HC Deb 23 June 1993 vol 227 cc332-47

'.—(1) Where it appears to Ministers that distortions have arisen in the supply and marketing of milk, Ministers may by regulation introduce measures to assist in the orderly supply and marketing of such product.

(2) Measures may only be introduced under subsection ( 1) above where Ministers are satisfied that there has been an abuse of dominant market position arising out of—

  1. (a) favourable treatment as to price and supply of milk to customers with whom a qualifying successor body is connected by reason of equity; or
  2. (b) favourable treatment as to price and supply of milk to customers with whom a qualifying successor body is connected by reason of equity held by producers where such producers hold a majority share of the issued capital.

(3) Where Ministers are satisfied that such an abuse of dominant market position exists, they may specify a course of action to be taken by the qualifying successor body.'.—[Dr. Strung.]

Brought up, and read the First time.

Dr. Strang

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

Mr. Deputy Speaker

With this it will be convenient also to discuss the following: new clause 7—Future regulation (No. 1)

.—(1) In the case of a scheme of re-organisation submitted by the Milk Marketing Board of England and Wales the approval of the appropriate authority shall be deemed withdrawn if by vesting day any successor body to the said board has failed to appoint to its Board of Directors or equivalent a nominee of the appropriate authority for a period of three years from vesting day.

(2) It shall be the duty of such nominee to report quarterly to the appropriate authority on all matters relating to the purchase and sale of milk by the successor body including matters which in the opinion of the nominee could affect competition in the marketing of milk in England and Wales.

(3) Each report of the nominee shall be issued by the appropriate authority to such persons as in its opinion are representative of the interests of producers of milk and processors of milk within 14 days of its receipt.

(4) For the purpose of this section reference to a "successor body" shall mean any body proposed by a board in a scheme of re-organisation to be engaged in milk trading and in respect of which a statement of the nature required by section (2) (c) has been submitted.'.

New clause 8—Future regulation (No. 2)

.—(1) In the case of a scheme of re-organisation submitted by the Milk Marketing Board of England and Wales it shall be a requirement of any approval of such a scheme that on vesting day or, if the target figure specified in subsection (2) below is attained before that date then on the day it is attained, the appropriate authority shall be advised by any successor body to the said board of the names of the producers contracting to supply milk to it and by the said board of the volume of milk which those producers had sold to it in the year 1st April 1992 to 31st March 1993 ("the period") and the total volume of milk sold to it during the period.

(2) Where the milk sold to the said board during the period by the producers contracting to supply a successor body represents 50 per cent. or more of the total volume of milk sold to the said board during the period ("the target figure"), the appropriate authority shall refer the trading practices and operations whether actual or intended of any such successor body to the Monopolies and Mergers Commission for investigation.

(3) For the purposes of this section reference to a "successor body" shall mean any body proposed by a board in a scheme of re-organisation to be engaged in milk trading and in respect of which a statement of the nature required by section (2)(c) has been submitted.'.

Dr. Strang

The new clauses are designed to focus attention on the threat posed to consumers by the arrangements following. the winding up of the milk marketing boards. The Milk Marketing Board of England and Wales will be replaced by Milk Marque—an organisation that may well command at least 80 per cent. of the milk produced by farms in England and Wales. Equivalent bodies will replace the Northern Ireland and Scotland boards.

Completely new arrangements will operate; there will be no control over the price of milk. It has already been made clear that milk prices will rise by 20 per cent. as a direct result of the winding up of the boards. That will have a serious impact on many people: families on low incomes, with children, spend about one seventh of their total food expenditure on milk or milk products. Such an immediate and sharp increase in the price of milk is surely a matter for concern.

An important related aspect is the impact on the doorstep delivery system. One of the strengths of our present arrangements is that a substantial amount of milk is still sold on the doorstep; a sharp price increase will undoubtedly put even more pressure on the system.

It is generally believed that about 80 per cent. of farmers will join the new organisation, Milk Marque. Indeed, the figure may be nearer 90 per cent. I well understand why so many farmers are choosing to join Milk Marque. A further threat arises from the fundamental issue of EC quotas, which prevent farmers from increasing milk production in response to higher prices. In a normal marketplace, if prices rise sharply and a product becomes more profitable, the industry will produce more of it; supply relates to demand. The rigid milk quotas—a dairy farmer suffers a tremendous penalty if he exceeds his quota—pose a real threat to the future arrangements for both consumers and the dairy industry. A large, voluntary, private virtual monopoly over 80 per cent. of milk production could well operate against a background of tight quotas.

Some hon. Members will ask, "What about imports from the continent?" It is true that there is no problem with cheese and butter, in which there is a free movement of trade; but, given the cost of moving fresh milk across the channel to provide a proper service, I doubt whether anyone seriously believes that there will be an adequate brake on the dominant market power of Milk Marque. One consequence may be increased imports of UHT milk, but that remains to be seen. There is no doubt that it is a matter of serious concern that we should move from a highly regulated arrangement—which has had the support of producers, dairy companies and consumers in the past—to an unsatisfactory and unstable system.

