AMENDMENT OF THE MILK MARKETING SCHEME 1933 (Hansard, 18 November 1969)

§ LORD HILTON OF UPTON
My Lords, on behalf of my noble friend Lord Beswick, I beg to move that the Amendment of the Milk Marketing Scheme 1933, a draft of which was laid before this House on October 29 last, be approved. Your Lordships will not wish me to remind you of all the activities of the Milk Marketing Board. You will appreciate the need for capital equipment, especially in the effort to maintain a manufacturing demand for milk when seasonal surplus exceeds the liquid market demand. The Board also has a large transport fleet and some wholesale and retail depots. It is not empowered to issue shares on the market, though it may borrow through normal channels. Under the original scheme of 1933, the Board could require each registered producer to contribute up to 1s. annually for every milch cow in his possession. From this the Board had to meet all its costs, including the costs of administration and any capital expenditure.
848 In 1955, the Scheme was extensively amended, with the approval of both Houses of Parliament. One of the amendments altered the method of financing the Board by empowering it to finance its operations from the revenues of its trading in, and handling of, milk and milk products, and also by allowing it to require registered producers to contribute up to one farthing from each gallon of milk sold during the year. Both these provisions still apply. I will refer to the first, for convenience, as the revenue method, and to the second as the levy method.
Finance is raised under the revenue method by reducing the buying price to producers. The Board's revenues from trading in milk are thus increased; these of course are subject to tax in the hands of the Board. Up to 1964 the Board raised all the money it needed in this way. However, a ruling was given by the Inland Revenue in 1964 that the Board would not be taxed on money raised from producers and used solely for capital purposes. The Board therefore began to raise finance from producers by the levy method, using the proceeds for capital purposes only. By this means some Board capital expenditure could be financed at a lesser cost to the producers than would have been the case if the money had been raised by the revenue method. The levy was increased from 0.16d. per gallon in the 1965–66 financial year to 0.25d. in the 1968–69 year. This is the maximum allowed by the Scheme as it now stands. The Board continues to finance its current expenditure by the revenue method.
My Lords, the Board now needs extra capital for development. The Board has acquired 17 new creameries and dairies and two cheese stores since 1961, and further developments are planned. Substantial re-equipment and modernisation is also proposed. New transport depots have been set up, and the number of lorries owned has increased. The growth of bulk collection means that more tankers have had to be added to the Board's fleet and more will be needed. Other interests also are developing—for instance, artificial insemination. That is why the Board needs more than the £2¼ million yielded annually by the present farthing levy. The Amendment now before your Lordships would raise the 849 maximum rate of levy to one halfpenny per gallon, which would produce on present sales a total of £4½ million annually.
My right honourable friends, the Minister of Agriculture, Fisheries and Food, and the Secretary of State for Wales, in considering whether this Amendment should be submitted for your Lordships' consideration, recognised that while the Amendment would enable the Board to increase its capital resources at the lowest possible cost to producers it would also enable the Board to take further advantage of a tax arrangement which does not apply to its competitors in the private trade. But it is the Board's duty to carry out its functions at the minimum cost to producers and, as I have said, the Board, unlike its trade competitors, has no power to issue shares on the market. My right honourable friends concluded that it would not he justifiable to refuse to recommend this Amendment, because they were satisfied that to do so would hamper the Board in its efforts to use producers' money to the best advantage. They also believe that consumers can benefit from an increase in the Board's manufacturing capacity, in that the establishment of Board creameries at places where seasonal surpluses arise avoids the need for milk to be transported long distances at a cost which ultimately falls on the consumer. I commend the proposed Amendment to your Lordships as one which will conduce to the more efficient operation of the Scheme.

