Minister of State’s speech to the SEMEX Dairy Conference

Minister of State’s speech to the SEMEX Dairy Conference.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon James Paice

Thank you, to SEMEX, for the invitation to speak. I am delighted to be in Scotland. Scottish produce is renowned for its quality around the world, with exports increasing.

The UK Dairy sector is extremely important. Despite reduction in numbers, it is our biggest agricultural sector and it’s been a significant year for the sector.

Last summer a number of you will have heard what I said at the Dairy UK dinner about the prospects for this industry. I want to use this opportunity to take those remarks forward. Whilst I was blunt I found that most people reluctantly accepted that there was much in what I said. I must tell you that when Caroline Spelman read my speech her reaction was “You can’t say that”. Well, you are only in this job for a while and I want to leave the industry in a better place than when I started.

As you know the EU Dairy Package which, after final text was agreed in December, should be adopted in February, with Commission Legislation to be completed soon after.

Overall, we support the Package, even though we recognise it doesn’t do everything quite as we’d have liked. After several iterations we have an acceptable final text and have a declaration by the Commission about their role in protecting competition in the dairy market.

If the package is accepted as we expect, there are two key features for the UK to consider:

First, it will allow farmers to form ‘Producer Organisations’ which could negotiate price for up to 33% of Member State’s milk volume. Farmers can already form these ‘POs’ but the Dairy Package significantly increases their potential and scale which improves their bargaining power. It would appear that as far as our two major co-ops are concerned this may only apply to the milk they broker rather than process themselves. Whatever the figures, we are miles away from that 33%.

Secondly, it will allow Member States to make contracts (and/or offers of contracts) mandatory if they wish. If mandatory, they must be made in advance in writing and deal with price, duration, volume and timing of deliveries, although the majority of detail would still be for free negotiation.  

You will know we prefer not to legislate at all and not to make contracts compulsory, but we know views vary and I have said before that we will consult on contracts and I can assure that we will.

However, the Package will not allow us to embellish or strengthen contracts. It might threaten some beneficial arrangements that exist today. To those who still want compulsory contracts I must emphasise that we could not require them to address other issues such as exclusivity. As I said earlier, it doesn’t do everything quite as we’d have liked, so legislation brings risks.

That is why I have pushed hard for a code of practice about what should be in voluntary contracts. I am very pleased that, after some reluctance, the processors have engaged and the producers have overcome their scepticism to do likewise. I understand that they are not yet in agreement but I am encouraged by progress so far and hope and expect that it will happen.

We strongly believe this would deliver broader and quicker results than the EU dairy package and above all will keep the industry in control, rather than Government.

Frankly it has to happen. This is the most important sector of UK agriculture and we cannot have the constant squabbling over price both between processors and producers and processors and retailers. It is time the industry looked outwards rather than inwards.

Whilst the UK has been ambivalent about Interbranch Organisations suggested by the Dairy Package, and they do not naturally fit our way of working, they do exemplify the unity of industry in its future.

However it happens we must bring industry closer together to take advantage ‘as one’ of all the opportunities in domestic, European and global markets. And it is here that I want to be clear: opportunities do exist.

One of the reasons I have heard offered for why we do not have the scale of modern processing that exists elsewhere is that it is better to invest in mainland Europe where distribution is cheaper. So explain to me why Ireland is straining at the leash to be free of quotas and expand, Denmark likewise.

A succession of forward thinking companies are making major investments. I congratulate those processors who have invested in added value manufacturing and those retailers who have decided to source own brand products from the UK.   

And yes, our food and drink exports grew last year by nearly 11% to almost £16 billion. Yet in the dairy industry we still have a trade deficit of £1.3 billion, and some of the growth is down to favourable exchange rates.

We cannot assume they will last, so we need to do better on all the markets: domestic or exports, added value or commodities. There is so much more we could do and we should turn challenges into opportunities.

Farm gate prices are a real concern for farmers, but so long as they are making their margins, the opportunity lies in turning the best quality and best value raw product in Europe into competitive products for all those markets.

We are blessed with one of the very best climates for grass based production, offering low cost and good margin potentials. Last week I studied the latest set of costings from one of our banks. It showed me that different production systems, yields and prices all interact to produce different margins. It is not for me to say what system any farmer should use but it is clear that the highest price or the highest yield is not in itself sufficient.

That brings me to sustainable intensification, or producing more from less.

Within our own shores ‘sustainable intensification’ and particularly very large dairy herds have exercised many minds over the last year. 

We are very clear on this; the UK’s animal welfare and environmental standards are among the highest in the world, and they apply to all livestock farms, regardless of scale and they must be maintained.

Increasing the size of herds does not mean reducing animal welfare. The design and construction of the units and level of management and skill of the stockmen are more important.

We recognise, as long as these standards are met, that there can be a place in our market for ‘sustainable intensification’, for any market and from any acceptable system.

The challenge of achieving this highlights the importance of research. We need to improve our knowledge and capitalise on it to help others.

Exports of skills, technology and genetics are all opportunities and this is underpinned by leading R&D.  

We are working hard to gather the best evidence about how agriculture and the food-chain can meet the challenge by working together.

Being able to select for traits in cattle to benefit efficient production, reduced consumption of resources, and the abatement of GHGs are all vital to the UK’s ability to meet its target for mitigation and greater productive efficiency.

In particular, we are currently undertaking a review of the current approach to reducing GHG emissions, including progress made by industry and government action in other relevant policy areas. This will report in Autumn 2012.

In partnership with industry, Defra is funding a number of projects to improve the sustainability and competitiveness of the dairy sector.

