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Written evidence rom John Wrench DFW 01)
I'm a 26 year old tenant farmer's son from a 400 acre flintshire farm. My family did milk till the late 1990s but due to the business not making enough money to re-invest they gave up before I was old enough to get really involved. I studied dairying at Llysfasi College and have milked in New Zealand for 6 months and helped out on neighbours' farms in Wales. I would love to start milking at our farm but the figures don't add up
I think there should be support for young people trying to get into the industry
October 2012
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Written evidence from the National Farmers Union Cymru DFW 02) (
WELSH AFFAIRS COMMITTEE NQUIRY I
“THE FUTURE OF DAIRY FARMING IN WALES” Introduction 1. NFU Cymru is pleased to provide evidence to the Committee’s inquiry into the
future of dairy farming in Wales; specifically the events of recent months and consequent progress.
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902 dairy farmers. This is therefore aembers.
NFU Cymru represents 22,247 farmers, managers and partners and is the largest representative organisation for Wales’ 1, n extremely relevant and important issue for our m
Summary
Despite what should be very favourable production and market conditions, the dairy sector here in Wales has been a source of tension on a number of occasions in the las c d
Over the summer of 2012, a public campaign led by dairy farmers to protest against swingeing cuts to milk prices captured the imagination of th p i .
The profile generated by the SOS Dairy campaign combined with lobbying by the Dairy Coalition has already resulted in some significant p r s .
However, the costs associated with producing a litre of milk continue to escalate. When the campaign began, these costs were widely recognised to average at 30ppl; in recent weeks this has been revised upwards to 1 p .
Whilst we have witnessed farm-gate milk price increases the typical milk price paid across the industry is now around 29ppl and remains below the cost of pro t .
The industry still suffers from systemic problems that need to be addressed otherwise this recent progress will be seen as nothing more than a short-term sticking plas e .
Economic & Social Importance of Dairy Farming
The number of milk producers in Wales continues to fall and now stands at 1,902. Whilst the drop year on year has slowed, the last decade or so has seen a huge
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reduction in producer numbers. In August 1999 there were 3,977 producers since which we have seen over 2,000 farmers ceasing to produ mi
10. he number of dairy cows in Wales fell by less than 1% between 2009 & 2010 to 220,322 in 2011 although the number of cows has fallen consistently over the last 8-years (17.8 .
11. n Wales, dairy farms produce approximately 1.45 billion litres a year. Around 51% of this milk is processed in Wales with the balance transported to England for processing. Of that processed in England around 190million litres (13% of total Welsh production) is transported back to Wales and sold as ‘Wel mi
12. ales ‘imports’ milk for processing though as well as ‘exporting’ with some 130 million litres of English milk transported into Wales for processing. When these ‘imports’ are taken into account the industry in Wales has an intake of 1.58 billion litres with more than half (55%) of this processed i l
13. f this 55% (870 million litres) that is processed in Wales the vast majority (90% in 2010) is processed into cheese producing 80,000t. Liquid milk at around 50 million litres is the next largest product category with others (yogurt, ice-cream) accounting for 30 millio i
14. he Welsh dairy sector contributes 30% to Welsh agricultural output, representing 12% of the total UK dairy herd and produces over 11% of the total UK milk o
15. ocially, farming in Wales provides high quality produce, supports a prosperous tourism sector and is the foundation to a thriving food and drink industry. Farmers help ensure Welsh culture and heritage remains at the heart of the countryside with half of farmers speaking Welsh and the majority of employees coming from rural comm
Challenges & Recent Developments
16. arlier this year a number of milk buyers cut their milk price with most blaming the poor returns from bulk cream markets and the low value of spot trad d mi
17. ithin the UK marketplace dairy processors have been undercutting each other in the market for a long time to gain market share. As a consequence liquid milk has (is) being sold at a loss, but until this year has been underpinned by (volatile) bulk cream prices
18. he average cost to produce a litre of milk on farm during the first quarter of 2012 was 30ppl. Yet the average farm-gate price across the UK in April was 27.83ppl (in December 2011 it was 29.33ppl). This dropped further in May & June to a low of
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26.36ppl. Further price cuts of up to 2ppl were announced to be effective from 1st
August which would have brought the average farm-gate price down to around p l
19. coalition of farming unions comprising the National Farmers’ Union (NFU), NFU Cymru; NFU Scotland, Tenant Farmers Association (TFA), Royal Association of British Dairy Farmers (RABDF) and Farmers for Action (FFA) came together at the beginning of July 2012 to lobby against these imposed price c .
20. rotest and pub c v a he SOSDairy Campaign led to several retail chains that were identified as not doing enough to support dairy farmers taking immediate steps to address the unsustainable price they paid for milk. This in turn enabled processors to either rescind or reverse the effect of their proposed August milk pr c .
21. ore recently, both large and smaller milk processors have announced milk price increases effective from October and November and several have also committed to work on a sustainable mechanism to determine mi c .
22. lso in recent weeks, agreement has been reached between the NFU, NFU t nd Dairy UK on a voluntary code of practice for dairy c
23. his recent positive news has coincided with some encouraging signals from EU and world dairy commodity markets and further analysis of recent market developments can be found in App n .
24. owever, the costs associated with producing a litre of milk continue to escalate. At the beginning of the year these costs were widely recognised to average at 30ppl. In recent weeks this has been revised upwards to 31.5ppl but the typical milk price paid across the industry is still below the cost of production at around
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25. he activities of the Dairy Coa s entred around a 10-point plan that seeks to build a fair and functioning marketplace focused on three k y
Exposing bad practices, including non-compliance with the code of best practice in contractual r a ;Redefining and empowering the farmers’ role in the suppl i ;Ensuring the supply chain is transparent i .
26. he Coalition has set out to draw up a robust yet ambitious strategy highlighting ways the dairy industry can take full advantage of the growing domestic and global demand for dairy products. The plan is u l n App
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27. he d s for potential challenges in terms of a reform of the Common Agricultural Policy
28. rom a Welsh perspective, NFU Cymru is extremely concerned with regards to the Commission proposal to move to a uniform unit value in a region by 2019. It is our contention that many dairy businesses will not be able to adapt to this speed of change, given the long term nature of dairy production cycles. It is widely recognised that on average, dairy farms will suffer most from the move f ahistoric to area based payment system. It is therefore extremely important that more time and flexibility is given to Member States and devolved administrations to manage this process. With regards to potential differentiated payment rates within Wales and their impact on farm businesses it is important that the Welsh Government prioritise detailed ‘modelling’ work so that informed decisions can be taken on the way forward that, as far as possible, mitigate redistribution of CAP support within Wa e .