The Government have been warned by various voices in the industry. Perhaps the new Minister was not aware of that; I shall therefore quote an observation made at the end of last year not long after the Bill was published. Mr. Brian Smith described the Bill as a recipe for a price explosion. He continued: In a year when the regulatory bodies of privatised previously state monopolies have stepped in to curb price increases, the Government is creating a situation where a very dominant selling organisation of a product whose supply is fixed by quota is to have no regulatory checks and balances at all". Mr. Brian Smith is the president of the Dairy Trade Federation, which I believe represents about 87 per cent. of the dairies in this country.

5.30 pm

To their credit, the milk marketing boards have made no secret of the fact that they intend to increase the price of milk by 20 per cent. We are worried not only about the increase in price following the winding up of the boards' arrangements but about what may happen if Milk Marque dominates and exploits the market to secure higher prices than can reasonably be justified.

On 5 March, Milk Marque launched its two-stage customer initiative, a document setting out the new arrangements for buying milk from Milk Marque. The document provoked quite a reaction and, as a result of representations from the Ministry of Agriculture, Fisheries and Food and the Office of Fair Trading, it had to backtrack to some extent. It appeared that Milk Marque was already threatening people as early as last March that if they did not sign up to buy milk from Milk Marque they might have difficulty in getting milk supplies in future. As a result of the representations, Milk Marque withdrew some of the statements in the document.

I remind the Minister of what the Dairy Trade Federation said about Milk Marque's document in its official press release of 9 March. It reads: The Dairy Trade Federation expressed concern about the proposals by Milk Marque (the dominant private cooperative designated to succeed the Milk Marketing Board) to increase milk prices by 20 per cent. 'This proposal is exactly what we feared when we learned of the Government's proposals to remove the present statutory controls from the MMB' said DTF President Brian Smith. 'It is a monopoly using its power to increase prices to consumers…We ask the Government to set up independent supervision of this dominant monopoly'. This is the purpose of the new clauses. A number of other new clauses, which have not been called for debate, propose a range of options, but we are not too concerned about the nitty-gritty of them; we are keen to focus attention on the dangers of the new arrangements arid to ask the Government to establish a regulatory body.

I said that the boards had made no secret of their intention to secure an increase in the price of milk. It is also fair to say that they have made no secret of the potential threat to doorstep delivery. Let me make it clear: everyone wants the service to continue and recognises that it is an important asset, which is especially valuable for the elderly and sick. It should also be maintained because many jobs are involved. It is not unique to this country, but a higher proportion of milk is sold through doorstep delivery here than in many other European countries.

In an interview on 9 March on "Farming Today", Mr. Derek Beresford was asked: So you could see the doorstep delivery being squeezed by increased costs, lack of…supplies and more milk going into the supermarkets? Mr. Beresford replied: This is true. And it's something that we have to address. I, for one, and I'm sure a lot of my colleagues are wanting to…sustain the doorstep delivery as long as we possibly can. As the House will recognise, it is all very well to want to sustain it but what counts are the hard facts of the marketplace.

Figures from the National Dairymens Association show that in 1982 about 86 per cent. of all liquid milk was sold through the doorstep delivery system. In 1992, the proportion had fallen to 56 per cent. The milk marketing board's annual accounts, which were presented the other day, record a further dramatic fall, and I estimate that roughly half of all milk is now sold through doorstep delivery.

There must be a point at which the system becomes unviable. If there is much more of a decline in the proportion of milk sold in that way, it could have a catastrophic effect on the system. Within the framework of the new arrangements with which we are, sadly, to be saddled, the Government should surely do all they can to encourage the industry—I admit that there is probably not a great deal that they can do—to sustain the doorstep delivery service.

The problem arises out of the nature of the successor body. The options have diminished to the extent that there will be one large producer co-operative. The Minister of State rightly said that we should not lose sight of the fact that there are other companies in the marketplace. For example, Northern Foods has made clear its intention to enter directly into supply contracts with farmers. It is seeking to secure a substantial proportion—or all, if possible—of their supplies by that means, but that does not alter the fact that all the signs are that Milk Marque will account for about 80 per cent., or perhaps even 90 per cent., of the milk sold from our farms. The existence of one huge, single operator in the marketplace gives us cause for concern.

I do not believe that it is a very satisfactory long-term arrangement for the producers. The only protection is that offered by the Office of Fair Trading or the European Commission. The Commission has given an undertaking that it will not intervene for two years, and what happens then remains to be seen. That does not apply to the Office of Fair Trading, whose director general could, I suppose, intervene within a few months of the new arrangements coming into force. He could decide that there was an unsatisfactory monopoly which should be referred to the Monopolies and Mergers Commission.

