Select committee inquiry
EU proposals for the dairy sector and the future of the dairy industry
Closed
What the inquiry looked at
“The Environment, Food and Rural Affairs Committee decided to examine the UK dairy industry. In particular the Committee considered the potential impact of the European Commission’s ‘Milk Package’ proposals for dairy farmers and the UK dairy supply chain. On 16th February 2011, The Committee published its Third Report of Session 2010-12, EU proposals for the dairy sector and the future of the dairy industry.”
The committee's words, from the inquiry page on parliament.uk ↗.
What the government said
8th Report - EU Proposals for the dairy sector and the future of the dairy industry - Volume II (Volume II Additional written evidence)
No government response is linked to this report.
8th Report - EU Proposals for the dairy sector and the future of the dairy industry - Volume I (Volume I: Report, together with formal minutes, oral and written evidence)
The government responded on 19 October 2011.
Summary written by Accountability Index from the government's response.
The Government welcomes the Committee's positive assessment of the UK dairy sector but says regulation and intervention "cannot and should not form the whole solution", and does not accept that its programme of action is weak.
- On raw milk contracts, it says the Commission's proposals would limit what it could require, and that "if the Commission's proposals allow EU Member States to choose to make contracts compulsory, the Government will consult on this". It prefers an industry-led code of practice.
- It agrees that one-year fixed milk prices would be overly restrictive, and says it has opposed this amendment in Council.
- On producer organisations, it considers there should not be a special competition law exemption and says it is very unlikely the Committee's 20% amendment could be achieved. It wants national authorities able to intervene where competition is "significantly distorted".
- It does not accept the Committee's conclusion that its action programme is weak. It says it will discuss research priorities and barriers to dedicated supply chains at the Dairy Supply Chain Forum on 23 November.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 31 January 2011 to its close on 1 April 2012.
- Report 2 reports
- Government response 19 Oct 2011
What it recommended 8 recommendations · 13 conclusions
1We are confident that the future prospects of the UK dairy sector are positive, but...
Concluded (the committee's words)
We are confident that the future prospects of the UK dairy sector are positive, but this depends on Government and the dairy industry resolving certain issues. Despite having one of the most efficient production systems in the world, UK dairy farmers are unable to cover their costs and dairy processors are outcompeted by imported products. Farmgate prices have recently become decoupled from both commodity market indicators and farmers’ production costs, indicating that farmers are not consistently able to recoup sufficient value from the supply chain. We conclude that Government action is justified as the substantial drop in the number of dairy producers that would be required to increase farmgate prices through market forces alone would have undesirable consequences for rural communities, landscapes and tourism, and consumer choice. Consolidation in the industry must be driven by confidence, innovation and investment.
2We call on Government to take action to resolve this situation through addressing the structural...
Recommended (the committee's words)
We call on Government to take action to resolve this situation through addressing the structural imbalances that result in low farmgate prices; encouraging increased investment in processing, particularly in value-added products; and exerting influence on retailers to establish dedicated supply chains for processed dairy products, such as butter and cheese.
3We conclude that contracts should provide certainty and clarity to give both parties the confidence...
Concluded (the committee's words)
We conclude that contracts should provide certainty and clarity to give both parties the confidence to invest—the current system fails to achieve this. Our view is that the Commission’s proposals offer considerable scope for Defra and the industry to jointly establish a more effective system of raw milk contracts.
4We recommend that raw milk contracts should include the four elements specified by the Commission—price,...
Recommended (the committee's words)
We recommend that raw milk contracts should include the four elements specified by the Commission—price, volume, timing of deliveries, and duration. In addition, the contract should make it clear under what conditions the contract can be terminated by either party. Exclusivity clauses should be discouraged to allow farmers to respond to market signals following the abolition of quotas. We do not suggest that all contracts must contain an explicit price or price formula as these could be overly restrictive, but contracts should set out the principles underpinning price and mutually agreed tolerances. Given that the majority of dairy contracts do not contain these elements, in order to effect the change that we think is needed, Defra should make it compulsory for producers to be offered a written contract containing the elements specified above.