29. andatory ‘greening’ measures contained within these proposals that require farmers to grow at least three crops regardless of demand; proposals to take up to 7% of land out of production and restrictions on permanent grassland will in our view restrict a farmer’s ability to respond to the demands of the marketplace and also the scope to adopt modern technology and adapt to the impact of climate change in Wales. These greening proposals also run the risk of significantly undermining Welsh farmers’ productive ca a i
30. loser to home on the ‘policy’ front is the need for the Welsh Government to ensure that the Glastir scheme is more accessible and attractive to dairy farmers. There is increasing pressure from milk buyers for their producers to be part of a recognised agri-environment scheme. Ideally we would want Glastir to be this scheme rather than be forced into a position where, to meet milk buyer demands there became a need to instigate a separate ‘private’ environment assurance type scheme. A part-farm option and better recognition of work already done would help make the scheme more practical and financially sustainable for dai
31. he recommendations of the Working Smarter repor s to be fully implemented not least the reduction and simplification of movement and identification rules to bring a more proportionate balance between the ability of farmers to trade and the requirements of disease o o .
32. inally, better recognition is needed f he impact of environmental legislation on dairy production systems and the additional costs that this brings. Dairy farmers’ commitment to improving environmental performance is already ably demonstrated through their uptake of numerous environmental initiatives ranging from nutrient planning and water efficiency measures, to protection and maintenance of the rural environment. These actions demonstrate the industry’s commitment to continue to improve its environmental performance; the challenge
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though is to do so without compromising productivity or profitability of primary pro o
Diversification & Competitiveness
33. he DairyCo commissioned Kite discussion document “World Class Da Vision for 2020” shows what an exciting and positive future this industry could have, pushing UK production to 15bn litres .
34. or this to happen though we must stop the continued shrinking of our national herd and use better contracts and negotiations to ensure our dairy farmers get a fair return on their investment and to see a vibrant industry for the next gen
35. hilst the world dairy commodity market has been under pressure it has been compounded here in the UK by retail price wars and some milk processors constantly undercutting each other to gain market share. Milk is a fresh and precious product yet it is sold as a cheap com i
36. e must deliver the extra value to milk that it deserves in all its forms whether liquid or as e s .
37. ecent months have seen a significant strengthening in market conditions and with the Milk for Cheese Value Equivalent (MCVE) rising to 32.48ppl in September and Actual Milk Price Equivalent (AMPE) at 30.4ppl; these are the initial targets that the market should be looking to deliver back to producers supplying into cheese processing f i e
38. e e uild on the recognition that Welsh cheese has ma s an e a eheartened by recent DairyCo research that highlights that after Welsh Lamb, Welsh Cheese is the second food and drink product that has most awareness amongst Welsh adults. This shows potential to grow this brand, firstly through increased purchasing and consumption in Wales but also to consider how we can develop markets furthe l .
39. onsumers need to be supported to make informed choices on where they purchase their food. It is vital that we provide greater clarity over country of origin la l
40. urren y d roducts produced overseas, but packed in the UK, can carry the UK Health Mark. In some cases, such as cheese, the origin of the product need not be clearly labelled. This can mislead consumers as to the origin of many iconic British dairy products such as cheddar e s .
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41. FU Cymru has a long running lobbying campaign to try to improve food labelling and nowhere is this needed more than on dairy products. Research commissioned by ourselves indicates that an overwhelming majority of consumers believe the origin of cheese and butter should be clearly e e
42. his has led to the NFU recently launched ‘Flag It’ campaign. We have worked closely with Tesco, which is already in the process of changing its Everyday Value cheddar cheese labels to ensure consumers rece e r
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rmation. The aim of the ‘Flag It’ campaign is to get as many retailers as possible to ensure that labelling, especially on own-brand products, is crys c
43. upermarkets can play a role too in su p r i g elsh and UK cheese pro u oNo retailer has of yet committed to a dedicated supply chain relationship for cheese. We recognise from our discussions with retailers that this move does provide some challenges but we still believe that this would be a significant step forward and would be a clear statement of intent from a retailer of their support for this sector of production, which is so very important here in W e .
44. FU Cymru has always maintained that t e upply chain should be market focused and more competitive within commodity markets and capable of responding positively to changes in both commodity and added value ma k .
45. he sector should be striving to exploit the growing number of opportunities offered by innovation and trends such as health products, sports drinks, ready-made meals, local provenance, convenience and food service s
46. ommunicating the value of dairy to consumers in terms of products, nutritional balance and farming practices is essent and consumer perception is hugely im
47. n terms of export markets, whilst we have some of the most efficient farmers in the world, we need to ensure that we have the same level of efficiency within our processing sector and together with the support of government and DairyCo we need increased focus on developing and expanding export oppo u i
Voluntary Code of Best Practice (Dairy Contracts)
48. he key problem over many years is that dairy farmers routinely fail to see prices rise as fast and as high as the dairy commodity markets. Yet when these markets fall, the milk price paid to farmers drops like a stone. This is a clear result of the exploitative nature of milk contracts and lack of negotiating power that currently
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49. he framing of terms and conditions in dairy contracts has historically been heavily skewed towards processors, and NFU Cymru has long called for reform to introduce fairer contracts in th s c .
50. e are pleased that our hard work has been rewarded by agreement on a voluntary code of best practice on contractual relationships between milk buyers and dairy farmers. It offers a number of benefits and protection to farmers, subject to effective implementation. A brief outline of the code is set out in App
51. t is now up to dairy companies working with farmer suppliers to implement the terms of the code. Together with the Dairy Coalition we will be looking for evidence as soon as possible that this process is underway within the businesses con .
52. t should be noted though that the Code has been agreed between the NFU, NFU t and Dairy UK and we expect the Government to play its role in
persuading those processors who sit outside of Dairy UK to participate o
53. rucially, while agreement has been reached on the voluntary code, it must be implemented effectively. MPs must urge government to maintain the pressure and ensure its complete adoption by processors, as well as a robust policing of the
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54. f a voluntary approach ultimately fails, the government must show that it is willing to introduce legisl t
55. n this respect we would wish to acknowledge and welcome the statements issued in recent months by Welsh Government Deputy Minister Alun Davies AM who has repeatedly highlighted that he is prepared to legislate should this voluntary r u e a l
EU Dairy Package & UK Groceries Code Adjudicator Bill
56. he European Union agreed a package of measures to support the dairy sector in late 2011. Amongst these measures is a provision to allow dairy farmers to collectively negotiate prices and contracts via officially recognised Producer Organisation ( s .
57. hilst dairy farmers have historically co-operated through co-operatives, the PO structure potentially offers another route for dairy farmers to rebalance bargaining power within the dairy supply chain and lead to more balanced commercia r .
