HL Deb 05 March 2004 vol 658 cc945-50

2.45 p.m.

Lord Whitty rose to move, That the draft order laid before the House on 26 January be approved [7th Report from the Joint Committee]

The noble Lord said: My Lords, this order amends the Milk Development Council Order 1995 to change the procedure that the Milk Development Council currently undertakes to obtain its statutory levy in the specific—not general—circumstances where producers do not provide the required production details. The MDC is an executive non-departmental public body funded by a statutory levy on milk producers in Great Britain. This is collected either from milk purchasers or, where farmers sell directly to the public or their purchasers decline to collect the levy, directly from the farmer. This order applies to the latter group—the so called Case B producers.

Currently, the MDC must first seek information on the volume of production when establishing levy liability for such producers. This is needed to establish the amount clue and to pursue an action in civil courts where the levy is unpaid. Where a producer fails to provide such information on request it is a criminal offence, punishable by a fine. As this is often less than the unpaid levy, it provides insufficient incentive for the producer to provide the information. Even after a successful prosecution, the criminal courts have no power to order the provision of the information necessary to calculate the levy so that the MDC may have to initiate those same proceedings all over again.

Although the number involved in this is small, the MDC has to spend 2.5 per cent of its total levy money in pursuing non-payers. It is not an inconsiderable amount but is a burden on everyone who complies with the legal requirements.

The order follows a model established by the Potato Industry Development Council when faced with a similar problem and simplifies the arrangements by requiring Case B producers to forward their production figures to the MDC within one month of the end of the production year. If they fail to do so, the MDC will be required to estimate production. That estimate will be communicated to the producer who will have 28 days to submit production details, which may be used in place of the estimate.

The preferred method for estimating production would be from actual production figures held by the Rural Payments Agency. As the RPA is currently developing a database that will hold such information, this is essentially a future option. The second method, on which we are relying for the immediate period, is to estimate production based on the milk quota held by a producer at the end of the quota year. The RPA can currently provide that data. Where UK deliveries have exceeded UK quota and where it is likely that an individual's quota will be an underestimate of their production, the MDC will be able to increase the estimate to allow for the quota overshoot, but by no more than 10 per cent.

I hope that noble Lords will agree that this is a sensible amendment to address the small but, regrettably, growing real problem of non-payment by some Case B producers. We have the support of organisations that could be affected. I commend the order to the House.

Moved, That the draft order laid before the House on 26 January be approved [7th Report from the Joint Committee]—(Lord Whitty.)

Baroness Byford

My Lords, I thank the Minister for moving and explaining the order, which we support.

It must make sense to end the current system whereby the council has to take through the criminal court producers who do not declare their production figures. As the Minister said, that is a costly process. The court cannot order the defendant to provide the information required but only fine him for not doing so. I understand that of the approximately 20,000 dairy farmers in Great Britain, only some 22 refused to comply in the year 2002–03. However, it is still regrettable that some 2 per cent of the money that is raised by the levy has to be spent on trying to get the money from them.

I have one or two questions for the Minister. When the order was taken through another place on 10 February 2004, my honourable friend John Whittingdale asked the Minister for information about the action plan approved in the summer of 2003. The Minister indicated that he would write to my honourable friend. Can the noble Lord, Lord Whiny, tell me about the "wider issues" to which Alun Michael referred? What timetable is established to move such action forward?

The Minister is no doubt aware that subsidised milk has been available to school children between the ages of five and 11. Free fresh fruit is now available. Does the Minister consider that that may result in school milk being squeezed reflecting a downturn in milk currently available in schools?

I turn to my questions regarding the CAP reform proposals. I am sure I am not the only one who is concerned about the long-term viability of dairy farmers. Milk producers have been receiving uneconomical low farm gate prices. I believe that the current rate is about 18p per litre. Following the CAP reform proposals, English farmers are likely to be put at a competitive disadvantage. Their single farm payment would initially be paid on a hybrid basis and be replaced with a 100 per cent flat rate scheme by 2012.

Does the Minister accept that under the English system the dairy premium will be worth considerably less than in the rest of the United Kingdom? It has been estimated that this might be as much as 10p per litre over its expected life span before modulation and other deductions, compared with 20p per litre in Scotland and Wales. Is the Minister aware of those concerns and of the effect that the measure may have on the current level of levy collected?

How do the Government intend to deal with farmers who have cross-border holdings? It is unclear how these producers will be treated as conceivably they may be subject to different arrangements in the two regions. Given that the UK is essentially one quota ring fenced—the exceptions are the Highlands and Islands of Scotland—quota may be held by one person operating two units on either side of the border. That could create complications in terms of calculation of entitlements. How many such producers are likely to be affected?

Severely disadvantaged areas are mostly those areas of the UK that were already receiving special support measures prior to the 1975 less favoured areas directive. The application for the single farm payment in England provides for a distinction in the level of area based payment to be made in the SDA and non-SDA areas. Bearing in mind the difficulties in establishing the regional payment ceiling, Defra has made an initial estimate for the SDA land of an ultimate area payment rate within the range of £65 to £85 per hectare and for the non-SDA land a payment rate within the range of £210 to £230 per hectare. Is the Minister confident that such split arrangements will work and are fair?

I refer briefly to bovine TB. According to the Government's consultation document on preparing a new strategy on bovine TB, on average the number of reactors per TB incident in 2002 was 4.7 compared with 1.9 in 1997. The public expenditure associated is forecast to be more than £71 million for 2003–04. Does the Minister accept that, unless those outbreaks of bovine TB are brought under control, the very ability of certain parts of the UK to produce milk will be seriously under threat, and that some of our best pedigree herds could be lost? Will he also touch on the whole question of the position in which tenant farmers find themselves? Their quota is linked to the land and requires the landlord's consent. Concern has been expressed, as the deadline for selling quota comes on 31 March.