5The European Parliament Agriculture and Rural Development Committee’s proposal that milk contracts should stipulate a...
Recommended (the committee's words)
The European Parliament Agriculture and Rural Development Committee’s proposal that milk contracts should stipulate a milk price fixed for no less than one year is, in our view, overly restrictive and could hinder processors and producers EU proposals for the dairy sector and the future of the dairy industry 41 from responding to market signals. We recommend that the UK Ministers and MEPs do not support this proposal.
6Dairy farmers are particularly disadvantaged in that they are selling a perishable product in a...
Concluded (the committee's words)
Dairy farmers are particularly disadvantaged in that they are selling a perishable product in a highly consolidated market with often little choice, at regional level, to whom they sell. We welcome the Commission’s proposals, which will make it considerably easier for dairy farmers to collaborate over prices and so increase their bargaining power, without fear of investigation from competition authorities.
7We note concerns that the proposed size limit of 33% of national milk production risks...
Recommended (the committee's words)
We note concerns that the proposed size limit of 33% of national milk production risks creating regional producer monopolies. On the other hand, lack of a clear threshold size risks creating uncertainty and deterring participation among farmers. To clarify the situation and bring it in line with existing competition law, we recommend that Producer Organisations be able to cover up to 20% of national milk production and above that limit, be subject to a case-by-case analysis by the National Competition Authority until the 33% limit is reached.
8In light of the substantial disallowance incurred through Defra’s misadministration of the Fruit and Vegetable...
Concluded (the committee's words)
In light of the substantial disallowance incurred through Defra’s misadministration of the Fruit and Vegetable Producer Organisation regime, Defra must ensure that the criteria for recognising Dairy Producer Organisations are clearly and unambiguously agreed between itself, its agencies and the European Commission, before implementation.
9The Commission’s proposals on transparency offer little benefit to the UK as the relevant data...
Concluded (the committee's words)
The Commission’s proposals on transparency offer little benefit to the UK as the relevant data is already published. We encourage the Government to pursue greater transparency across the dairy supply chain to improve market awareness and reduce volatility.
10The forthcoming lifting of quotas adds weight to the argument for proactive action to bolster...
Concluded (the committee's words)
The forthcoming lifting of quotas adds weight to the argument for proactive action to bolster the industry before the window of opportunity to expand production has passed.
11Defra’s domestic action programme for the dairy sector offers little of real benefit for dairy...
Concluded (the committee's words)
Defra’s domestic action programme for the dairy sector offers little of real benefit for dairy farmers. We are surprised and disappointed that the Minister was not able to offer more concrete and proactive suggestions to improve the situation in the dairy sector. We trust that Defra’s response to this report will set out how their commitment to support and develop British farming will be realised for the dairy sector in time for the abolition of quotas in 2015. (Paragraph 57) 42 EU proposals for the dairy sector and the future of the dairy industry Increasing the profitability of the dairy processing sector
12The Government should facilitate investment in dairy processing as part of its wider strategy to...
Recommended (the committee's words)
The Government should facilitate investment in dairy processing as part of its wider strategy to promote growth in the manufacturing sector and increase exports and Defra’s business plan commitment to promote increased domestic agricultural production. We recommend that Defra review the accessibility to the dairy industry, particularly SMEs, of existing private and public funds for increasing growth and competitiveness and take steps where necessary to improve access. The review should include finances available through the Common Agricultural Policy, but also funds that are not specific to agriculture, such as the Business Growth Fund and Enterprise Capital Funds.
13Defra should develop a strategy with UK Trade and Investment and the Foreign and Commonwealth...
Concluded (the committee's words)
Defra should develop a strategy with UK Trade and Investment and the Foreign and Commonwealth Office to promote UK dairy products and increase exports.
14Other than that conducted within commercial concerns, dairy-related research in the UK is focussed on...