58. ogether i r Dairy Coalition partners we have started a dairy database to help likeminded dairy farmers explore the formation of producer organisations under the forthcoming EU dairy a k
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59. r the government (UK & devolved) must ensure the EU dairy package is
consulted on this autumn with a view to allowing the formal recognition of Producer Organisations before next r .
60. he Groceries Code Adjudicator Bill must become law quickly, so that an Adjudicator can initially stamp out unfair commercial practices by the ten largest grocery r t i r .
61. t can subsequently assess the effectiveness of the Groceries Supply Code of Practice which came into force in February 2010 in ensuring fair play right through the supply chain; judging disputes under the code and to investigate com .
62. nrelated to these two matters but as important is that government (UK and devolved) too has a responsibility to lead by example and ensure that all public procurement contracts require that milk comes from farmers who are paid a fair and sustainable price
63. ncreased public procurement has the potential to make a big impact on the demand for Welsh dairy products. More work is needed to secure an increase in the products that are procured from producers and processors in Wales. Much better tracking of this procurement needs to be in place and procurers themselves need to be offered practical advice on how to procure more domestic pr d
64. he continued provision of milk in our schools plays an important part too. It contributes towards the health and development of this age-group in providing key nutrients as well as being a key opportunity at an early age for introducing milk to children as a drink for th
65. ttitudes amongst younger generations seem to be improving with the Dairy Council reporting that an overwhelming majority of young primary children now consider milk to be a ‘cool’ drink. In a separate poll of older teenagers across the UK, more than 65% agreed that milk is a healthy drink after p learly this is all very enco .
Future Composition of the Industry Farm Size
66. he dairy industry has been typified in recent decades by farms either having to expand in order to achieve greater economies of scale or cease trading. In more recent years (and months), the price of inputs has spiralled yet the price paid for milk has stagnated and has remained well below the cost of pro o
67. e have seen and continue to see a stream of farmers leaving the industry and in the last 8-years alone the number of milk producers in Wales has very nearly
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halved. Those who remain have had to expand their businesses to survive. The majority have done so by adding a building here, a building there and expansion has become common practice
68. t is also concerning that milk production has declined year on year since 2005 yet we have an ever increasing population and demand for food.
69. Food security’ is an increasingly much used term. On a global level it is of absolute importance that the world is able to feed itself; but it is equally misguided to conclude that food production in our own country simply does not ma e .
70. he challenge in the 21st century therefore is to increase productivity, maximise output, minimise inputs, environmental sustainability and adapt to a changing climate - all of these challenges are ones which Welsh agriculture is very well placed o
71. t is therefore vital in our opinion that whilst land is reserved for farming activities, farm buildings can be erected and new ‘technologies’ deployed to assist in improved efficiencies and reducing carbon emi n
72. ll of this though of course is dependent too on attracting people into the industry t s o ttract skilled a
73. raining programmes and skills recognition programmes need to be accessible, affordable and relevant. Succession planning, collaborative ventures and knowledge transfer are all key elements and current programmes run by DairyCo and DDC need to be sup r .
74. ntrepreneurial mind-sets and innovation skills need to be encouraged as do leadership qualities given the role many dairy farmers now play in representing their fellow pro e s
Conclusion
75. he ‘turmoil’ of 2 urrent supp a nequities should not disguise the opportunities ahead. The industry clearly nges but if these are
not just to meet higher domestic demand t l o export to a growing world
76. he expansion of export opportunities and volumes would certainly help to move power away from domestic milk buyers who in turn need to ensure that their farmer suppliers receive fairer trading terms and are paid a fair and sustainable
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77. his will al r q e market focus, responsiveness and most of all equity and fairness throughout the supply chain. Whilst volatility will inevitably remain due to global events it is generally expected that world dairy markets will in the long term be sustained by strong prices as demand outstrips supply and the Welsh dairy sector needs to position itself h t f u
APPENDIX 1
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so t at i bene its in f ll.
VOLUNTARY CODE OF BEST PRACTICE ON CONTRACTUAL RELATIONSHIPS
The NFU, NFU Cymru & NFU Scotland announced on the 4th September 2012 that an agreement had been reached on a voluntary code of best practice on contractual relationships between milk buyers and dairy farmers.
It offers a number of benefits and protection to farmers, including:
30 days’ notice of a cut to a farmer’s price or other significant change to contractu
Where the buyer exercises discretion to change a farmer’s price or makes other significant changes to contractual terms, the farmer can exercise a right to terminate the contract on 3 month ’ e f they disagree with the h
Encouragement for processors to engage with producers via democratically accountable and representative producer
Terms to ensure that where a producer wishes to expand production, if the buyer refuses to take the additional volume on the same/existing terms, then an option to supply to another buyer on a non-exclusive contract can be ex r i .
A review process to consider all aspects of the code, after 12 months. This will assess its efficacy in delivering better contracts. Defra will have access to the outcome of this review when considering whether to implement the Commission package on dairy contra .
APPENDIX 2
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THE DAIRY COALITION’S TEN POINT PLAN
A coalition of farming unions comprising the National Farmers’ Union (NFU), NFU Scotland, NFU Cymru, Tenant Farmers Association (TFA), Royal Association of
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British Dairy Farmers (RABDF) and Farmers for Action (FFA) announced on 10th August 2012 n action plan
1. Expose those whose damaging behaviour undermines the liquid milk market.
2. Work with milk buyer farmer representatives to ensure that representation is professional, independent and democratic, so that farmers’ interests are protected.
3. Set out a roadmap to capture the maximum opportunity for Producer Organisations to rebalance the negotiating power within the milk supply chain and assist farmers wanting to set up POs or other collaborative organisations within the dairy sector.
4. Work to finalise the code of good practice for dairy contracts.
5. Develop a process to monitor and report on the implementation of the Code of Good Practice for Dairy Contracts, to ensure its earliest and complete adoption.
6. Encourage all milk buyers to develop their own appropriate and transparent milk procurement and pricing models that are equitable for all parties and cover farmers’ production costs. Clearly, the coalition doesn’t seek to say what that model should be, but we want to see all milk buyers working to create their own models that deliver a fair and sustainable price for farmers.
7. Expose bad practice or non-compliance with the Code of Good Practice and irresponsible behaviour in the milk market by developing a whistle-blower mechanism for farmers.
8. Campaign to promote British cheese and other dairy products to consumers and to retailers, both in the domestic market and abroad.
9. Work with DairyCo so farmers can utilise relevant market information published by DairyCo such as up-to-date global trends, league tables and dairy market predictions.
