Milk Producer Co-operatives (Hansard, 21 October 2004)

§ The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty)
My Lords, the Government are not convinced that new legislation is necessary in order to enable the creation of competitive producer co-operatives in the dairy sector. However, we strongly support greater co-operation and collaboration in the sector and in agriculture generally, and we have commissioned a study on possible legislative and fiscal barriers to that.

§ Lord Livsey of Talgarth
My Lords, will the Minister acknowledge that, at 16p per litre of milk, producers are not able to make a profit from dairy farming and that 1,700 dairy farmers left the industry last year? Does he agree that the only way forward is to strengthen the role of milk producer co-operatives in the UK and to allow them to grow, enabling them to co-operate and negotiate with supermarkets in strength? At present, the UK milk co-operatives are placed at numbers 16, 19 and 20 in the EU's list of the top 20 producer co-operatives. Dutch, Danish and Swedish co-operatives supply up to 80 per cent of their domestic markets, whereas we supply only 50 per cent. Will the Minister urgently bring forward legislation to produce a milk marketing Bill to rescue dairy farmers from this corporate exploitation?

§ Lord Whitty
My Lords, the dairy sector is the sector of British agriculture where co-operatives have been most successful and prominent. The situation in the dairy sector is that although there has been a steady long-term decline in the total number of dairy farmers, milk production has not reduced. That must, of itself, have some bearing on the current price, as well as the relative bargaining strength with the supermarkets. Current legislation has not prevented major mergers between co-ops and other bodies, both horizontally and laterally, in recent years.

§ Baroness Byford
My Lords, I accept the Minister's response that legislation is not needed, and I agree with him. What assurance can he give to the milk industry and the co-operatives that they will not be referred to the Competition Commission because the Government see them as becoming too big and dominant in the UK market, bearing very much in mind that we now have to do business in a global market?

§ Lord Whitty
My Lords, under competition law there is a trigger when any organisation, whether it is a co-operative or a company, has more than 25 per cent of a given market. The OFT will then look at it and decide whether there is a potential or actual abuse of the market situation. It will therefore be referred. It will do that on a case-by-case basis in this sector, as with other sectors. There is also a trigger on size of total operation, which goes through the same process.

§ Lord Mackie of Benshie
My Lords, the noble Baroness put the point I was going to put, so perhaps the Minister would expand on why the Government backed, through the Competition Commission, the 923 break-up of Milk Marque into four. If they are going to encourage co-operation, breaking it up is surely the wrong way to go about it.

§ Lord Whitty
My Lords, the competition authorities at that time recommended the break-up of Milk Marque. That is not on the grounds of its size of market share but on the abuse of that market share. That is always the case under British law, European law and the law in each of the member states. It is the abuse of a market position rather than the existence of a market position which is relevant.

§ Lord King of Bridgwater
My Lords, is not the important point that the marketing of milk products is becoming increasing global—the very important point made by my noble friend Lady Byford? The Minister will remember coming to the Royal Bath and West show. We had the dairy show last week with an important speaker from New Zealand, from Fronterra. It represents 90 per cent of New Zealand dairy farmers, and undoubtedly has been a hugely important force in the success of the New Zealand dairy industry.

§ Lord Whitty
My Lords, the New Zealand situation is of course different. Whereas the situation in European countries should be the same, the situation in New Zealand is very different. Fronterra, with its origins in the state sector, has statutory protection of what is close to being a private monopoly. I am not sure it is normally the Conservative Party's view that that should exist in this country. The point about it being a global market is undoubtedly important. We are doing all we can to improve collaboration in this sector so that our industry can compete.

§ Lord Hylton
My Lords, I declare an interest as a milk producer and a member of a co-operative. Is it not the case that prices received by British milk producers are lower than almost any others in the whole of the European Union? Are the Government not ashamed of this situation; and what are they going to do about it?

§ Lord Whitty
My Lords, it is true that milk prices are lower at the present time. There are a number of factors on that which do not relate to the ability to establish co-operatives. They relate to the bargaining position of the industry, the structure of the processes and, to some extent, the exchange rate. That has little to do with the form of organisation of dairy farmers, but we are—I repeat—strongly in favour of greater co-operation in this as in other agricultural sectors.

§ Lord Livsey of Talgarth
My Lords, does the Minister not realise that this 25 per cent rule is penalizing UK dairy farmers? The Danish/Swedish co-operative, Arla Foods, which has up to 80 per cent domestic penetration in its own market, is now marketing milk in the UK and competing unfairly with our own co-operatives.

§ Lord Whitty
My Lords, I think that the noble Lord will have to indicate what he means by "competing 924 unfairly". Danish competition rules allow the Danish authorities to look at Arla Foods, as at any other co-operative, and consider whether it is abusing the market. I repeat, it is a question of abuse of the market position, not the size of it. If the noble Lord has been spending his time reading Danish newspapers recently, he will know that the Danish authorities are looking at alleged abuses by Arla Foods. But it is abuse not market position that is the trigger for action. The 25 per cent figure triggers a look into the possibility of market abuses, but the authorities will take action only if they find market abuses.