I merely point out that such a situation would not be very satisfactory. It would place farmers in an insecure position if they were to join a co-operative knowing that it might soon be referred to the MMC because of its dominance over liquid milk. In view of what we are to be saddled with, there is clearly a need for a regulatory body. Regulation should not be left to the Office of Fair Trading. We should establish a body with the explicit aim of monitoring the situation, advising Ministers and, if necessary, referring the issue to the MMC.

There are alternatives. New clause 7 suggests that such a body should include as a director—if I may use that term—someone appointed by the appropriate authority. In practice, it would mean that the Scottish co-operative would include a representative from the Scottish Agriculture and Fisheries Department. The same would apply for Northern Ireland. The Milk Marque board would include a representative from the Ministry of Agriculture, Fisheries and Food who would be charged with preparing a quarterly report which would be passed to the Ministry so that a close watch could be kept on what was happening.

Mr. Geoffrey Clinton-Brown (Cirencester and Tewkesbury)

I have listened carefully to what the hon. Gentleman has said, and I listened carefully over many weeks to what he said in Committee. I am surprised that he takes that stance on Milk Marque's dominance of the market, when the whole thrust of the Bill is to free up the market so that any buyer can come in and buy milk if he wants to. What on earth is wrong with farmers coming together in a strong co-operative to face a market of strong buyers?

Dr. Strang

The problem is simply that whereas, under the present arrangements, there are clear controls—the price negotiated between the Dairy Trade Federation and the boards—the new situation will not be a proper free market, because quotas will control production, and a very large organisation will almost certainly be able to dominate the marketplace. That is not our fear alone; it is expressed by others in the industry, including the Dairy Trade Federation. Indeed, I have already quoted the federation to that effect.

We must not lose sight of one fundamental fact, which is more important than the boards—the existence of quotas. That control of supplies is so important because it means that the market will never operate as it should. That is why we have expressed concern. I hope that, even at this late stage, the Government will show some appreciation of the dangerous path that we could take. They should be aware of the need to be alert to what might happen and to take action to prevent the development of a milk market that could not be justified, in which consumers would be exploited and the dairy companies could set unrealistic and unjustifiable prices.

Mr. Paul Tyler (North Cornwall)

First, I add my welcome to the Minister of State, and to his right hon. Friend the new Minister of Agriculture. I hope that they have discovered from their bedtime reading of the Committee proceedings what a constructive Committee it was. There was all-party agreement on objectives, if not always total unanimity about the solutions.

I approach the new clauses tabled by the hon. Member for Edinburgh, East (Dr. Strang) with much sympathy. Clearly we are intervening in a difficult balanced market, but I feel that the hon. Gentleman is aiming at the wrong target. The threats to consumers are likely to come not from the monopolistic tendencies of Milk Marque or of the new boards in Scotland and Northern Ireland, but from a dominance of the whole market by the buyers, to which the hon. Member for Cirencester and Tewkesbury (Mr. Clifton-Brown) obliquely referred. The problem in this country is that, for so many years, the buyers have dominated the milk market, just as they have dominated the food market.

5.45 pm

The people most concerned about the situation are the producers, to whom the hon. Member for Edinburgh, East referred. I am not sure how many dairy farmers there are in his constituency, but I have a great many in mine, and they are constantly concerned, in relation to other commodities as well as milk, about the domination of food buying and processing by a small number of huge companies—the processors and the supermarket cabals.

In recent years, as we have all seen, despite the recession in so many other areas, and the severe depression in agriculture, those companies' profits have bucked the trend and broken all bounds. Surely that is the background against which we should be concerned about what will happen to consumers. The threat to consumers comes not from 80 per cent., or even 85 per cent.. of producers signing up with Milk Marque, but from the weakening of Milk Marque and the other boards so that they cannot exercise real power in the marketplace.

We know, too, of the growing discrepancy over the lifetime of the Government between farmgate prices—the prices that producers receive—and retail prices. That discrepancy has been created not by market boards but by retail chains and the processors behind them.

I believe that the solutions proposed by the hon. Member for Edinburgh, East are misguided. The whole concept of "Ofmilk", if I may use that shorthand description, is sour. It does not seem intelligent to impose new disciplines and boards when we are trying to improve competitiveness, vis-a-vis not only the buyers to which I have referred, but the strong organisations in other member states of the EC, where significantly. over many generations, producers have come together to form strong co-operatives.

My hon. Friends and I come in the main from farming communities, and we strongly believe that we now have the best chance, perhaps the last chance, to create a continental-style producer co-operative in this country. As hon. Members on both sides of the House have said, clearly the market will be competitive. Anyone who has met the buccaneers of the Northern Milk Partnership will know that Milk Marque will not get an easy ride.