10. Prepare an ambitious strategy for the UK dairy industry’s future without EU milk quotas, which takes full advantage of growing domestic and global demand for dairy products.
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APPENDIX 3 Early indications are that commodity markets are tightening in Europe and globally
EU Wholesale Prices
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UK Wholesale Prices
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• n esult Fonterra (Global Dairy Trades) Auctio R s
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Written evidence from Compassion in World Farming DFW 03)
Introduction
Compassion in World Farming believes that dairy farming in Wales is an important industry that supports both farmers and the wider communities in which they are
Increased intensification of the industry and a push towards zero-grazing, permanently housed dairy cows (as currently under consideration in Powys) is not in the interest of dairy farmers and will have a detrimental impact on animal health and e
Compassion believe that Welsh Assembly Government policy in this area should be subject to an animal health and welfare impact assessment and should not be adopted if that assessment indicates that the proposed measure is likely to have an adverse effect on the health and welfare of the animals co c r e
Wales has abundant access to pasture and is well placed to be a beacon to high welfare, pasture-based dairy farming due to a combination of its geographical and meteorological charac s i
The future composition of the Welsh dairy industry, including the size of dairy farms
The average herd size in the UK in 2009 was 113 cows, whilst in Wales the figure was just 1 ows. Whilst it seems likely that some smaller farms will struggle to make a profit, we do
not believe that a significant increase in herd size, in the form of a ‘mega-dairy’, is necessary for a farm or the industry to be profitable
A recent report by the dairy industry (Dairy Co, ‘Profiting from Efficient Milk Production’2) showed that it is possible to produce a pint of milk at a profit on all sizes of farm. Furthermore it found that the amount of milk that each cow produces is not the key determinant to profit. This is a clear message that mega dairies, where cows are pushed to their limits to produce ever higher amounts of milk, aren’t necessary for dairies to make
It concludes: “Milk can be produced efficiently from any of the major systems that are currently practised in Britain. Moreover, efficient milk production is possible at almost any scale of production.”
There is ample evidence that a cow’s welfare is better served by being pasture fed in the field. That’s where they belong, after all. With this new report saying it’s just as viable, there’s really no need to consider keeping cows indoors all year round. We can have a humane and sustainable dairy industry that is profitable
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The report says that “Average yield per cow is not the main driver of profit”, which is particularly encouraging, as pushing cows to produce ever-higher quantities of milk is damaging to their f r
The European Food Safety Authority (EFSA) recommended that dairy cows should be given access to well managed pasture or other suitable outdoor conditions at least during summer or dry weather.3 This was marked by EFSA as a high priority recommenda
EFSA stressed that the welfare of cows is better on pasture than for cows kept indoors. Lameness and other health and welfare problems are greater for animals which are zero-grazed throughout the year. In particular EFSA concluded t
“If dairy cows are not kept on pasture for parts of the year, i.e. they are permanently on a zero-grazing system, there is an increased risk of lameness, hoof problems, teat tramp, mastitis, metritis, dystocia, ketosis, retained placenta and some bacterial infections.”
This was also identified by EFSA as a high priority conclusion
In light of the adverse impact of zero grazing on animal health and welfare, we urge the Welsh Assembly Government not to mov lbeef production to zero grazing
The EFSA Scientific Opinion also highlighted the dangers of pushing cows to high milk yields. Its principal conclusion is that:
milk yield is the major factor causing poor welfare, in particular health problems, in dairy cows”
The short-and long-term challenges facing dairy farmers, and recent developments in respect of milk prices
10. ong-term planning is required to ensure a viable future for dairy farming. Dairy farmers are increasingly pushed into intensifying production in the interest of short term gains. These short-term gains are often at odds with longer term sustainability, as the intensification model depends on high input costs coupled to low margins on the milk pr d .
11. he inherent vulnerability of such systems to even small rises in input costs, or decreases in farm gate prices, are illustrated by the recent controversy over milk prices and by the high UK-wide exit rate of dairy farmers from the subsector (approximately 1 farm a day ceases dairy produ n
12. asture-based dairying, in contrast, allows for a reduced reliance on external costs such as e
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3 fic Opinion of the Panel on Animal Health and Welfare on a request from European Commission on welfare of dairy cows. The EFSA Journal (2009) 1143, 1-384 fic Opinion of the Panel on Animal Health and Welfare on a request from European Commission on welfare of dairy cows. The EFSA Journal (2009) 1143, 1-38
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The potential for the Welsh dairy industry to diversify and become more competitive within the UK and globally
13. ales is good at growing grass due to an abundance of rain. Grass-based systems are not only better for animal welfare; they can be more profitable and more environmentally
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14. asture based dairy farming requires a lower level of insecticide use, it holds more organic r n soil (and therefore carbon) and suits organic production where p e
15. he industry is ch l y urrent low milk prices, the need for decent incomes and the need for farmers to not have to work 365 days a year whilst still being able to be profitable. This creates a pressure to develop more intensive systems. However, more intensive systems require more grain feed for animals and therefore eat into profit margins. The push or high yields that are assumed to deliver higher profit margins may result in the opposite as a result of high yield often leading to welfare p
16. ales can avoid this conundrum by virtue of its ability to grow good quality grass that can fe d w
17. he Welsh Assembly Government could look to capitalise on this image of small, pasture-based dairy fa mi y deveallow Welsh Dairy producers to gain market advantage both in terms of cost of production and in terms of the higher quality product that they will be able to
18. n turn, that would allow the Welsh Dairy farmers to maximise profit whilst keeping inputs to a minimum, reduce the level of animal welfare problems and provide a sustainable base for dairy farming that does not rely on intensive, permanently-housed, zero-grazed mega-d
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Written evidence from Dairy Crest Ltd (DFW 04)
Dairy Crest is very pleased that the Welsh Affairs Select Committee has decided to undertake a review into the Welsh dairy sector. As your Committee knows as well as anyone, this year has been extremely difficult for dairy farmers everywhere and how to provide a secure future for the farmers, on whom so much depends, both in Wales and the rest of Great Britain, is uppermost in our minds. To that end, I thought it might be helpful if we submitted evidence, which is attached to this document
Dairy Crest is one of the biggest milk buyers in Wales. We know that for the future of our business we need a healthy dairy sector. That means dairy farmers must feel confident they can make a decent living from their hard work and skill so that they continue to invest and provide us with milk and, importantly, that the next generation stays in the business.
We are fully aware that costs of production have increased considerably for farmers and want to pay a fair, market-related price. We are also aware that if the price of milk, cheese and butter increases too much, there is a risk that imported dairy products will take the place of those which are produced at home. That, of course, would be the ultimate disaster for dairy farming in Wales and throughout the UK.
