§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Batsford.]
§ 2.6 a.m.
§ Mr. John Brewis (Galloway)
I suppose that in my constituency I represent as many milk producers as does any other hon. Member. Galloway produces about one-fifth of all the milk produced in the Scottish Milk Marketing Board area, but the number of those interested in the price of milk is far greater, as sales of milk represent a quarter of the income of the British agricultural community.
In 1939, before the war, the price of milk in (the United Kingdom was 3⅜d. a pint. If everything has since gone up in general by three times, the price should now be at least 10d. a pint, compared with the present actual price of 8½d. Let me at once say that there may be valid social reasons why the price should be kept down for the needy— milk is a valuable food—but Britain is an affluent society and not living in a sort of soup kitchen economy. Before the war, it took the average worker 11¾ minutes of work to pay for a pint of milk; today it takes him only 6¼ minutes.
From the producers' point of view, controlling the price of milk at an artificially low price is unfair. There are two main reasons quoted against raising the price of milk. The first is that consumption would fall. There is, however, no evidence that this is correct. The Report of the National Food Survey Committee in 1958 stated:During the five years 1954–58 domestic consumption of liquid milk was remarkably stable. Increases of ½d. per pint in the maximum retail price in July, 1956, and January, 1957, had little effect on consumption. Indeed. when the retail price of milk was at its highest during the early months of 1957, purchases were also high.The second reason is that dairy farmers would increase their milking herd. Again, there is no evidence of this. The increased flow of milk is due, in the main, to increased efficiency. Milk yields went up from 689 gallons per cow in 1955 to 762 gallons in 1961—of course, the yields in Galloway are far higher than this—while the number of 1692 cows decreased from 303,990 to 300,859. The increase last year was mainly due to poor grading prices for old cows and the dairy farmers' fear of the Government introducing a quota system which would require, in the farmers' own interests, a big output of milk in 1961. I can hazard a guess that milk production in the first half of 1962 is well below the Government forecast at the time of the Price Review.
There is also a debating point; that the price of milk in the Common Market is likely to be lower than the present price in Britain. Does the Under-Secretary agree that milk in Britain is produced under different conditions to the Continent of Europe? We produce high grade milk all the year round for liquid consumption, while most of the Six produce seasonal milk for cheese and butter making. There is no importation of liquid milk, and it seems probable that the domestic price of liquid milk will be unaffected whether or not we enter the Common Market. If there were importation of liquid or frozen milk, Denmark would be our competitor and the Danes, who are our partners in E.F.T.A., could at present send us milk at any time they liked if that were technically possible.
I return to the effect of the low price of milk on dairy farmers. If we take 1955 as the base year, agricultural wages have gone up from 100 to 138, rent to 137—and both are still rising—the cost of living to 122, while the producers' price of milk has gone down to 91. If, so to speak, we stop the moving staircase of inflation and call the cost of living 100, the price of milk is, in comparison, 74 in real terms today or, in other words, the dairy farmer has had a drop in his returns of over a quarter.
The requirement of the Agriculture Act, 1957, that no review commodity price will sink more than 9 per cent. in three years has been met technically, but can the Under-Secretary justify this quotation from the 1960 White Paper on Agriculture:The Government and the Unions agree that as the industry strengthens its competitive power and so advances towards its declared objective of reducing Exchequer support to the minimum, it is right and proper that it should have the incentive and reward of an increase in its living standards.1693 Let me put it on record that as from September the dairy industry has so increased its competitive power that no Exchequer subsidy will be required. In the countries of the Six there is an Exchequer subsidy varying from 3d. to 7d. a gallon.
In a recent debate I gave some figures foam the National Farmers' Union accounts scheme of a cross-section of 478 dairy farms of between 50 and 150 acres. The profit for a 100 acre family farm, after deducting interest on capital, was about only £8 a week for a 7-day a week all the year round job. If the Undersecretary is going to remove the £7 an acre ploughing grant the profit will be reduced by £100 a year to an utterly absurd figure. How does the Undersecretary square this treatment with this quotation from the 1960 White Paper:The Government and the Unions agree that the essential point is to ensure a reasonable return for the labour of the farmer and his wife and for his management and interest on the capital he has invested.Let me leave the Under-Secretary in no doubt that the dairy farmers in my constituency are extremely dissatisfied with the Government's policy. We expect him, to do something to improve the position of the dairy farmer, particularly the small one. If he does not I predict that there will be one result; farmers will give up the laborious job of milking cows and the Government will have to consider ways of restricting barley production because both the guaranteed price and the Common Market target price for barley are a far better proposition for these farmers.
