MILK MARKETING (Hansard, 16 June 1994)

The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe)

The Agriculture Act 1993 gave to my right honourable friends the Minister of Agriculture, Fisheries and Food and the Secretary of State for Wales the task of deciding on a milk marketing reorganisation scheme submitted by the England and Wales Milk Marketing Board. Since receiving the board's application last October they have conducted two formal rounds of consultation and held discussions with the European Commission, the board itself, the Dairy Trade Federation and other parties whose interests are at stake. They have given full consideration to the many and complex issues involved as required by the Act.

My right honourable friend has announced today that she has informed the board of the modifications which she considered necessary to enable her to grant its application for approval. The board has agreed to them and my right honourable friend has granted approval. The industry is therefore poised to take a great step forward.

Under the now approved reorganisation scheme, the existing Milk Marketing Scheme will come to an end on 1 November 1994. From that date, producers will be free to sell their milk wherever they wish, while dairies and other purchasers will be free to buy direct from producers. The present system of managed markets and end-use pricing will be replaced by the normal disciplines of a competitive market. Our industry will have greater freedom to compete on level terms within the wider European market.

It is evident that the full benefits of competition could more rapidly be achieved if Community milk quotas were abolished so that production could expand as the reward for success. This remains an important Government objective but not one which can be accomplished overnight. In the meantime my right honourable friend will continue to press at next week's Council of Agriculture Ministers for milk quota to be made tradeable between producers in different member states.

Up to 1 November 1994, which is Vesting Day under the board's reorganisation scheme, the requirement for producers to sell their milk to the board remains in force. But after 1 November those producers who continue to want the security of collective marketing will have a number of options. They can form their own marketing groups, as many are already doing in anticipation of the 106WA ending of the Milk Marketing Scheme. They can form an association with a particular purchaser. Or they can join Milk Marque, the Board's successor marketing body under the reorganisation scheme.

The scheme provides for Milk Marque to inherit certain assets of the MMB, including a sum of cash, property, staff and laboratories. It will not inherit Dairy Crest, which is to be floated on the stock market as an independent company. Nor will it inherit Genus, which is to become an independent company with all the shares distributed to producers. National Milk Records will remain with the residuary body for an initial period pending decisions on its longer term future.

The total market value of the assets to be passed to Milk Marque is around £39 million. In considering whether this transfer was acceptable, my right honourable friends had to balance two considerations in particular. The first was the importance they attach to ensuring, in the interests of producers, that Milk Marque has a sound financial base. The second was the need to ensure fairness as between those producers who join the new body and those who do not. They are satisfied that the outcome is a satisfactory balance. Milk Marque will have an adequate asset base but will be required to issue interest-bearing Certificates of Entitlement so that producers who choose not to join will receive their full share of the value of transferred assets.

I know that many purchasers are opposed to the establishment of a body such as Milk Marque which may have a large share of the market for raw milk in England and Wales. My right honourable friends have considered Milk Marque's proposed trading practices, as they are required to by the. Act, and have concluded that, taking account of the amendments made by the board to their October proposals, they do take account of the interests of purchasers. Many, if not most, of the fears of the purchasers relate to the possibility of Milk Marque abusing its market power in a discriminatory or otherwise unfair manner. Milk Marque will, however, be aware that it is under continuous scrutiny and will be well advised to conduct itself in such a way that there are no grounds for complaint. My right honourable friends look to the Office of Fair Trading and the European Commission to monitor the situation closely and to act decisively if the need should arise.

A great deal now has to be accomplished in a short time. Producers who have already signed contracts with Milk Marque, and wish to reconsider, have two weeks from today, that is until 30th June, to give Milk Marque written notice in order to secure release from their contract without paying compensation. I would however urge all producers to come to a decision on who they are going to sell to, and sign up, by four weeks from now. That will give the dairy companies, Milk Marque and others the ability to plan their sales and purchases from 1st November with the maximum of confidence. That is very much in the interests of consumers. It is also important for the flotation prospects of Dairy Crest, in which producers have a particular interest under the scheme.

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My right honourable friends will be laying regulations before Parliament to establish the constitu-tion of the residuary MMB which will deal with the MMB's remaining rights and obligations on behalf of producers after Vesting Day. It is their intention that the residuary body should be required to have due regard to the financial interests of milk producers. It will be answerable to them and not to government. There will be a strong producer presence on the new board.

I am pleased to be able to announce also that we shall be laying an order to establish a milk development council for England and Wales. This is in response to proposals submitted by the National Farmers' Union. The object of the council will be to continue certain functions of the MMB, such as the financing of R&D, which would otherwise be likely to lapse. In order to establish how much support for such a body exists among producers my right honourable friends the Minister of Agriculture and the Secretaries of State for Scotland and Wales recently carried out a postal ballot of producers in Great Britain. In England and Wales 67 per cent. of the forms sent out were returned: 74 per cent. of those voting favoured the establishment of a development council. My right honourable friends the Minister and the Secretary of State for Wales concluded that this meets the requirement for substantial support set out in the relevant Act. We hope a development council will be operational from 1st November or soon after.

My right honourable friend the Secretary of State for Scotland is considering whether Scotland should join in.

The granting of approval of the board's reorganisa-tion scheme opens up the prospects of a brighter future. We are pleased, therefore, that the board has agreed to take an important step towards clearing up some of the unfinished business of the past by setting up an arbitration mechanism to deal with claims by certain producers against payment of levy on direct sales of low fat milk from 1st January 1992. This follows the decision of the European Court of Justice in March that low fat milk comes within the board's purchasing monopoly. It has been argued that some producers have claims, based in particular on the principle of legitimate expectations, which should limit their levy liability. The board's decision is intended to establish a more flexible and less expensive means of resolving the issues than would be available through the courts. We very much welcome it.

Returning to the board's reorganisation scheme, the Act requires the principles of the approved scheme to be published. We have already published more detail of the proposed scheme than the Act requires in our March consultation document. We are now depositing in the Library of the House two further documents setting out the effects of amendments to the reorganisation scheme submitted by the MMB since March and of the modifications proposed by my right honourable friends the Minister and the Secretary of State and accepted by the board.