Dairy Crest believes that one of the most important ways in which we can help our farmers is to add value to dairy products so that consumers will pay a little more. We have been successful in doing this, for example through our Country Life butter, Cathedral City cheese and FRijj milkshakes. At the same time, we have worked very hard to make our business more efficient. That has meant we have taken some tough decisions to close several of our dairies, while continuing to invest in those which are core to our business.
These measures, alone, however are simply not enough. If we are to meet the unprecedented challenges we face, then it is Dairy Crest’s firm view that we must adopt a more collaborative approach with our farmers. There has been progress on this in recent months with the adoption of the voluntary code of practice governing the business relationship between farmers and processors, which we were proud to be the first to adopt. At the same time we are pioneering the development of a mathematical formula to bring transparency to the calculation of what we pay our farmers for milk. We are also offering free advice to our farmers to help them run their businesses more efficiently, from herd health to alternative energy sources.
These measures taken together should help farmers earn a more sustainable return on their milk. However, future security for our dairy farmers depends upon three things. Firstly, it is essential that we have the continuing support of large customers, in particular the major retailers and the other large “end users” of milk, such as coffee shop chains. Secondly, the sector will only make real progress in the long term if all parts of the supply chain are fully engaged. Thirdly,
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Government should do all it can to promote the health benefits of British dairy products and to encourage consumers to buy British through both nutritional and country of origin labelling
I do hope that this letter is helpful. As you know, Wales has some of the best milk producing conditions in the world. Dairy farming should be thriving and we want to do all we can to help it do so. The attached submission gives more details about Dairy Crest’s position.
Dairy farming in Wales
Wales has amongst the best natural conditions in the world for dairy farming with lush grass, rolling hills and a relatively small human popWales also has an excellent tradition of animal husbandry and some exceptional dairy farmer een passed down the generations, showcased in Wales’ excellent dairy products, including top quality cheese a d miThe dairy sector has always made up a significant section of the Welsh rural economy with dairy forming 27 per cent of the agricultural output in Wales as opposed to 17 per cent of that of the UK as hDairy Crest processes milk from 122 farms in Wales, a total of 188 million litres of milk annually; this is around 10 per cent of Dairy Crest’s total milk requirements. These farms are mainly based around the fertile southern and western counties, with over half in the traditional dairy farming land of Carmarth iDairy farming provides the foundation for large parts of the Welsh economy. To give just one example, in Carmarthenshire, fifteen drivers from the local area are employed to collect the raw milk from farmers supplying Dairy Crest. The five vehicles based in Wales use a local garage in Carmarthen for all servicing. The drivers further support the local economy through using local services and shops. This example demonstrates the fine balance within the rural economy. The implications for the wider rural economy if dairy farming continues to decline are
The number of dairy farmers in Wales has plummeted in the last 10 years – from 3,181 in April 2002 to 1,904 in October 2012.Steep rises in the cost of production and dramatic cuts in profit for the whole supply
alike have contributed to this c nHowever, if we act now, Wales’ ideal climate and human geography offer a prosperou
2012 Milk Price Crisis he background
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This summer many dairy farmers had the profitability of their businesses hit hard. The hardship caused to dairy farmers was severe. It is worth just examining how it came a o
10. n 2010, the commodity markets for cream dramatically dropped, with prices reaching record lows at the end of 2010 and staying there. Dairy Crest had to absorb a 4p drop in the value of every litre of milk it purchased. Normally the cream market picks up after Christmas but this year it did not happen. Eventually, we had no option but to cut the farm-gate price by 2 ppl; this was announced in May with immedia f
11. his was a hugely difficult decision which we had done all we could to avoid taking. However, our business demanded it. Our dairies business has a turnover of over £1 billion, but a profit of just £10 million in 2010/11- £5 million of that from selling off property. We could no longer absorb the losses that we were accruing, not least because to ensure a long-term future for our business and the UK dairy sector, we need to continue to invest in our farmers and sites and we cannot do so on such a smal
12. n reflection and having talked to our farmer representatives, we realised that the immediacy of the milk price cuts put our farmers in a very difficult position. They needed more warning. That is why we decided not to wait until the new voluntary code of practice was agreed within the whole sector, but to implement it immediately so that in future our farmers would be given a month’s notice of any change in the price they received for their milk and would find it easier to switch their supply contract should they wish t d o
13. t the same time, e meetings with Alun Davies AM, the Deputy Farming Minister in Wales as well as Sir Jim Paice MP, the-then Farming Minister to ensure they were aware of our decision and our anxieties for the impact it would have on our farmers.
14. n July, as the commodity markets remained stubbornly low we again decided to cut prices in August, but reversed this decision when it was clear that the hardship to farmers caused by poor weather and steeply increasing annual feed costs was unsustainable. This put additional pressure on the profitability of our dairies
15. n September, as the commodity prices rose, supported by some but not all customers, we raised our farm-gate milk price so that farmers were being paid more than before the May cut. It is our hope that this will help farmers who are struggling with rising feed and f s
Dairy Crest’s recommendations for increasing the viability of the dairy farmingShort term
16. airy Crest believes that there are a number of different measures that can - and s - e taken to secure the future of the dair
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17. irstly, every effort must be made to drive the voluntary code of practice for milk processors, which was signed on 31 August 2012. This means introducing new contract terms allowing farmers supplying Dairy Crest to move their milk supply with only 3 months notice following a milk price reduction and giving farmers longer notice of any price n
18. econdly, Dairy Crest believes that we should establish a transparent pricing formula to continue to build trust between farmers and the processors. Working with Dairy Crest Direct, which represents our farmers, we have appointed a well-respected independent consultant to review the mechanism behind the company's farm gate milk pricing process and report back before the end of Novemb 1
19. hirdly, it is essential that the entire supply chain works more closely together and that there is continued support from the retailers and other “large end users”, such as coffee shop chains. We hope that by discussing with them the issues which affect milk price, such as commodity price increases, ensuring they are aware of the pressure on farmers and the whole dairy sector, we can avoid the sort of crisis that hit last Summer. If we can develop an agreed transparent mechanism so farmers can see that any additional monies coming into us from our customers are properly reflected in farm-gate milk prices that will make relationships much s r n
What Dairy Crest can do in the long term