The importance of genetics and breeding policy is recognised by the industry partners in their Greenhouse Gas Action Plan. The uptake of new technologies by farmers features prominently in published product roadmap benchmarks and through the LINK Sustainable Livestock Programme.

In this programme, research has been completed on the development of national selection indices for calving ease, udder health, longevity and lameness. This should improve animal and semen selection and therefore the health, welfare and productivity of dairy cattle.

The Government has provided nearly £16m of matched funding following the call from Technology Strategy Board’s  ‘Sustainable Agriculture and Food Innovation Platform’ (SAFI-P) for industry-led innovative research on domestic production of sustainable protein.

Direct and indirect benefits will be brought to the UK dairy sector by these projects covering genetic improvement of grassland and forage crop to improve productivity and protein yields; through innovative improvement of dairy cow welfare and performance; to improving the efficiency of healthy dairy products, farms and supply chains. In other words, right across the piste.

The expertise and innovation with which we have been synonymous is key. There are plenty of people in this room with these attributes, but dare I say it, some of it is not currently being fully exploited.

It is the Government’s role to create the right conditions in order for this knowledge and innovation to be exploited upon. Many of the things I have spoken of are amongst the key current issues which are debated at my Dairy Supply Chain Forum.

Since I took over 18 months ago I have reinvigorated the Forum from a tired talking shop into the place where the most appropriate senior industry representatives debate ‘what the dairy industry can do for itself’ to ensure its sustainable future.

Since then I really have been encouraged by the commitment the industry has shown to work together and how far it has come towards delivering such real outcomes.

The world-leading Milk, now Dairy, Roadmap, born from the Forum and led by industry, continues to expand its environmental gains across the sector.

I have also encouraged broad engagement on industry’s own ‘Dairy 2020’ project which is bringing industry’s thinking together to deliver economic and social sustainability in addition to environmental and aiming to enable every operator from farm onwards to know how to ‘future proof’ themselves. I am really looking forward to the Spring and the Dairy 2020 Action Plan which should make this happen.

More recently we launched the Green Food Project which is a collaboration between Government, the Food and Farming industry and environmental and consumer organisations.

The project was a commitment from our Natural Environment White Paper  and it is looking at how we can increase food production and productivity whilst simultaneously enhancing the environment, and how we might reconcile any tensions that this challenge raises. The project has a Dairy sub group and aims to present conclusions to Government later in the year.          

I am very pleased that the Forum and the industry is responding and coming together. It’s important that industry delivers together on initiatives like these, which can all play a significant part in delivering that sustainable future.

I cannot make a speech on dairying without mentioning TB. Just before Christmas we announced that we are launching a carefully-managed and science-led policy of badger control, as part of the package of measures to tackle TB in cattle.

Culling will be piloted in two areas this autumn. Our assumptions about the effectiveness, humaneness and safety of controlled shooting will be monitored before a further decision is taken on wider roll-out.

I recognise that this is an emotive issue however without further action the cost to the tax payer is set to top £1 billion over the next ten years. That position is untenable.        

In the same vein, nowhere is it more vital that we deliver value for money than the CAP negotiations in which we are now embarked. It is essential that we secure an agreement which provides the appropriate conditions for the dairy sector to flourish.     

The CAP shouldn’t be about enshrining for ever public subsidy for farming. It should support European agriculture becoming more competitive and market-oriented whilst also providing environmental public goods that the market does not reward.

We support the need for the environment to be intrinsic to the CAP rather than an add-on.

However, I don’t believe the Commission’s proposals to green Pillar one will deliver additional environmental benefits and benefits to the tax payer on any significant scale. I want to work with the Commission to ensure that the CAP is greened effectively and with minimal administrative burdens, to secure practical, effective and simple provisions for farmers. That is why we are developing our own proposals to put to likeminded countries and the Commission.

It is not just the environment on which we should place our emphasis. Regrettably the proposals do little to promote productivity or competitiveness. Pillar two provides the tools to enable progress. It allows EU regions to tailor measures to suit their varied and unique circumstances. Under a smaller CAP budget, Pillar two should receive an increased share and be allocated more objectively.

The current proposals such as those on capping, active farmers, greening Pillar one and new audit requirements are likely to add substantially to the administrative burden for farmers and administrators. But overall I want to see a simplified system for farmers and administrations, with any new requirements justified by the public benefits they deliver.

The EU has a huge opportunity to agree the genuine reforms needed to meet the demands of the future. It is not too late to deliver, but it will require a lot of hard work.

The UK, as one of the world’s leading economies, has the clout to negotiate the best possible deal for our producers with the European Union and to open up new markets through global trade negotiations. We are stronger when we speak with one voice. 

So we are working closely with our colleagues in the devolved administrations, as well as with Member States, the Commission and, for the first time on CAP Reform, with the European Parliament to deliver the ambitious reform we believe is necessary. I must emphasise that in Europe we negotiate for the UK; for consumers, the tax payer and farmers alike to get the benefit of the farming industry as a whole, not for individual parts.

So let me conclude. I have an unfaltering belief that the British Dairy Industry can be amongst the best in the world; the most competitive, the most productive and the most admired. We were there once but for years we have been losing ground.

We can bemoan the end of Marketing Boards yet ignore the stagnation which they caused whilst our competitors were innovating and investing. We can constantly complain at the prices paid by supermarkets. Or we can knuckle down and get on with it.

Work together, invest, and most of all compete with countries who pay more for their milk yet manage to undercut us.

We in Government are determined to what we can to help but in today’s world we cannot fix prices or margins but we can do whatever is possible to dismantle barriers, promote competition and efficiency and challenge you to make the most of it.

Published 17 January 2013