It would be a great pity if our milk production was restricted. Milk is one of the key commodities for feeding the world's hungry millions. Some must have rice rather than corn, others will not eat beef—but milk is in universal demand and can be produced commercially only in the temperate zones of the world. I was glad to see exports of dried milk up in 1961, by over 25 per cent. in the last five years, but the total of just over £2 million is disappointing. Is enough being done to encourage exports and the distribution of milk products? I am told that our efforts do not compare favourably with those of 1ihe Danes.
§ 2.15 a.m.
The Under-Secretary of State for Scotland (Mr. Gilmour Lebura)
My hon. Friend the Member for Galloway (Mr. Brewis) has argued persuasively tonight the case for improving the lot of the dairy farmer. I think we would all agree with him that milk production plays a most important part in our agricultural economy and one which particularly affects (the man on the small farm and the medium sized farm.
These are facts which the Government have always kept in mind in dealing with the question of milk production and my hon. Emend has put forward the case tonight very clearly. But I would suggest to town that the solution that he proposes for this difficult problem is not really the right one and that if adapted it would only make matters worse.
My hon. Friend was good enough to forewarn me that he intended to take this opportunity of developing the arguments which he was able to touch on only briefly in his speech during the Scottish Estimates debate. I have listened carefully to the arguments which he has put forward tonight and I shall answer as best I can the points which he has raised.
First, I should like to say a word or two on the profitability of dairy forms. It is, of course, rather difficult to deal with the current level of profitability since adequate data on net income is normally available only for the preceding year. I hope that my hon. Friend will accept that in considering the question of profitability the Government can only readily look at the results of the industry as a whole.
Net income from dairy farms in general appears to have been fairly well maintained in 1960–61 and indeed has been relatively stable over the last few years. This is true both for the United Kingdom and also for Scotland where, as my hon. Friend knows, the average size of the herd tends to be somewhat larger. That is the broad picture.
I would, however, take the point made by my hon. Friend that what concerns him is that in real terms the return to dairy farmers, and particularly the small producer, has not kept stop with other values. But it seems to me that the root cause of this lies in the very nature of 1695 the problem that we are here discussing this evening.
What is the basic problem facing the dairy farmer? In the words of the 1962 White Paper, it is thatoutput of milk continues to increase both because of the increasing size of the dairy herd and the upward trend of milk yields.This fact, as the White Paper points out, is leading toa continued reduction in the pool price per gallon actually received by farmers so long as milk producers taken as a whole continue to increase production above the standard quantity.The fact is that about two-thirds of the milk produced in this country goes for liquid consumption and one-third into the manufacturing market. In the Government's view, therefore, the scope for expansion of milk production, as with some other commodities, must be directly related to the ability of producers to expand the size of these markets and to do so profitably. This is what the Government have tried to impress on producers for a number of years past. At present, milk production is increasing at the remarkable rate of about 100 million gallons a year.
In normal circumstances, this would, no doubt, be a matter for considerable satisfaction; but we cannot really take credit for a situation where only about one-fifth of this additional gallonage is being absorbed by the liquid market, and this only after much energetic salesmanship by the Boards. The remaining four-fifths must, of course, be diverted to the lower-priced manufacturing market.
We have to face the fact that, in the four years up to 1962–63 alone, the increase in the amount of milk going for manufacturing as opposed to liquid consumption will have been about 300 million gallons. This presents increasing difficulties for the manufacturing industry in finding the capacity for processing the surplus and, perhaps more important, it tends to aggravate the problems arising in the markets for milk products.
Much more significant from the producer's point of view is the effect of this surplus production on the pool price paid to individual producers by the Boards. Milk which has to be sent for manufacture normally realises an average price to the Boards of about 1s. 5d. 1696 to 1s. 6d. per gallon. There are not many producers who can produce milk for this sort of market and at the same time hope to show a profit. This harsh fact tends to be concealed from the producer who manages to maintain or increase the amount of his monthly milk cheque by increasing production so as to offset the reduction in the pool price, but it is all too apparent in the economy of the industry as a whole. I doubt that it is fully realised that, while there has been a small net increase of 0.15d. per gallon in the guaranteed price since 1958–59, the pool price paid to the producers has fallen by about 3½d. a gallon over the same period. I think that this demonstrates quite clearly that the factors affecting the producer's return are largely outside the Government's field of action.