20. airy Crest will continue to recognise the range of dairy farm types and business models in the diverse models of contracts we offer and ensure we avoid a ‘one size fits all’ approach to our dairy farmers. For example, in 2010, we offered a two-year, stable priced option and around 100 suppliers chose this option. During the life of the contract on-farm costs escalated and we had to intervene and make a discretionary payment contrary to the principle of a stab e
21. e continue to develop the unique farm advisory service, White Gold, to offer further support to farmers. Our regionally based farm liaison team are continually participating in additional training and awareness events to ensure that farmers are kept up to date with the latest dairy knowledge and legislation. We do this so that they have access to expert help and advice to make life a little easier and their farms more ef c t
22. e are working with our existing retailer milk pools to increase efficiency and explore new market opportunities that deliver farmer value. Examples include the M&S ‘Better for you’ milk initiative and further cow welfare monitoring initiatives for the Waitrose Dairy Farmer Milk c
23. e will continue to maintain the highest standards. The milk produced by our direct suppliers is 'farm assured', ensuring that we use only top quality milk produced to stringent standards governing food safety, animal welfare and protection of the environment. Our direct supplying farms must comply fully with the requirements of the Assured Dairy Farm (ADF) national dairy farm assurance
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scheme. The ADF scheme focuses on all aspects of dairy husbandry and milk pro u o
24. e are a long-term supporter of initiatives to encourage and support the next generation of dairy farmers and are proud to sponsor the Dairy Crest/RABDF Student Award and the Dairy Crest/NFU South West Scholarship Fund. These are hugely important for a sustainable dairy
25. airy Crest also gives financial backing to The Prince’s Countryside Fund which aims to rejuvenate the rural economy and also supports the farming help charities who care for farmers in any sort of distress. We are a key partner with others in the dairy sector in The Prince’s Dairy Initiative which is working with farmers at most disadvantage to help them reduce their costs and remain in dairy n
26. he dairy sector is proactive on combating climate change. Dairy Crest has contributed to and complied with the Dairy Roadmap that has set ambitious targets for the amount of recycled plastic used in bottles, energy and CO2 emissions. We have also been working with our farmers to help them comply with thes t r e
Making dairy commercial
27. or the dairy industry to be sustainable, we need to make sure that it is a vibrant market place where companies can grow and invest. Farmers and companies must be encouraged and helped to innovate around new product development (NPD) and expand businesses where o s
28. airy companies and retailers must communicate better with the public so they know why it matters to buy British and to buy British dairy products. We have to help them to make the right decisions when they go into the supe
29. rocessors must add value to the milk they buy by creating new brands and new products. For instance, in Dairy Crest we are very proud of our Cathedral City cheese. And we continually innovate – last year we introduced Chedds for kids, this year we introduced a selection of small blocks of our cheeses in a handy bag. This is our responsibility to our business and to our farmers. When we do have successful brands we share the benefits with farmers who supply o ifs, b !
30. t is also our responsibility to invest in our creameries and factories and to do this without passing the cost back down the line to the farmers, which is a principle that matters a great deal to us in Dair Cr
What we would like to see from Government
Farming red tape review
31. airy Crest welcomed the Defra red tape review set up in 2010 with Richard Macdonald, a non-executive Director of Dairy Crest plc. The Welsh Assembly need
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to ensure that any areas where we can cut back on legislation affecting Welsh dairy farmers are p .
Country of Origin Labelling
32. s a major supporter of the British Dairy Industry, we want consumers to know where their dairy products come from so they can make informed choices – and support British dairy farmers wholeheartedly. Clear and honest country of origin labelling will help achieve i
Health Benefits
33. e would like to see further promotion of the health benefits ilk. Research from the Universities of Reading, Cardiff and Bristol released in July has claimed that drinking milk could cut people’s chances of dying from heart disease and strokes, reducing the risk of chronic illness by up t a f t .
34. he Food Standards Agency (FSA) should be actively promoting this research. We are concerned that some government bodies focus on negative food constituents whilst positive nutritional messages are i r d
35. he Welsh Assembly and Westminster parliament should promote a healthy and balanced diet incorporating dairy products. We would like to exclude natural products, such as cheddar cheese, from simplistic front of pack l b l n
Bovine TB
36. ovine TB is devastating to the farming sector and has proved extremely expensive to the taxpayer. Apart from the financial aspects of the disease, the emotional strain it places on farmers affected is severe and is not sufficiently recognised, let alone the moral issues surrounding the destruction of thousands of healthy cattle each year. So far 5,426 cattle have been slaughtered in Wales this ye l n
37. he Welsh Assembly’s decision to trial a vaccine for badgers is to be welcomed. However, this must be executed quickly and efficiently and then rolled out with all speed if proved to result in a drop in incidents of bov n .
EU Milk Package and CAP renegotiation
38. he EU Dairy Package has already proved to be a helpful catalyst for change/review of farmer-processor relationships. The voluntary code of practice was partly duethe prospect of legislation
39. e welcome the Commission's proposals, which will make it considerably easier for dairy farmers and producers to cooperate over prices and so increase their bargaining power, without fear of investigation from competition au i
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40. t is now up to the Government and devolved administrations to ensure that any legislation passed helps to serve the UK dairy i d
41. ith CAP renegotiations ongoing, the Welsh Assembly must ensure that they are working with all parliaments to ensure a fair deal for British farmers which recognises the crucial role farmers play in maintaining our most precious asset – our coun r s .
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Written evidence from DairyCo
Introduction
DairyCo is the dairy division of the Agriculture and Horticulture Development Board (AHDB). AHDB is a levy-funded, not-for profit organisation working on behalf of the agriculture and horticulture industries across the UK. The DairyCo division supports British dairy
DairyCo’s mission is to ‘promote world class knowledge to British dairy farmers so they can profit from a sustainable future'.
Welsh dairy farmers pay some 12% of the total DairyCo levy, and in return have access to the national services as well as specific regional ‘Welsh’ a t i
Summary
The number of milk producers and cow numbers have substantially decreased over the years. Producer numbers in Wales currently stand at 1,902 and cow numbers at around 220 thousand. Herd sizes have been increasing and are now averaging at 115 cows. Despite decreases in producer and cow nshowing a marked increase as it reached 1581 million litres. This relates to 12% of UK milk pro o
51% of milk produced in Wales is processed in dairy factories located in Wales. The balance, approximately 49%, is transported to England for processing. 13% of total Welsh Milk production is transported back to Wales to be sold as ‘Welsh’ milk. Cheddar and mozzarella / pizza cheese accounts for 90% of the milk processed in Wa e .