There will be many people in the market, and the competitive restraint that they will impose, plus the important disciplines available through the Office of Fair Trading, the Monopolies and Mergers Commission and the EC Commission, will be sufficient in terms of regulatory authorities and restraint.

I believe that the hon. Member for Edinburgh, East was technically wrong when he said that the Community would not intervene for two years. The Minister gave us an explicit assurance in Committee that the Community had given an undertaking that, if there were complaints, it was prepared to intervene during the first two years of Milk Marque and the other boards. With so many organisations clearly already in the field and watching every move that Milk Marque makes, I cannot believe that there will not be a complaint if there is any real cause for concern.

I followed, with great concern, what the hon. Member for Edinburgh, East said about the milk quota. When the Bill is finally put to bed with Royal Assent, and Milk Marque and its competitors are on the road, there will still be an extraordinary marketing situation because of the quota. Again, in Committee we were given many assurances by the then Minister about the Government's future policy on quotas. I hope that those assurances will he repeated today by the new regime.

As a country, we must not dilute our efforts to ensure that the redistribution of quota among member states meets more sensibly the natural provisions and needs of each state's market requirements. It is rather absurd that quota has become so set, and so difficult to shift and adjust.

I hope—I believe that the Minister agrees with me—that, in the long term, quota can become a tradeable asset across national boundaries. I am conJinced that our producers in this country are by far the most efficient, and we have some of the best territory and climatic conditions for the production of milk, especially in Cornwall.

We are told both by the industry and by Ministers that our milk producers are the most efficient in the world, so surely they will be able to compete effectively if milk quota becomes a buyable asset throughout the Community. We should press hard for that development; that is how we should try to loosen up the present regime for quota. We received assurances to that effect in Committee, and I hope that the Minister and his right hon. Friend will ensure that that aim remains a priority in their negotiations around the Council of Ministers table.

The issue is not how successful Milk Marque and the other boards will be in attracting producer support, nor is it whether they obtain 85 or 75 per cent. or only 51 or 49 per cent. support. The critical issue is how they use their market position.

In Committee, the Minister gave assurances that the critical criteria will be the adjudication of the proposed scheme or schemes and the way in which the organisations monitor the new regime after its vesting day. I think that there was broad support for that on both sides of the Committee.

If the regime behaves in a monopolistic way, there will be many avenues of redress for those affected by its behaviour. It would be wrong to set up yet more regulation, regulatory boards and bureaucracy at a time when industry is crying out for less.

Mrs. Elizabeth Peacock (Batley and Spen)

I welcome my hon. Friend to the Dispatch Box today and to his new office of Minister of State, Ministry of Agriculture, Fisheries and Food. I am sure that he will bring his extensive experience of the food industry to his new post and that that will be an additional advantage. I also welcome my right hon. Friend the Secretary of State.

The House will recall that on Second Reading I said that my interest in manufacturing industrial matters was well known. As chairman of the all-party wool textile group, I spoke about the wool guarantee and perhaps we shall return to that subject later. For many years, I have been closely involved in the milk industry, although not in a financial way. I declare an interest in that my husband is employed by one of the largest dairy companies in the country.

One aspect of the reform of the milk marketing scheme fundamentally contradicts the principles of our party and the Government and the purpose of the Bill that we are being asked to support. We are told that the Bill's intent is to create a free market in bulk milk so that our farmers and milk processors have a stimulus to compete more effectively with our European counterparts—that is wholly acceptable and welcome. However, we are also asked to give the Minister powers to approve the creation of a monopoly milk broker, the Milk Marque, which has aspirations to control 80 per cent. of the bulk milk market of England and Wales. We would not permit a processor to control 80 per cent. of the market in England and Wales, so why are we, the party of competition, even considering allowing such a position to develop?

There is now more demand from processors for the farmer's milk than available supply and no possibility of an expansion of production to meet that demand because, since 1984, production has been reduced by 17 per cent. as a result of the EC production quotas. Those quotas are likely to tighten still further rather than relax before the end of the decade.

In those circumstances, where farmers are guaranteed a market for their milk, the creation of a monopoly broker is both unnecessary and undesirable, particularly when more than half the output goes into the fresh liquid milk market, which is essentially a domestic market. It is not subject to foreign competition because of the cost and logistics of transporting fresh milk.

I should very much like doorstep deliveries to continue. They will continue if we use them and the more people who use them, the better the prospect for their future. Ultimately, if doorstep deliveries disappear, it will be the elderly, sick and disabled and those with small children without the capacity to go to supermarkets who will suffer. That is not a new campaign of mine—I have long campaigned for doorstep deliveries to continue. That system is often envied; some of the eastern bloc countries are looking at our scheme to see whether they can introduce similar ones.

