is that whether I am talking about toilet rolls or apples, very many of the practices are common, so I can raise them with the code compliance officers without risk of breaching any anonymity.
I should say that the code compliance officers are not allowed to be in the buying chain of command. They tend to be in legal or audit, and I am tipping them off that they are breaking the law. So it is pretty powerful stuff, I am able to say, and I am already hearing back about certain practices that I have been talking about, such as requiring people to buy packaging from certain people where suppliers end up paying a premium because maybe there was historically an extra flow of money going between the packaging supplier and the retailer. I am hearing that these things are stopping; suppliers are told, “I can get my packaging from who I want to”. I am getting other people saying payments had been held up; they are starting to come through. I am also hearing that the retailers are saying many more suppliers are raising the code in negotiations, so when somebody is overstepping the mark, the suppliers are having the confidence to say something back. So I am getting a large amount of feedback in terms of things that are going on, but also that we are improving things.
I think all your witnesses said they were hearing that progress is being made. An investigation is a very big legal—potentially two a year—nine-month process to get somewhere, and I am getting progress on every area by saying, “I have got evidence”, and nudging and pushing things forward. I have also got very strong traction with the retailers at board level because I am not just telling them where they are breaking the law; I am saying, “You need to change the culture in the business as well”.
Q62 Chair: So hand on heart, you can tell the Committee today that behaviour has changed from this nudging and gentle pushing?
Christine Tacon: I hear lots of feedback on it.
Chair: I am sorry, it is anecdotal.
Christine Tacon: Suppliers are not slow in telling me when I am doing okay or when I am not, and I am getting feedback that things are getting better. I did a survey in May, and I will repeat that survey, and I want to be held to account on what that survey of suppliers is telling me. YouGov did it before, so the anonymity is protected, and that is what I want to be measured by, and the suppliers tell me they want me to be measured by a more collaborative supply chain, so I will see it in that.
Q63 Jim Fitzpatrick: Ladies, my apologies for missing the start of your evidence. Accepting what you just said, Ms Tacon, about the premise that progress has been made and an investigation of itself is demonstrating results, you just said that the level of fine you ultimately might be able to impose has to be determined by statutory instrument, and it has not yet been laid. Is that a surprise that it has not been laid yet? Are we even asking for it to be laid? What level do you expect it to be laid at, as and when it comes forward?
Christine Tacon: I made the recommendation, which I was required to by law, in December last year. I hoped it had would have been laid by now. I had a meeting with the Minister in the last two weeks, and there is a hope that it will happen quite quickly. They are aware that what I really need is clarity. I need those retailers to know what that maximum level of fine will be, and I have had other people who are frustrated, who think I have not launched an investigation because I have not got my statutory instrument. That is not the case, but I really do want that done. That is part of my package.
Q64 Chair: So you do not actually have the power to find at the moment?
Christine Tacon: I have got the legally defined power to fine, but the maximum level of fine has not been endorsed.
Q65 Chair: So can you help us: how much can you fine at the moment?
Christine Tacon: At this present moment, nothing. I need that statutory instrument.
Q66 Chair: So you cannot actually fine?
Christine Tacon: Not until the statutory instrument has been laid that will determine the maximum level of fine.
Q67 Chair: So what teeth do you have?
Christine Tacon: I know that that statutory instrument is going to be laid because Parliament passed the fact—
Q68 Chair: How long has the adjudicator been in existence?
Christine Tacon: Since June 2013, and I had to make my recommendation on the maximum level of fine by December 2013, which I have done.
Q69 Jim Fitzpatrick: What was the maximum level you recommended?
Christine Tacon: I cannot say that. I can tell you that I put a figure out to consultation, and what I put out to consultation was 1% of UK turnover.
Q70 Jim Fitzpatrick: I can imagine why those you are investigating would think that that is pretty serious and they should be moving if they think ultimately 1% of their turnover could be the cost of not making progress. Did the Minister give you any indication that it would be laid before the election?
Christine Tacon: I asked that question, and the indication was they would be very surprised if it were not.
Jim Fitzpatrick: We have got the Secretary of State here tomorrow; maybe we can ask her.
Q71 Chair: Indeed. That is very timely. Were Parliament to recommend a change to your remit to enable you to initiate investigations off your own bat, presumably you would welcome that?