There are many challenges facing the industry including: the volatility of world markets and how these in turn affect the input and output cost of dairy production; succession, investment to name ju t
The EU and UK are large net importers of dairy products but some companies operating in Wales such as Glanbia and Volac are successful UK-based ex t
r Co orks in partnership with the Welsh Government and other organisations to maximise the benefit of funding available to the dairy industry s
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umbers, milk production has increased with 2011/12
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Milk can be produced efficiently from any of the major systems that are currently practised in Britain and different factors drive profit for each system. The impact these factors have on returns varies cons
The Economic and Social Importance of the dairy industry to Wales
Producers
10. The number of milk producers in Wales currently stands at 1, 0 t 2). The decline over the last year has b 7Wales has lost approximately 1,620 dairy produce
11. During the past ten years there has been a reduction in cow numbers of 50 thousand head with the numbers currently standing at around 220 tho
12. However, the decline in the numbers of holdings and cows has not resulted in a decline in milk production with the average herd size increasing to 115 and milk yield per cow also increasing. During the last few years there has been a small but steady increase in milk produced in Wales with 2011/12 showing a marked increase up to 1581 million litres (RPA data). Wales accounts for 12% of UK milk production with the old county of Dyfed (i.e. Pembrokeshire, Carmarthenshire and Ceredigion being the second largest production region in the UK).
13. The dairy sector represents 33% (2011) of the Welsh agriculture output and is an important sector in terms of agricultural employment and the wider rural economy. However, the sector is very susceptible to input and output costs and requires a considerable amount of capital investment to remain efficient.
14. Wales is a good grass growing region of the UK and as input costs increase and milk price remains volatile it is likely that more farmers will take advantage of the natural resource available to them, weather permitting f ourse. For example, even though average grass growth through Wales this year remained similar to last year the utilisation figures were much lower due to the wet conditions.
Processing
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iderably.
9 2 (Oc 1een 0. % which is in line with GB. However since 2000
rs (46%).
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15. Analysis of milk intakes from Wales and England based milk processors suggests that
around 51% of milk produced in Wales is processed in dairy factories located Wales. The balance, approximately 49%, is transported to England for processing. Of the milk processed in England, around 190 million litres (13% of total Welsh Milk production) is transported back to Wales to be sold as ‘Welsh’ milk for sale in supermarkets, other retailers and foodservice outlets.
16. Of the 870 million litres of milk processed in Wales, the vast majority is processed into cheese. In 2010, Wales produced over 80,000 tonnes of cheese, accounting for 90% of the milk processed in Wales. It might be surprising to some that around 60% of this was cheddar (or hard pressed type cheese) and most of the remaining 40% was mozzarella / pizza cheese.
17. Liquid milk at around 50 million litres is the next largest product category with ‘Other’ products such as yogurt, ice cream et ccounting for approximately 30 million litre
18. There are around 45 FSA ‘approved’ establishments that are currently producing products from bovine(cows) milk in Wales. Cheese manufacturing plants (22) dominate the sector, accounting for almost 45% of premises. Ten ice cream manufacturing plants account for a further 22% of premises and six milk and cream processing plants account for a further 13%.
19. Many of the larger plants in Wales have been in operation for 30 years o -although numerous improvements have often been made to increase the efficiency of the plants. This research suggests there were almost 1,300 people directly employed across the cows’ milk processing industry in Wales during 2010.
20. Although the Welsh industry is able to produce a wide range of products, including whey proteins, there are two obvious gaps in the product mix. The industry has no capacity to produce milk powders and the industry also lacks a ‘large scale’ liquid milk processor capable of meeting the needs of the major supermarkets. English and Welsh industries have similar structures in terms of the numbers of processors for plants with capacities up to 200 million litres. However, the structures vary considerably beyond that level. The Welsh industry does not have any plants with processing capacity greater than 30 militres / year. In contrast over 20% of English plants have milk intake levels greater than 300 million litre
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21. There are around 5 small / farmhouse dairy processing businesses in Wales. This
accounts for around 10 million litres of milk input per year, just under 1% of the total Welsh milk production (further information regarding this sector can be provided upon
s )
The short and long term challenges facing dairy farmers
22. One of the major short and long term challe s acing dairy farmers is the volatility of world markets and how these in turn affect the input and output cost of dairy production. Currently the cost of production due to increased input costs compared to milk price is putting pressure on the industry.
23. The DairyCo Datum report (Oct 12) highlights that all feed costs are up significantly on the pervious year as poor harvest conditions continued. Soyameal showed the biggest increase with a 42.2% rise on Septem e much of this is attributed to the drought in
24. In addition to input costs unusual weather conditions in other countries also affect the global commodities market. In October wholesale product prices lifted in the UK following global price increases due to supply concerns in the major dairy product exporters, US and EU, and seasonally low production in another major exporter New Zealand.
25. The seasonal decline in milk production within the UK has been significant this year. Again much of this is attributed to the weather. (Data from the MET office show that this summer (June/July/August) was the second wettest on record. This was compounded by lower than average temperatures as well.)
26. It was expected that Climate Change would bring hotter, drier summers which Wales’ climate could benefit from but recent weather conditions suggest that it is the extreme ranges of weather that will pose one of the biggest challenges to dairy farming and agriculture as a whole.
27. Other challenges facing the sector are succession and investment.
28. The DairyCo Farmer Intentions Survey provides an insight into the intentions of dairy farmers and highlights some differences between co e .
reque t.
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29. When questioned about the long-term continuity of the farm business, 60% of Welsh
farmers have a successor in place for the farm business. Howe cross GB 25% of respondents do not have any plans fo rm continuity of the business.
30. In general, those farm businesseHave a larger herd size: over 60% of farm businesses with more than 200 cows have a family successor in place for the farm b s .Be under the age of 30 or over the age of 65: Nearly 70% of GB dairy farmers aged under 30 and over the age of 65 have a family successor for the farm business, whereas only 39% of those aged 50 - 59 have a family successor in place for the farm busines .
31. 38% of GB dairy farmers are intending to invest more than £50,000 in their dairy businesses in the next five years. However, only 21% of Welsh farmers intended to do the same. 43% of Welsh farmers declared that they had no plans to invest in their enterprises over the next five years, compared to 33% in England and 32% in S o l
32. Of those intending to invest more dairy farmers in Wales were investing in land, parlours and herd improvements than those in England and S o l n
33. A much higher percentage of Welsh dairy farmers have a manufacturing contract than other regions of GB and as such have significantly less liquid milk contracts. This is due to the structure of the processing sector in Wales and the relatively long distances from liquid milk processing plants. In GB 25% of farmers are on dedicated supply contracts anecdotally it is suggested that only 5% of Welsh dairy farms have dedicated supply c n r c
34. When we looked at contracts a year or two ago the price for liquid milk contracts were way ahead of cheese contracts and with a higher proportion of cheese contracts within Wales the average farm gate price was considered considerably less than that of GB. However over the last year the difference between the price of liquid milk and cheese contracts has been substantially redu e
35. Work undertaken by the Welsh Government strongly suggests that the dairy sector will be the worst affected in terms of the CAP reform 2014 – 2020. The main reason being an EU requirement for a flat rate payment across all areas by the period end. Modelling work shows that 49% of dairy farms will lose at least 30% of their funding by c
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from historic payments to a flat rate land based payment, with a further 26% loosing between 10% and 30%.