Concluded (the committee's words)
Other than that conducted within commercial concerns, dairy-related research in the UK is focussed on animal welfare and environmental sustainability. This has resulted in a lack of research into innovative ways of adding value in the dairy sector through novel processes, markets or uses. Defra should use the Dairy Supply Chain Forum to identify who is best placed to deliver this research and how it should be funded, which should include the retail and processing sectors, with the ambition of establishing a new research arm within one of the existing industry or government- sponsored programmes.
15We welcome the assistance with business management provided by DairyCo’s Planning for Profit workshops, but...
Recommended (the committee's words)
We welcome the assistance with business management provided by DairyCo’s Planning for Profit workshops, but note that the cost may deter the businesses that are most in need from attending. Defra should proactively encourage this project and investigate whether workshops can be provided at a lower or no cost through funding from retailers and the Rural Development Programme. We recommend that Defra set an ambitious target of 30% dairy farmer participation in the programme and report back within one year.
16Stimulating technological development in the dairy production and processing sectors through business-led innovation would be...
Concluded (the committee's words)
Stimulating technological development in the dairy production and processing sectors through business-led innovation would be a useful focus for the Technology Strategy Board’s Sustainable Agriculture and Innovation Platform. Defra must make the case for directing funds to this area to the Platform’s steering group.
17Anaerobic digestion (AD) on dairy farms has considerable potential to reduce costs and greenhouse gas...
Recommended (the committee's words)
Anaerobic digestion (AD) on dairy farms has considerable potential to reduce costs and greenhouse gas emissions, yet uptake so far has been negligible. The Government’s Anaerobic Digestion Strategy and Action Plan were published after our evidence sessions had been completed, preventing us from giving it full consideration. We recommend that Defra review its plan and explain how it will achieve the targets on AD uptake set out in Dairy Roadmap. (Paragraph 73) EU proposals for the dairy sector and the future of the dairy industry 43 Stimulating co-operation and collaboration
18We heard that increased co-operation among farmers was hindered by a lack of awareness of...
Recommended (the committee's words)
We heard that increased co-operation among farmers was hindered by a lack of awareness of the available opportunities. Defra and the Office of Fair Trading should update the guidance on co-operation among farming businesses following the principles set out by the Farming Regulation Task Force. Defra should review the utility of the Office of Fair Trading’s ‘short form opinions’ tool to agricultural businesses.
19We request an update on the following commitments set out in the Government’s Response to...
Concluded (the committee's words)
We request an update on the following commitments set out in the Government’s Response to the Environment, Food and Rural Affairs Committee’s 2010 report on Dairy Farmers of Britain: a Financial Services Authority-led code of best practice for co-operatives; an examination of ways to overcome constraints on capitalising UK co-operatives; the implementation of the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2010, and its implications for agricultural co-operatives.
20It is absolutely essential that the environmental, animal health and welfare, and social impacts of...
Concluded (the committee's words)
It is absolutely essential that the environmental, animal health and welfare, and social impacts of large-scale dairy farms are quantified and we welcome the fact that research is currently under way. We conclude that large-scale dairy farming presents an opportunity whose potential merits further exploration. The Government has significant power to disseminate the evidence-base on the impact of particular technologies, and if appropriate, to promote them. We do not accept that approvals for large-scale agricultural holdings are purely an issue for planners. As soon as evidence on the impacts of large-scale dairying is available, Defra must establish its policy position on this issue and then take a proactive stance in explaining the rationale behind its decision.
21We welcome the analysis presented by the European Commission and the High Level Group on...
Concluded (the committee's words)
We welcome the analysis presented by the European Commission and the High Level Group on Milk, which has successfully highlighted the problems facing the European dairy sector. We support the key elements of their proposals but conclude that more will need to be done to address the structural problems in the UK dairy industry and have set out what additional action is needed. We were disappointed by the weakness of the Department’s proposals to improve the state of the dairy sector and call on Defra to take more a more proactive stance, commencing by implementing the recommendations set out in this report.