I accept that producers need to organise themselves properly to negotiate effectively with processors. Four or five regionally based organisations would achieve that end and would, above all, safeguard the consumer against any part of the supply chain having too much power—an issue which we must all consider carefully. The establishment of a single milk brokerage more than twice the size of the second-largest buyer of milk in Europe is not imperative.

The dangers are all too obvious. Against a background of cutting costs in his organisation, the chief executive of the milk marketing board has already signalled his intention to use his monopoly power to force up milk prices by 20 per cent. when Milk Marque starts trading next year. Consumers will not thank us if that happens. What assurances are we giving consumers that that will not be allowed to happen? We are saying that, once the scheme ends, normal EC and United Kingdom competition laws will apply, leaving the competition authorities the job of sorting out a potentially unhealthy and chaotic process of our making. That is an abdication of our responsibilities. We have the power to establish a proper free market in bulk milk and now is the time to do it.

It is bizarre when it is left to the Opposition to table a new clause to ensure such a free market by limiting the size of any successor organisation. That should be a central plank of our reform as we are the party which is supposed to be committed to the principle of competition. I hope that my hon. Friend the Minister will have some reassuring comments to make when he replies. I think that new clause 8 is well worth supporting.

Mr. Campbell-Savours

The Opposition agree with much of the speech of the hon. Member for Batley and Spen (Mrs. Peacock). She has exposed what was exposed in detail in Committee—that the Bill will not create conditions of competition in the market place. As the hon. Lady said, her party has historically been wedded to principles of competition. We are being asked to accept that, having set itself the objective of securing 80 per cent. of the market of Britain's farmers and milk producers, the Milk Marque will act in the public interest. It cannot possibly act in the public interest if it has that share of the market.

I ask my hon. Friends and Conservative Members to give an example of an organisation which'has 80 per cent. of the market but which does not abuse its position. I shall give way to any Minister who can give an example where there has not been an abuse of monopoly power. The general view throughout the industry, among the Dairy Trade Federation members and all those with whom I have discussed the subject, is that there will be an abuse of market power. The Government repeatedly told the Committee that the competition authorities which exist within the European Community, the Office of Fair Trading or the Monopolies and Mergers Commission could deal with the matter rapidly, but that is a myth. The process will not work in that way. That is why we have tabled the new clauses today.

Concern is being widely expressed about whether Milk Marque can abuse its market position. The Opposition's approach to the debate is two-pronged. We have tabled new clauses 9, 10 and 11 and amendment No. 3 to provide for a strong regulatory regime. That was a fierce approach to a potential problem, but it has not been possible to debate those issues today.

Secondly, we tabled a series of amendments to provide a weaker approach, giving Ministers the right to introduce regulations and powers to assist in establishing an orderly market. New clause 1 would introduce those powers into the Bill. They would apply in two different circumstances. The first arises where Milk Marque owns or partly owns processing facilities. The second arises where milk is supplied to processing facilities that are owned by farmers who, as producers, are nationally or regionally contracted to Milk Marque. There is concern that, in the second set of circumstances, farmers who are so contracted and are conscious of operating margins will use their milk supply power to require Milk Marque to supply processor operations in which the farmers have a shareholding. In the case of the former, would Milk Marque want to own processing facilities? Such an intention is set out in the document entitled "Rules of Milk Marque." I dealt with this point in detail in Committee. However, I believe that it will be of benefit if I draw the attention of the House once more to those rules. We believe that it is distinctly probable that, long after Mr. Andrew Dare and his formidable colleagues have retired, a future management of Milk Marque might set out to enter the processing business.

6 pm

To prove my point, the rules that will govern Milk Marque's operation once it is set up state that it wants to carry on directly or indirectly for the benefit of its Members …including the business of producing milk cream, butter, buttermilk, cultured milk, evaporated and semi-evaporated buttermilk or cultured milk, milk-sugar…cheese, whey preparations, milk powder, condensed whole or separated milk…ice-cream, margarine and any other commodity of which milk is a substantial ingredient. It also wants to carry out such operations and to manufacture or deal with such goods…as may seem to the Board of Directors directly or indirectly to advance the interests of the Society…to carry on any other trade or business whatever which, in the opinion of the Board of Directors, can he advantageously carried out on, in connection with or ancillary to any of the above mentioned businesses or is calculated directly or indirectly to enhance the value of or render profitable any of the property, undertaking, rights or privileges of the Society. I wanted to place those rules once more on the record. They prove that one day Milk Marque will own its own processing arms. We can therefore envisage that, if Milk Marque has 80 per cent. of the market and its own processing arms, it may well show preferential treatment to those processing arms.

Mr. Clifton-Brown

What is the difference between the situation of which the hon. Gentleman complains and the Co-operative Wholesale Society which is the country's largest retailer and farmer and one of this country's largest dairy producers and processors? What is the inherent difference in that situation and the situation of which the hon. Gentleman complains?