I can readily sympathise with the producer who sees no future in this sort of policy of ever-expanding production without regard to the overall consequences for the industry. I can well understand his reaction to this situation. He must feel, quite naturally, that the extra gallonage is being produced largely at his expense; and, if I read my farming Press aright, there are many producers who think that the time has come to call a halt.
It is often argued, of course, that a reduction in the producer's return, whether as a result of a lower guaranteed price or some other cause, tends to induce farmers to step up production either by adding more cows to the herd or by giving extra feeding in order to increase the yield of milk and so maintain the same level of gross income. That may to some extent be true. Nevertheless, in my opinion, it would be a highly fallacious deduction to suggest that this trend would be reversed by giving the producer a higher price. My own view is that there cannot be the slightest doubt that an increase in the guaranteed price would lead very quickly to a further upsurge of production. The result of this could well be that any benefit which the producer would supposedly get from the higher guaranteed price would be nullified. Certainly, the economy and well being of the industry as a whole would derive no benefit from such a policy.
There are, however, other considerations to be taken into account apart 1697 from the effect that an increase in the guaranteed price would have on production. My hon. Friend suggests that the improvement in the producer's position would be brought about by increasing the price of milk to the consumer. Perhaps I should explain very briefly the basis on which the retail price of milk is determined. Until this year, the consumer was expected to bear the cost of the milk supplied to the liquid market, at the guaranteed price plus the cost of distribution, and also the loss entailed in manufacturing a reserve of milk, equal to about 20 per cent. of Liquid consumption, that has to be maintained to ensure that the liquid market is kept adequately supplied throughout the year.
§ Mr. Brewis
Is my hon. Friend aware that the remuneration of a milk distributor has gone up by something like 50 per cent. in the last six years?
§ Mr. Leburn
That may well be, but the distributor is not responsible for the increase in production of milk.
The House will recall, however, that earlier this year my right hon. Friend the Minister of Agriculture, Fisheries and Food, when announcing the Government's determinations after the 1962 Price Review, also announced that in future the retail price could be so fixed as to cover the full cost of the guarantee to the producer. The effect, taking one year with another, would be that no charge for this would fall on the Exchequer.
These new arrangements mean, therefore, that from this year the consumer is being asked to pay rather more for a pint of milk than previously in order that the guarantee to the producer should be met in whole from the retail price. In paying this 'higher price, the consumer is already having to bear what some people might regard as an undue share of the manufacturing element. It would surely, therefore, be most unfair to go beyond that and expect the consumer not merely to meet the guarantee, but to pay a still higher price for milk in order to cushion the producer against the consequences of producing yet more milk than the market can absorb at anything like the present level of production costs.
In that connection, might I make clear, in view of what my hon. Friend has said, 1698 that the absence of any Exchequer subsidy on milk from this year is solely due to this adjustment of the method of fixing the retail price and not to any other factor. As I have indicated, I do not think that an increase in the guaranteed price would stabilise or reverse the present continuing trend towards greater milk production. To maintain the milk producers' returns over a period, the process would have to be repeated and would, as I see it, be self-defeating. In view of what I have said, I cannot agree with my hon. Friend's view that the price of milk As being controlled at an artificially low level, nor do I think that consumption would remain stable if the prices were to go on increasing in this way. The boards are doing an excellent job, with the full encouragement of the Government, in seeking to increase liquid sales. It would be unfortunate if these efforts were to be nullified by increasing consumer resistance that would be likely to follow from the adoption of the policy which my hon. Friend has in mind.
The Government recognise that this is a complex and difficult problem. I have a great deal of sympathy with what has been said from time to time about the difficulties of running a dairy farm. Few farmers in other sectors of the agricultural community have to put in the same long hours and be so tied to their holdings as has the small dairy farmer. In these days when most people value their spare time, this becomes an increasingly heavy burden. My hon. Friend has drawn attention to these difficulties. I have tried to show that their solution must be found from within the industry itself.
Last year, the Government suggested to the representatives of the industry that thought should be given to devising a modification of the pool price arrangements, which undoubtedly tend to obscure from producers the consequences of over-production. Although their examination of these difficulties did not, unfortunately, throw up any satisfactory or workable alternative arrangement, the unions and the boards have agreed with the Government that the general problems require continuing attention. I hope that continuing attention will be given.
§ Question put and agreed to.
§ Adjourned accordingly at half-past Two o'clock, a.m.