HL Deb 19 May 2003 vol 648 cc489-92

2.42 p.m.

Lord Mackie of Benshie

asked Her Majesty's Government:

Whether the break-up of Milk Marque is in line with their policy of encouraging co-operation in the farming community.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty)

My Lords, Milk Marque was broken up in 1999 following a Monopolies and Mergers Commission report which found that it was exploiting its monopoly position in a way that operated against the public interest and to the detriment of its customers. I see no conflict between that decision and the Government's policy of supporting co-operation within the farming community.

Lord Mackie of Benshie

My Lords, I thank the noble Lord for that Answer, although I did not like it. Is he aware that, since 1999, the dairy farmers of this country have been operating mostly at a loss? It has been a very hard time for them. However, in Denmark, with its large co-operatives wielding some influence, and with the same thing in Germany, dairy farmers have prospered and kept the price of milk up to a reasonable level. A new organisation called Milk Link has been set up, which is exactly the kind of body advocated by Sir Donald Curry. It is growing fast, but if it grows too big or if the Government think that it has become too large, will they then use the Monopolies and Mergers Commission to declare that it must be broken up as well?

Lord Whitty

My Lords, it is important to recognise that, under competition law, the key issue is not the market position of an organisation; in accordance with that threshold, it is what a co-operative or other body does with its position. In the case of Milk Marque, it was found that it was exploiting its position to the detriment of consumers. That would not be the case for a large number of companies operating in a similarly dominant market position. Indeed, since the Milk Marque decision, a number of mergers have taken place both within the dairy sector and in farming more generally which have not been subject to any restriction by the monopoly authorities.

It is of course true to say that many in the dairy industry have feared that, in the light of the Milk Marque decision, such intervention might take place. I hope that the Office of Fair Trading has now taken steps to reassure the industry that that is not the case.

Baroness O'Cathain

My Lords, I declare an interest as a former managing director of the Milk Marketing Board, the predecessor of Milk Marque. Could someone undertake an analysis of' exactly how the consumer has benefited to date from the break-up of Milk Marque? Certainly the farmers have not benefited and, in my view, the consumer has not benefited either. Before we embark on another competition exercise, it would he much better if we knew all the facts.

Lord Whitty

My Lords, a number of analyses have already been undertaken, the latest of which, by KPMG, looked at the whole structure of the dairy industry. It concluded that the lack of market power on the part of both producers and processors in relation to the retail sector is a problem for the industry, but it is not the key problem. That relates to product mix, the supply chain and, indeed, various international aspects regarding prices and subsidies. A number of structural issues have been highlighted, many of which have already been analysed. However, it is important to reiterate that a number of structural changes have been made without any intervention by the Competition Commission or the OFT since the Milk Marque decision was taken.

Lord Carter

My Lords, the Question mentions "encouraging co-operation". Is my noble friend aware that today saw the official launch of English Farming and Food Partnerships? I declare an interest as vice-chair of the organisation. It was formed as the result of a recommendation from the Curry commission to set up such bodies in order to encourage co-operation. Can my noble friend indicate what level of support the Government will be giving to it?

Lord Whitty

My Lords, I am very grateful to my noble friend for pointing out the launch today of English Farming and Food Partnerships. It is an industry body, led by industry, but closely following the lines recommended by the Curry commission to encourage all forms of collaboration and co-operation both within the farming sector and across the food sector as a whole. It is an important initiative which enjoys the Government's full backing and some financial support in relation to certain projects. However, it is important to make it clear that it is an industry-led body set up to carry out some of the recommendations made by the Curry commission.

Baroness Miller of Chilthorne Domer

My Lords, I hear what the Minister has said, but is he as worried as I am that, although the Government have set out their policy, when it comes to applying regulations, they are not followed through? Perhaps I may ask him what he thinks of the example I could cite with regard to the fallen stock directive, which is particularly applicable to dairy farmers. Is he aware that a farmer may operate a small-scale incinerator under a regime that is easy to comply with, but if a small group of farmers want to operate an incinerator for the same purpose, they must enter into a completely different management regime and apply for a waste regulation order?