Christine Tacon: In all honesty, I am quite happy with my current situation. I can initiate an investigation, but I need to have reasonable confidence as to why I am doing it, and I can be challenged under a judicial review if it is felt that I have done it on a flimsy basis. So when people have been talking to me about issues, I have been saying, “You need to give me some evidence on that. I will raise it with the code compliance officers anyway, and I will try and make progress without it, but you will need to give me some evidence about what you have just told me, so that I have then got reasonable certainty and evidence as to why I am launching that investigation.”
Q72 Chair: That evidence would be secret so people do not have to expose themselves?
Christine Tacon: Yes, I have a duty to protect their anonymity. I will take evidence from a trade association, and they can give me a dossier of evidence that is all redacted if they want to. That would be sufficient for me to launch an investigation, and I have been working with trade associations, trying to guide them as to what I would need.
Q73 Richard Drax: You mentioned that there would be two investigations a year.
Christine Tacon: It was predicted that my office could afford to do about two a year, yes.
Richard Drax: Affording is one thing, but having the manpower, in essence, is quite another. Would you have the manpower, if that is the right phrase, to launch two investigations at the same time, or more?
Christine Tacon: I am a corporation sole, so there is just me, but my staff are seconded from the civil service. I actually have a head of investigations already on the staff full time, but if I was launching an investigation we have to second people from the civil service. If I had three or four on the go at one time I would just be seconding in more and more people, so my staff is not a restriction at all.
Q74 Chair: Thank you very much indeed; very illuminating. Can I just return to Dr Bryans? You said it would be helpful to have support for trade missions from UKTI. I am slightly surprised that that is not already happening.
Dr Bryans: Certainly we have been working with UKTI recently within the dairy exporters group, but there are lots of things that need to happen in order for us to develop the same culture of export that other countries have. The things that the dairy exporters group are working on, the things that the recently revised—or resurrected, perhaps I should say—Defra export certification group are working on, will all very much help the dairy industry going forward. If there are some more things that you would like to do for us, I will tell you what they are now.
It would be really helpful if you could help us with sympathetic planning laws, both for processors and for dairy farmers. Sometimes the cost of appeals is significant and very difficult for people to get through. In addition to that you can help us to promote dairy products within your Government procurement. I think promotion of dairy products is very important. One of the issues that we do have, and it was not just an issue last year with Change4Life, but continues to be an issue, is alignment of policies with Defra and the Department of Health. As we sit here, we have fabulous products. We have a short traceable supply chain. We have worked really hard as an industry to be leaders in terms of sustainability, and we have naturally nutritious products. All this gets lost. It is a global world, and the issues that we have at the moment are global, but when you see a very supportive Defra—and they are very supportive—trying to help the industry grow, asking the industry to grow, and then you see policies coming out of DH, which are just impossible for the dairy industry to contend with, without causing a significant problem—the example I will give you is salt targets that have been set for 2017 for cheese. If we were to meet those targets, our products would be unsafe, and we are just not prepared to produce unsafe products.
People around the world will see statements coming out of DH which do not encourage dairy consumption. So on the one hand you have Defra asking us to grow, and on the other hand you have DH doing things that are unhelpful. We would like to see a change in that.
Q75 Chair: We are something like the eighth largest exporter of agricultural products. Denmark exports more than we do. Why do you think Denmark is in a stronger export situation than we are?
Dr Bryans: Countries such as Denmark, Ireland and Northern Ireland, uniquely within the UK, have a culture where they have always exported more. They have opened those markets already, and they work very strongly to maintain those markets. In GB we have not had that culture previously, and now we are developing it because we are looking at the end of quotas and we are looking at the fact that we have a very positive dairy industry in the long term. In October next year my organisation is bringing the European dairy industry to the UK to showcase British dairying because we really believe that going forward, whether you have a company strategy that is looking at import substitution or exports, the reality is British dairy has an awful lot to offer. We want to showcase that to the European dairy industry, so I think those things will come. Export will come, but other countries have more of a culture of it.
Chair: Thank you. You have both been very generous with your time, and I apologise once again for the late start to this session, but Ms Tacon and Dr Bryans, thank you very much indeed for contributing to our session. We will keep the lines of communication open.
Oral evidence: Dairy prices, HC 817 20