Mr. Campbell-Savours

The answer is very simple: it does not have 80 per cent. of the market and it did not set out to secure 80 per cent. of the market in any area in which it operates.

If Milk Marque succeeds, it will inevitably develop into an integrated broker and processor of milk. I am not sure whether the competition authorities in the form of the Office of Fair Trading and the Monopolies and Mergers Commission will necessarily have the power to stop that happening. I believe that Parliament may well have to exercise some influence in these matters. If the OFT and the MMC can deal with the difficulties, fair enough. However, if they cannot, powers must be available to Ministers.

New clause 1 includes the phrase: may by regulation introduce measures". That does not place any compulsion. The real dangers will arise when there is a milk shortage or a developing milk shortage. Professor David Harvey of Newcastle university has predicted that, by the end of the century, there may be a further cut of 20 per cent. in quota. If there is to be that level of reduction in quota in the Community—that applies equally in the United Kingdom—and milk is in short supply, it will be fought over fairly aggressively.

Over the past 10 years, there has been a 16.5 per cent. cut in quota. I understand that we may be due for a further 2 per cent. cut in quota next year. Irrespective of the predictions, we are en route for a major milk shortage. With cuts in export subsidies on processed milk and commodity products, no one will volunteer to close plants.

The marketplace will become increasingly aggressive. In those conditions, an aggressive Milk Marque will want to look after its own processor interests. The farmers who supply Milk Marque and have interests in processing plants will also want to ensure that Milk Marque provides milk to those plants.

In the new world, there will be no EC rough equivalent available, if only because the Community, during the same period, will want to cut expenditure. We cannot expect there to be a barrel of brass available to buy out processing plants in future.

I am also concerned about the investment decisions that will take place in the new world market place. Mr. Haskins of Northern Foods has said that, because of the changes that might take place in the marketplace, investment decisions that he might be considering may be deferred if not changed. Mr. Haskins said: One thing is for sure: if farmers were to club together, with 80 per cent. to 90 per cent. of the milk, you won't find Northern Foods investing in such a climate. One of the largest milk processors in the United Kingdom is already talking in terms of not investing—

Mr. Jack

Why did Northern Foods buy Northern Dairies?

Mr. Campbell-Savours

The Minister should ask Mr. Haskins that question. Mr. Haskins' reply would not be the one that the Minister expects.

Mr. Haskins continued: We would invest elsewhere. We'd go to Ireland or France. Once you make an investment (we've got a £20 million UHT investment to make, for example) you are dependent on your raw material supplies. If you are not happy about the manner in which that raw material is going to be supplied, then you'll hardly invest in the business. Why should I have to buy from a monopoly when I've only got 24 per cent. of the market? Of course, he was being very facetious.

People in the industry in this country are already pointing with concern to the conditions that will exist in the new marketplace. The Opposition new clauses to some extent set out to redress problems which we believe Ministers have failed to address.

Mr. Jack

We have been treated to an interesting insight into Opposition competition policy. I would like to deal with some of the points raised by the hon. Member for Edinburgh, East (Dr. Strang). However, before I do that, I thank the hon. Member for North Cornwall (Mr. Tyler) and my hon. Friend the Member for Batley and. Spen (Mrs. Peacock) for their kind words of welcome.

The hon. Member for Edinburgh, East opened the argument by referring to the threat to the consumer and to questions about milk price rises.

I once earned my living buying for a supermarket. If somebody came to me and said, "The organisation of the business that we are involved in has changed and I would like to charge you 20 per cent. more for our product," I would have shown him the door. The short answer is that the people who are presently engaged in buying milk products will ensure that they can remain competitive in the marketplace. In respect of many products in which ingredients other than liquid milk products are used, consumers can make alternative purchases. That demonstrates the dynamics of the marketplace which will be opened up by this measure.

For example, yoghurt is a dessert. Many forms of dessert could be used. One could substitute a dessert for a piece of fresh fruit. That is the competitive nature of the fruit business.

Mr. Campbell-Savours

indicated dissent.

Mr. Jack

It is no use the hon. Member for Workington running away from the way in which marketplaces work and shaking his head. If he has ever pushed a supermarket trolley, he will know that such decisions must be made by the consumer. I do not believe that there will be an overnight price rise.

A large number of outcomes may befall a Milk Marque that abuses its dominant position in the marketplace. Several hon. Members mentioned the Monopolies and Mergers Commission, the Office of Fair Trading, the Director General of Fair Trading and the European Community in respect of articles 85 and 86 of the treaty. All those wait to entrap a Milk Marque which abuses its so-called dominant market position.

Dr. Strang

Is the Minister suggesting that the chief executive of the milk marketing board was not serious when he said that Milk Marque will pay 20 per cent. more for milk?