I apologise slightly to other noble Lords for having gone a little wide of the order, but it is about a levy. Our worry is that, unless serious consideration is given to how the dairy farmers are able to compete at the moment, the very level of levy about which we have talked may not be there in future. However, it is our pleasure to support the order.

Lord Addington

My Lords, I shall be somewhat briefer. The noble Baroness had a slight problem on the previous order when she confused "milk" and "mink". I have a note scrawled rather cheekily on the side of my briefing that says, "Mink bad, milk good. Do not confuse". It was not even my note, either.

Given the increased importance of the market to dairy farmers, do the Government plan to introduce a code of conduct for retailers to specify that milk may not be sold below the cost of production?

I have one point about the council itself. Although we have heard nothing bad about it, it is appointed by the Minister. If the levy is increased and the way in which it is paid is extended, surely it would be better if the people who paid the levy at least had some say in appointing members to the council.

Lord Grantchester

My Lords, I declare an interest as a dairy farmer in Cheshire, and a director of Dairy Farmers of Britain, a milk co-operative. The order makes a very sensible administrative amendment to reduce the time and cost of pursuing non-payers. A quite disproportionate cost is spent pursuing some 240 objectors out of 20,000 dairy farmers, resulting, I believe, in only 12 eventual fines.

In the run-up to the last review, there was much criticism from dairymen that the MDC was spending its money in the wrong areas, such as research on husbandry and milk production methods, and not addressing the real issues of the dairy industry—supply-chain issues, marketing structures and innovation. However, dairy farmers appreciated the benefit of having a statutory levy payable by all producers, so that there are not "freeloaders". The amendment is to be commended, as the money raised—£7.5 million annually—will not be wasted on chasing payments.

The MDC wisely appreciated how it had to improve its perception to farmers, and has now set up a regional structure to communicate more effectively, help to inform farmers with market intelligence, and help to grow the market. Farmers find it regrettable that the dairy trade chose not to continue match-funding the money raised from producers to make milk promotion more effective. However, the change in the Milk Development Council's activities has brought it continued and increasing wide support throughout the industry for its activities.

Lord Whitty

My Lords, I am grateful for the support from all parts of the House for the order. As both my noble friend Lord Grantchester and the noble Baroness said, the number of recalcitrant producers is very small, yet they cost the MDC and therefore all farmers in the dairy sector an inordinate amount of money. We hope that the order will bring that down very substantially and allow the money to be spent on those priorities that the MDC and the industry have identified. My noble friend was also correct to say that the recent review of the MDC, although revealing some criticism, led to a plan of action and regional activity in terms of research, promotion and organisation that is by and large supported throughout the dairy sector.

The noble Baroness strayed somewhat wider than the order. The MDC is involved in wider aspects of the problems of the dairy sector. Those problems do not relate only to recent periods or CAP reform. There are serious structural problems in the dairy sector of which I have been made aware while I have been in this job and I have tried to bring the industry together to discuss them. It is not the easiest agricultural sector in which to establish a degree of consensus.

However, there is a recognition that the present situation and the even worse situation regarding the farm gate price is not sustainable. That view is shared by the processors and the retail trade as well as the producers. There is not entirely a consensus over what can be done about it, but we are moving towards that with the efforts of the dairy forum, which I chair, and hope that it will be largely driven by the industry's own realisation that they need to do more.

At the end of the day the dairy problem is one of supply and demand, that supply normally outstrips demand at two levels and that the quota system and the workings of the EU support system have made that imbalance worse. That has led to serious problems in the industry.

Regarding the other matters raised by the noble Baroness, Lady Byford, the welfare milk system, whereby a broader range of health goods is available to schools, depends on how effectively the milk sector is ensuring that more schools take up the milk option. There has been an increase of late and it is important that the potential for providing fresh milk—and fresh fruit and vegetables—is taken up by as many schools as possible.

Further detailed work is being carried out in Brussels on aspects of CAP reform and further discussion is taking place. If all parts of the United Kingdom decouple then the dairy premium will eventually be lost in the single farm payments in any case. Wales and Scotland will maintain more of the historic element but that will not be dairy-specific, whereas England is moving away from the historic element to a regional area system. That will provide the agricultural sector as a whole with a more or less level playing field with which to face its market rather than a historic pattern of subsidies which seriously distort the market.

Therefore, we believe that those dairy farmers who can face the future, provided some of the structural changes take place in dairy farming, should be in a position to meet their markets under the system that we have adopted for England. Clearly, there are cross-border issues. One of the consequences of devolution and of the ability of the devolved administrations to take a different view, is that different systems will exist and some anomalies will be caused at the borders.

The SDA system in England produces some anomalies, but they are not as great as if one included all of England within one system. A number of representations have been made to us on behalf of the beef industry and, to some extent, the dairy industry, that we should look at those issues. But I believe that the system we proposed in principle a few weeks ago will provide a firm basis for agriculture to move forward—facing the market rather than relying on subsidies and providing, as a result of the terms of those support systems, a better environmental outcome for the countryside.

The dairy industry has particular problems, including TB, which, as the noble Baroness rightly says, is by far the most worrying matter for the industry and in terms of animal disease in general. It is one in which a good deal of resources at the operational, veterinary and research levels are being provided in the UK and it is important that we get it right. At present, TB is a very big problem for the dairy sector. However, this order deals with a much smaller issue, where recalcitrant farmers will be brought into play to the benefit of the industry as a whole.

On Question, Motion agreed to.