COMMERCIAL ACTIVITIES OF MILK MARKETING BOARDS: DISTRIBUTION OF PROFITS (Hansard, 23 June 1993)

§ Mr. Jack
I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker
With this it will be convenient to take Government amendment No. 46.

§ Mr. Jack
In the interests of brevity and taking into account Community law, may I say that the new clause will ensure that all registered producers are treated equally after the passing of the Bill in terms of the distribution of profits that the milk marketing boards make from their commercial activities.

§ Mr. Campbell-Savours
The new clause is of particular importance to Northern Ireland. If accepted, it would mean that all producers who were part of the milk marketing scheme in Northern Ireland would be eligible for a share in the profits of the processing arm, Dromona Foods. It would mean that the 400 producers who currently sell to Strathroy Milk Marketing, and not to the Northern Ireland milk marketing board, will receive a share of Dromona's profits. Some challenge that, arguing that that will happen after none of their milk has passed through a Dromona plant; that they have chosen to go the Strathroy route, their milk is exported to Ireland and they are paid a premium for this; and that they have not received a share of Dromona's profits in the past.
The Northern Ireland milk marketing board has told us that it wants to use Dromona's profits to help to offset the extraordinary costs of reorganisation, but if that were done under new clause 15, it could be charged with not distributing the profits fairly. Some people feel that it is odd that Strathroy producers should benefit from a share in Dromona's profits yet should not have to pay the costs of reorganising the Northern Ireland milk marketing board, which they will be free to join in the future.
Will the Minister explain the position? What is her interpretation of the impact of new clause 15 on that group of people?

§ Mr. James Molyneaux (Lagan Valley)
The hon. Member for Workington (Mr. Campbell-Savours) has rightly said that the new clause is of great importance and interest to Northern Ireland, and it will be very much in the minds of all 17 Northern Ireland Members of Parliament regardless of their party affiliation.
As the hon. Gentleman said, the new clause amends not only the schemes in Great Britain but the scheme in Northern Ireland, although, as you will have noticed, Madam Speaker, the Bill does not apply to Northern Ireland except with regard to taxation matters. It should also be recognised that the current scheme in Northern Ireland differs from the schemes in Scotland and in England and Wales. As I understand it, the purpose of the new clause is to make it an overriding requirement that any distribution of profits attributable to commercial activities will be made in a manner that does not discriminate between registered producers under the scheme.
That requirement is based on the false premise that all registered producers operate similarly under the scheme.
399 After all, the concept of discrimination implies that like situations are treated differently. However, under the scheme, registered producers are permitted to operate differently. For example, they may sell their milk to the board or they may withhold it, if they choose to process their own milk or to export it. Those processors and exporters of milk are known as withholding producers, whereas those who sell their milk to the board are known as supplying producers. Both withholding and supplying producers are registered producers under the scheme, but it is clear that they operate differently. The new clause requires that they be treated identically with respect to sharing the profits of the scheme's commercial activities.
It must be recognised that about 400 producers, who produce approximately 10 per cent. of the milk in Northern Ireland, export that milk to the Republic of Ireland. They are registered under the scheme, but they supply no milk to the board and make no contribution whatever to the costs of operating the scheme. The new clause makes it an overriding requirement that such withholding producers share the profits of the commercial activities conducted under the scheme in exactly the same manner as producers who supply their milk to the board.
Those profits are made from the commercial business of converting the milk supplied into products and marketing them. The new clause requires that withholding producers share the profits made from the milk supplied to the board by supplying producers. The Bill, and subsequently an Order in Council for Northern Ireland, will wind up those schemes, and the board will then reorganise into organisations that all producers, both supplying and withholding, will be entitled to join. Clearly, that reorganisation will involve substantial costs and extraordinary charges—for example, accounting adjustments to cover write-offs, deferred taxation and costs such as redundancy.
If the profits of' the commercial activities are used to meet those charges in whole or in part, that could be interpreted as distribution of profits. If the new clause is accepted, it must be made clear that the Government do not intend the use of commercial profits to cover what I have called extraordinary charges and that those costs arising from reorganisation should be interpreted as a distribution of profits. If that is not the Government's intention. the Government are saying that those withholding producers are entitled to share in the profits of the board's commercial activities, but are not required to share the costs and the extraordinary charges associated with reorganisation.
Can the Minister assure me that the new clause will ensure equality of treatment for all registered producers in respect of the costs of reorganisation and any associated accountancy adjustments, as well as ensuring equality of treatment for all producers in respect of any distribution of the profits of commercial activities? Knowing the reasonable way in which the right hon. Lady and the Minister of State have reacted to all the sensible proposals made this evening and in Committee, I am confident that my proposals will meet with a favourable response.

§ Mr. Jack
I thank the right hon. Member for Lagan Valley (Mr. Molyneaux) for his courtesy in giving me notice of the general subject that he wanted to probe. I hope that I can deal with his specific points as well as the 400 more general issues raised by the hon. Member for Workington (Mr. Campbell-Savours). The hon. Member for Workington chose to describe a specific point of concern, but it must be seen in terms of the wider context and the policy that applies to that subject.
I shall first deal with the general issues relating to the basis for the distribution of profits from commercial activities. All registered producers have to operate within the terms set by the relevant milk marketing scheme, even where they are not bound to sell their milk to the board. The pricing structure of the entire market is dictated by the agreements reached between the board and the Dairy Trade Federation and the relevant joint committee. The Agricultural Marketing Act 1958 requires all registered producers to contribute to the debt of a board on a winding up, not just to those producers who sell to the board.
Therefore, to discriminate between producers who sell to the board and those who do not for the purpose of distributing commercial profits is not, in the Government's view, justifiable. It is certainly not acceptable to the European Commission, which believes that it would be contrary to the provisions of the European Community's regulations authorising the board's activities and to the principles of the Common Market. The Government have taken account of the Commission's views and the likelihood of action against us under article 169 of the treaty if we fail to act. Those are the clear benchmarks against which the distribution of profits is to take place. I hope that hon. Members who have raised issues on the subject will be able to draw the appropriate conclusions.
The right hon. Member for Lagan Valley raised separate issues about some of the expenses involved—for example, in connection with reorganisation. I think that he will immediately understand that my point about the distribution of profits from commercial activities is a separate issue. It deals specifically with how that particular gain is to be apportioned among members. It is possible for all registered producers to take a share of the costs involved with reorganisation, and that must be a decision for the appropriate board. The key factor is that costs and some of the other issues related to the distribution of profits mentioned by the right hon. Gentleman are separate.
Where Northern Ireland matters affect the legislation, the Minister of State, Northern Ireland Office—my near-neighbour, the hon. Member for South Ribble (Mr. Atkins)—asked me to ensure that he was kept informed of those issues. In light of what the right hon. Member for Lagan Valley has said, I shall undertake to do that. I shall give careful and detailed study to some of the other issues to see if there is anything about which it would be appropriate for me to write to him.