Mr. Jack

It is not my task to comment on the pricing policy that those who run Milk Marque or any other organisation care to make, in bidding up those who might seek to do business with it. The hon. Member for Workington (Mr. Campbell-Savours) commented on Northern Foods. It is interesting to note that, on "Farming Today", when I last listened to it, Mr. Haskins said, "Come with us and you will get a better price." Clearly, people are setting out their stall to ensure that the deal that they are offering will attract supplies. In so doing, perhaps they are taking into account the fact that there will be a different marketplace for milk.

I now refer to the nature of the competitive process. If we follow the logic of what the Opposition are putting forward, we at least are removing the present totally dominant situation. The Bill would remove the existing milk marketing board, which has an absolute monopoly except in one or two cases of those who bottle, produce and sell from their own farms or those who make certain dairy products. We are introducing competition and choice. More important, we are safeguarding those who struggle to get milk supplies, for example, for those who are specialist cheese or other dairy product producers. In so doing, we are helping to enhance enterprise and opportunity.

Mr. Tyler

On the point about the regulatory and competitive framework within which Milk Marque will have to proceed, in Committee we were given an explicit assurance that the European Commission could intervene, if asked to do so, within the first two years. I want to make that point absolutely clear because it is very important to those of us who are concerned about the framework.

6.15 pm
Mr. Jack

I have studied the matter with care and I have read the letter which Sir Leon Brittan has written on the subject. As the hon. Gentleman knows, that letter was sent to my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), the previous Minister of Agriculture, Fisheries and Food. Sir Leon Brittan says, "I have looked at the proposals and I am prepared to stay my hand subject to certain factors, for example the determination of the terms upon which people may leave Milk Marque as suppliers." However, he also says, "I will be keeping a close eye on what is going on, and if people complain to me that there is abuse of a dominant market position, I do not fetter my hand to act if necessary," That must equally be the situation that the Director General of Fair Trading will face. A lot of people will be watching.

The hon. Member for Workington told us of the hidden agenda. With his forensic approach to politics, he dearly loves to find so-called hidden agendas and new truths. The hon. Gentleman has been a company director; he understands such matters. From the articles of association of the business that he was involved in, he will know that a business lays out the full scope of what it might like to do in future. Therefore, Milk Marque would not wish to fetter its position if, to come back to the dynamics of the competitive market, things begin to change.

I am sure that, initially in year one, Milk Marque will attract a large number of milk suppliers, but they, being canny farmers, will be looking over the proverbial hedge to see how their mates are doing. If they are doing rather well because they have signed up with a local co-operative supplying a local dairy or any other organisation that cares to bid for their milk, they might exercise their rights to move. Milk Marque might find that the situation changes and that the nature of the business needs to adapt.

The Opposition's dinosaur approach to politics would not allow Milk Marque the ability to change. Goodness knows what the consequences might be. That shows that the Opposition do not understand the dynamics of the marketplace and how they can work to safeguard the interests of small producers, for example, and how the marketplace will deal with price.

Mr. Campbell-Savours

May I ask the Minister a very simple question? We can accept his allegation that we do not know how the marketplace works, but do members of the Dairy Trade Federation—the people who do the processing in the industry, who have briefed us in detail and indeed written several of the amendments that were moved in Committee—also know nothing about the business, or is it just the Minister who understands those matters?

Mr. Jack

When people have enjoyed a relatively cosy and intimate relationship, as the DTF and the milk marketing board have done for many years, would not one expect them to try to argue for the status quo? Life is so much easier. We are opening up the industry and addressing the central point of the Opposition's argument. If the Opposition are concerned about the dominant market position, why did they vote against breaking up the body which has the dominant market position—the milk marketing board?

Dr. Strang

There is all the difference in the world between a regulated monopoly in which there is a law that lays down the conditions and a price is agreed between the Dairy Trade Federation and the board, and the voluntary free market that we are moving into. There are no restraints at all on the companies and co-operatives in the new market situation. It is like going back to publicly owned utilities, with a monopoly, public ownership, tight control, and then moving to private ownership. There is absolutely no comparison. The Minister cannot say that there is a contradiction. The Bill is bound to wind up the boards, so we should look at the new circumstances.

Mr. Jack

I am glad that the Opposition are looking at the new system. The Opposition's amendments—some of them were not selected—provided a window to the new Opposition thinking. Whenever there appears to be domination of one group as against another in the marketplace, they want a directorate-general and they want to start setting prices for products. They are missing the dynamics of the competitive process. If, in years two, three, four or five, other organisations which are presently bidding for supplies of milk do better than Milk Marque, who knows what will happen? Those processes are the best safeguard against the abuse of a dominant position, backed by clear law in respect of the way in which the Monopolies and Mergers Commission and indeed the European Community can act. I can think of no greater sword of Damocles hanging over the new organisation than those very powerful pieces of law. The central issue is that the Conservative party introduced competition to break down the dominant market.