§ LORD NUGENT OF GUILDFORD
My Lords, I thank the noble Lord, Lord Hilton of Upton, for explaining to us the purpose of this Order, which I recommend my noble friends to accept. In introducing the Order to us, the noble Lord explained the tax advantage which the Milk Marketing Board gets from this strange concession but which no ordinary trading organisation would get. The Milk Marketing Board has my complete sympathy and support in choosing the method of financing its developments most advantageous to it, but I would observe to the noble Lord that this tax philosophy seems 850 a little strange in the general commercial context, and perhaps his right honourable friend the Chancellor of the Exchequer will think about it.
The developments about which the noble Lord told us—the greater development of milk products, the acquisition of new creameries, cheese stores, and more transport in order to convey the milk—have implications which it would not be right for me to go into to-day. But they pose very powerfully to noble Lords opposite, and to the Minister of Agriculture, the problem of the structure of the milk industry, because if more butter, more cheese and more milk powder are to be manufactured, then there must be a remunerative outlet for it, and at present a large part of that outlet is filled by imports. As we well know, imports tend to flood into this country from Europe, where they have what I believe is called the "butter mountain" of some 400,000 to 500,000 tons of butter surplus waiting to slide into this country at any time it can do so. If the Milk Marketing Board is developing in the way where more of its product is going into manufacturing processes, so that a smaller proportion of the total goes for raw milk, some thought must be given to the economic structure of the industry; and some means must be found to ensure a more advantageous financial return than it is now getting in direct competition with these milk product imports.
The other point I want to raise concerns another of the many valuable activities which the Milk Marketing Board carries out—and this is a development that causes no embarrassment to the Government: I mean the encouragement by the Board for dairy farmers to use the spare breeding capacity of their cows to produce beef calves. They do this by providing an artificial insemination service for the cow. Services that are not required for the supplementation of the dairy herd itself are therefore used to produce a beef calf by crossing a beef bull, by artificial insemination, with the dairy cows. This raises no embarrassing problems such as I have just mentioned with regard to butter or cheese, because this produces beef, and we are desperately short of beef. As we know, we have to import large quantities of beef, principally from the Argentine, which is expensive and carries with it the risk of 851 foot-and-mouth disease coming into this country. Therefore in every way this is a development to be encouraged.
The Milk Marketing Board has done a great deal in the development of these beef bulls for crossing, both in the progeny testing of them and in laying on the service, which is entirely attractive to the dairy farmer. But this all costs him a great deal, and I should like to ask the noble Lord whether he will pass on to his right honourable friend the Minister of Agriculture the suggestion that, as this particular development is something so valuable in the public interest, the Minister should consider some means of further encouragement, by means of some suitable award in the Price Review, to dairy farmers to produce these beef calves from the dairy herd. This would seem to be in every way in the public interest and would take the present cost off the shoulders of the dairy farmers.
In a general way, I should like to pay my tribute to the efficiency of the Milk Marketing Board. It really is a most remarkable body, which not only serves the dairy farmer well but, I believe, serves the whole economy well and efficiently in collecting milk from the farms and distributing it to the wholesalers, and generally organising this industry with very great efficiency indeed. I am quite sure that no money is wasted in this vast administration. Therefore I accept the noble Lord's recommendation to us that we should increase this levy. Most of the increase, as we know, is going for capital purposes. Perhaps in replying the noble Lord would answer just one further point. Is the levy an expense which is taken into account at the Price Review as part of the cost to the dairy farmer of production, and therefore recovered to him in the Award? With those few comments, my Lords, I have much pleasure in supporting the Order.

§ LORD MACPHERSON OF DRUMOCHTER
My Lords, I support this Order, but may I ask the Minister one question? Could he explain to us the policy of the Milk Marketing Board so far as its development as a manufacturing industry is concerned?

§ LORD HILTON OF UPTON
My Lords, in reply to the question just posed 852 by my noble friend Lord Macpherson of Drumochter, if he does not mind I should prefer to write him on this point. The reply would be rather long, and might take up too much time now. I thank the noble Lord, Lord Nugent of Guildford, very much for the support he has given to this Amendment and for the interesting remarks he had to make about it. I think he did well to remind the House that, if we were not careful, a considerable amount of butter could at some time easily be arriving in this country to flood our market.
I was interested in what the noble Lord had to say about policy for beef calves, because this is one of the facets on which, as the noble Lord said, the present Government are concentrating, and this is why I referred in particular to the need for more money for the purposes of artificial insemination, which plays such an important part in this field. I will certainly draw the attention of my right honourable friend to what the noble Lord had to say about a little more recoupment at the next Price Review. Would the noble Lord remind me of the other question he raised?

§ LORD NUGENT OF GUILDFORD
My Lords, is the increased levy an increased cost which is taken into account at the Price Review for recoupment to the farmers?

§ LORD HILTON OF UPTON
My Lords, I am pretty sure that the answer to that question is, "Yes", but if I may I will write to the noble Lord on this point.
On Question, Motion agreed to.