Anne McIntosh: Collapse of dairy farming could be a rural disaster

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LIKE others, I am alarmed at the recent fall in milk prices and the impact this sudden change will have on producers.

I am confident that the future prospects of the UK dairy sector are positive, but this depends on the Government and the dairy industry resolving certain issues.

Despite having one of the most efficient production systems in the world, UK dairy farmers are unable to cover their costs and dairy processors are outcompeted by imported products.

At the moment, there is no redress to this situation. I believe the current review of the Voluntary Code presents such an opportunity and I would hope that there may be the possibility of extending the remit of the Grocery Code Adjudicator (GCA) to include relationship between milk producers and processors.

It only covers relations between fruit and vegetable growers and retailers at present and I believe there is a powerful case for bringing the setting of milk prices and relations in the milk sector within the adjudicator’s remit.

While undoubtedly the change in milk prices, either an increase or decrease, is caused by global market conditions, it is virtually impossible for dairy farmers to plan their business with any great certainty.

Dairy farming has an essential role in maintaining the fabric of rural areas like North Yorkshire, particularly in the hills. It is an integral part of our uplands landscape and is absolutely vital to both the long term future of the rural economy. It also provides traditional culinary specialities, such as the world-famous Shepherds Purse and Wensleydale cheeses.

I am concerned that, should dairy farmers continue to pack up, the impact on rural communities, tourism, and the availability of local food will be enormous, as well as the ability to guarantee a steady and sustainable supply of one of the most naturally nutritious foods.

Without Government action, many more UK dairy producers will simply go to the wall or leave the sector, with highly undesirable consequences for rural communities, landscapes, tourism and consumer choice.

It is not sustainable for dairy farmers to continue to produce milk at a loss in the long term. We must recognise the strong possibility that some farmers may sell their dairy herds and pull out of milk production altogether.

In 2011 the Environment Committee, which I chair at Parliament, called on the Government to take action to resolve this situation by addressing the structural imbalances that result in low farmgate prices. Increased investment in processing should be encouraged, particularly in value-added products. Retailers should be pressed to establish dedicated supply chains for processed dairy products, such as butter and cheese.

Dairy farmers are particularly disadvantaged in that they are selling a perishable product in a highly consolidated market with often little choice, at regional level, to whom they sell. We welcome the EU Commission’s proposals, which will facilitate dairy farmers to collaborate over prices and increase their bargaining power, without fear of investigation from competition authorities.

The European Commission’s proposed package of measures for the dairy sector, however, would not be sufficient on its own to redress the problems facing the UK industry.

UK dairy farmers should be offered written contracts by processors that specify either the raw milk price or the principles underpinning the price, the volume and timing of deliveries, as well as duration of the agreement.

Unless such contracts are made compulsory, we believe there will be no improvement in the system that currently means our dairy farmers have little certainty over the price they will receive for their milk.

Retailers must recognise that the current distribution of margins along the supply chain is unsustainable. We have called on the Government to exert influence on retailers to establish dedicated supply chains for processed dairy products.

My committee supported the European Commission’s proposal to allow dairy producer organisations to jointly set prices but warned that without greater safeguards this could lead to competitive distortions. Greater oversight by the Office of Fair Trading is needed to protect consumers from milk price rises.

Defra should review the accessibility to the dairy industry, particularly SMEs, of existing private and public funds for increasing growth and competitiveness and take steps to improve access.

Only 40 per cent of the cheese consumed here is made from British milk. Defra should develop a strategy with UK Trade and Investment and the Foreign and Commonwealth Office to promote UK dairy products and increase exports into markets, such as India and China.

I do envisage a long term buoyant future for milk producers but this is a wake up call that needs to be heeded.