The hon. Member for Edinburgh, East asked about doorstep deliveries. When I go home, I relish the visits of Mr. Morris, our local milkman. He would be deeply distressed if I said something that put his livelihood at risk. Mr. Morris will be delighted that the abolition of the milk marketing boards means that the dreaded 2p levy that he has to pay will disappear. That will improve the competitiveness of his business. I have noticed that Mr. Morris's business has expanded over the years, as have those of many others who make doorstep deliveries. All kinds of goods are available for the convenience of the consumer, because those who make doorstep deliveries realise that they are in a highly competitive market. The argument has been that, as supermarkets have entered the milk business, those who make doorstep deliveries have had to adapt, and they have adapted. Some have said that they wished to retain the convenience of doorstep deliveries—others have found it better to buy milk from a supermarket. Conservative Members believe in choice. Equally, I am glad that those who make doorstep deliveries have reacted.

Mr. Andrew Welsh (Angus, East)

Will the Minister confirm a Government commitment to a Scottish milk development council if the industry wished to set one up?

Mr. Jack

We shall look at all the proposals when we have a clear sight of what is to succeed the present system. I am aware of the interest in development councils and will examine the proposition.

I was about to comment on a point about the dynamics of competition. The hon. Member for Edinburgh, East asks whether there is a possibility of milk coming from abroad. A French producer, for example, may decide, as a result of the lower labour costs and competitive manufacturing environment that we have created on this side of the channel, to establish a factory here. That factory might produce high value-added dairy products and the producer might think that the transport cost of approximately 5p to move milk from mainland Europe to within 100 miles of Calais may be worth doing. Who knows? There is always that possibility.

Equally, I can reassure the hon. Member for North Cornwall, who made an important point about milk quotas. My right hon. Friend the Minister and I commit ourselves firmly to continuing to campaign for what is good for Britain and the dairy industry in terms of the future of quotas. The hon. Gentleman raised an important point and we are very much wedded to that. We understand some of the imbalances in the Community and there are longer-term agreements. We shall want to campaign for what is best for Britain.

Mr. William Cash (Stafford)

Will the Minister be good enough to confirm that the increase in quotas for Greece and Italy which has not been properly supervised militates against the interests of British milk producers, particularly the large number in my constituency? We cannot allow the situation to be perpetuated. I accept that the Government want to campaign for Britain, but will they do something about it?

Mr. Jack

I am disappointed that as assiduous a European student as my hon. Friend has not reflected on the facts. The uncovering of the activities in Italy has meant, first, that £70 million has been returned to the Commission and, secondly, a reduction in the Italian total production of milk products. They have had an increase in their formal quota, but as a result 1.76 million tonnes of milk will be taken out of production. As a further bonus to farmers in his constituency, the I per cent. reduction in milk quotas did not occur. I call that a tour de force for those of us who are trying to stop abuse in the Community. I am glad that my hon. Friend raised the question and I hope that he will accept the answer.

My hon. Friend the Member for Batley and Spen at heart has some sympathy with new clause 8. The idea of an automatic referral if Milk Marque got 50 per cent. of the milk supply before the process of vesting was continued would cause tremendous disruption in the industry. I do not think that that would be widely welcomed. It also gives rise to an interesting point: what happens if other organisations are as successful as she expects Milk Marque will be? Would she want those to be referred?

Mrs. Peacock


Mr. Jack

My hon. Friend says that she would, but I think that people want a speedy resolution of the matters. Bearing in mind what I have said to my hon. Friend about competition law, I hope that she will accept that we shall be looking carefully at the interests of all concerned. Much of what has been said by my hon. Friend and others will be in the minds of Ministers when they look at the schemes. The fact that the company that she refers to is now in the business of bidding for its supplies of milk shows us clearly that we have entered a competitive situation. The company could not previously have secured its own supplies of milk. I believe that it welcomes that. It would not have made an investment such as the purchase of Express Dairies if it had not seen a long-term future in the dairy industry.

The hon. Member for Workington mentioned a number of the new clauses. He and the hon. Member for Edinburgh, South both referred to new clause 7. I thought that they might be campaigning for new jobs as representatives on the board from north and south of the border respectively. Theirs is not a terribly sensible idea. The amendments that they have tabled do not take forward the role of the so-called place person on the new board in any meaningful sense. I do not think that the proposals would add in any way to safeguarding the interests of the people in whom they claim to be interested. The points that I have made on competition law would do far more to discipline the minds of Milk Marque in the future than the ideas that those hon. Gentleman have put before the House this evening.

For all those reasons, I believe that we have put an unassailable case before the House this evening. The dynamics of the marketplace will safeguard against the fears that Opposition Members have put forward. The law on competition and the threat of investigation from the EC are powerful safeguards against abuse. Opposition Members have not looked far enough forward to see what would happen in the development of the milk business. Their amendments would fetter that development; ours would encourage it.

Question put and negatived.

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