Lord Whitty

My Lords, that goes somewhat beyond the question of the impact of competition in the dairy sector. Of course the multiple use of an incinerator raises wider issues of bio-security and therefore protection against animal disease than would an incinerator used solely by one producer, whether that is a dairy farmer or a farmer of any other form of livestock. That is the rationale behind the distinction in such regulations. Furthermore, the various ways in which a multiple-use incinerator could be operated must be considered.

The key issue before the House, however, is whether the dairy industry in particular can operate with the agreement of the competition authorities in a way that is in line with what the Curry commission has suggested. That is now the case and the organisation just referred to by my noble friend Lord Carter is an extremely good example of how the industry is being encouraged in that direction.

Baroness Trumpington

My Lords, is it not true that formerly, under Milk Marque, dairy farmers in far outlying districts such as north Wales were much advantaged from the point of view of being able to reach their market by being part of an organisation which worked very well and was in competition with our European friends? What has happened since to make things any better for our dairy farmers than they were under Milk Marque?

Lord Whitty

My Lords, the decision on Milk Marque was taken by the independent competition authorities in relation to issues of public interest and that of consumers, and with a view to securing a better service for consumers. However, so far as concerns dairy farmers, the successor organisations to Milk Marque have mobilised a significant proportion of farmers working in difficult market conditions. We are certainly seeking to encourage relationships between milk producers and milk processors to enable them to secure a stronger market position than has been the case in recent years.

The Lord Bishop of Hereford

My Lords, does the Minister agree, with hindsight, that the break-up of Milk Marque was a mistake? It took place after several years of falling prices at a time when farm-gate prices were unsustainably low and broke up one organisation which could, in terms of economic power, compete with the enormous power of the processors and retailers. Will the Government do everything that they can to support future co-operative ventures in line with the philosophy of the English Farming and Food Partnerships and welcome participation and share ownership by farmers in processing and retailing activities so that they can increase their economic power?

Lord Whitty

My Lords, even given the temptation of the right reverend Prelate, I am loath to engage in hindsight in relation to a body which has, rightly, been made immune from ministerial interference and which based its decision on exploitation and abuse of the market position not on the existence of the market position as such. But today I hope we are looking to the future with the launch of the English Farming and Food Partnerships, which points the way to delivering a system that is more structured and powerful in the market as regards milk production and processing.

Earl Russell

My Lords, does the Minister understand why some people might suspect that his answer to my noble friend Lady Miller is an example of a government succumbing to the temptation to take decisions in the interests of their filing system?

Lord Whitty

My Lords, as ever, the noble Earl loses me in the logic of his position. The Government's filing system, particularly in Defra, is absolutely immaculate. But it is important, if this is the point behind his question, that we have a holistic approach to regulation and do not adopt decisions in one field that cut across the objective in another. That is why the Government, partly at the behest of the Curry commission, are moving to whole-farm regulation rather than the multiple level of regulation that we currently have on farming.

Lord Dixon-Smith

My Lords, the reality is that basic agricultural commodities are traded internationally and freely, and it is the international market that determines what happens. Does the Minister consider that determining the internal UK market in the interests of consumers, and a nominal abuse of position, has done anything to help anybody when the reality is that the main purchasers purchase where they can at the cheapest price? The cheapest price is very often from areas where the same health and sanitation standards are not so rigorously applied as in this country, and that gives others a competitive advantage that we cannot cope with.

Lord Whitty

My Lords, I do not accept that. The EU has very tight regulations on the trading of commodities. But the noble Lord is particularly wrong in relation to liquid milk. In that market, which we are concerned with here in relation to Milk Marque, there is very little international penetration. The issue is, therefore, the market within the UK and not one which is affected by the international price except in so far as there is price support in relation to the EU. Whatever the noble Lord's points may be in relation to other regimes, they are not applicable to liquid milk.