36. It is essential that the Welsh Government understands the impact this could have on the dairy sector and that the change to land based payments needs to take place over the greatest period of time possible in order to allow the industry time to adapt. Differential payment rates are also considered necessary for the sector to be sust n e
The potential for the Welsh dairy industry to diversify and become more competitive
37. It is important to note that it is not absolutely necessary for the industry to diversify in order to become more competitive. This year’s DairyCo farmer intention survey highlights that 42% of farmers with a solely dairy enterprise are intending on increasing production, compared to 26% of mixed enterprise
38. Many dairy farmers are now considering renewable energy as a means of diversification but often this is also seen as a solution to reduce energy costs (input costs) to the da r
39. In terms of processors he recently published DairyCo commissioned report into xport opportunities for the UK dairy industry’ provides an initial insight into some of the
export opportunities available to GB dairy proces
40. The main findings of the re r :That the global dairy market w lMost production and consumption will rem n l lThe EU and UK are large net importers of dairy products – but that does not preclude an export b nThe best opportunities are within the EU and Russia for specialised cheese and fat p oThe ‘big prize’ opportunity of China would require considerable long term investment in market knowledge and relationship b d nGB has a long way to go to be seen as ‘ n the export r e
41. The report also highlights that companies such as Glanbia and Volac are already successful UK-based exporters (both have processing units in a
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42. One of the weaknesses of the Welsh processing sector (in terms of export) is that one of the main product is cheddar whereas many markets/consumers prefer European-style cheese varieties such as Edam/Gouda/Emme .
43. There is also the additional threat of vast increases of cheddar import from Ireland as they bump up production to take full advantage of the quotas being demolished in 2015. More than 80% of UK Cheddar imports came from Ireland in 2011, and latest figures show that imports from Ireland have increased in recent months.
UK and Welsh Government support to the dairy industry
44. DairyCo is working in partnership with the Welsh Government and other organisations to maximise the benefit of funding available to the dairy industry in Wales i.e. through DairyCo, Farming Connect and the Rural Development Plan (RDP) and the Welsh Government funded project ‘Improving the Welsh Dairy Supply h ’
45. The RDP project is worth £3.3m to the Welsh dairy sector and is being jointly delivered by DairyCo and Coleg Sir Gar (Dairy Development Centre). The project provides the opportunity to develop and implement bespoke support to the Welsh dairy
46. The activities undertaken by DairyCo and Dairy Development Centre in Wales are steered by the Welsh Dairy Industry Steering Group which is facilitated by Da
47. Recently the Welsh Dairy Industry Steering Group produced a short SWOT analysis of Welsh dairy farming. Please se e
Strengths
• Good grass growing climate• Large herd size (by EU standards)• Resilient family farming sector• High levels of efficient production on
many units• Heritage of fresh milk consumption• High level of consumer support• Traceability and assurance
Opportunities
• Strong provenance opportunities• Growing and affluent population• Global growth in dairy consumption• New and innovative products• Industry consolidation• Improved business performance• Good investment opportunities and strong
asset base
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• High level of stockmanship skills• Support available to the industry
• Improved take up of training opportunities for the development of business skills
• Technological expertise• Closer links to the consumer• Dairy 2020 and strategic views• Competitive world markets
Weaknesses
• Variable production performance• Lack of opportunities for expansion/new
entrants – lack of resources/support for identifying those opportunities or new thinking and support for new entrants
• Variable quality of advice• Recruitment and retention of quality staff• Supply chain relationships• Poor export market and lack of value
added products• Fluctuating prices for milk• Reduction in Wales based processing facilitiesLimited numbers of buy• Lack of industry KPIs• Lack of financial focus• Access to finance
Threats
• Loss of critical mass in industry• Less skilled entrants becoming available• Environmental legislation• Regulatory and bureaucratic burden• Animal welfare and environment perceptions
of consumers• Conflict within supply chains• Reduction in Government support• Pressure on land use (trade off -
environmental v production v renewables)• Increasing competition from European
neighbours and rest of the world post quota• Risk of infections and disease (existing and new)• Volatility of world markets in terms of input
and output• CAP reform (historic to land based)
Future composition of the Welsh dairy industry
48. Evidence shows that milk quota distribution (i.e. production) within the UK is moving t ith increases in South West England, Wales, Northern Ireland and Scotland (to a
lesser exte .
49. The rational for this can be multi fold but are likely to be linked to two main e s nHerd size increasing in those areas aGood grass growing
50. r his year, DairyCo published its first Milkbench+ report. Milkbench+ is DairyCo’s benchmarking service which is available free of charge to all dairy produc r .
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51. e eport analysed the information from 330 GB datasets gathered as part of the benchmarking service. The key findings and conclusions relate as much to Wales as the rest of
52. Key nThe key determinant of profit is total cost of production, not m p eThe right balance between input use and milk output (herd size and average yield) is essential. In particular the need for low yielding herds to maximise utilisation of grass through a simple system and for small herds to contain fix c sAverage yield per cow is not the main driver of profit. Higher yields are not the answer if they are produced at the expense of feed efficiency; every extra litre ne t eprofitable
53. Con u nMilk can be produced efficiently from any of the major systems that are currently practised in Britain. Moreover, efficient milk production is possible at almost any scale of pro c iDifferent factors drive profit for each system. The impact these factors have on returns
The need to fit the system that you use to your own circumstances has never been more important.
November 2012
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References
DairyCo (2012), ‘Dairy Market updateAvailable: http://www.dairyco.org.uk/resources-library/market-information/dairy-market-
’
update/ DairyCo (2012), ‘Export Opportunities for the UK Dairy Industry’Available
: http://www.dairyco.org.uk/market-information/processing-trade/imports-
exports/export-opportunities-report/ DairyCo (2012), ‘Farmer Intentions Survey’Available: http://www.dairyco.org.uk/resources-library/market-information/farmer-
,
intentions/farmer-intentions-survey-2012/ DairyCo (2012), ‘Milkbench+ Report 2012’Available: http://www.dairyco.org.uk/resources-library/market-information/milkbenchplus/
,
DairyCo (2011), ‘Scoping Study of the Welsh Dairy Processing Sector’,Available: http://www.dairyco.org.uk/resources-library/market-information/adhoc-
reports/scoping-study-of-the-welsh-dairy-processing-sector-2011/ DairyCo (2012), ‘September 2012 Market Report’Available: http://www.dairyco.org.uk/resources-library/market-information/monthly-
,
reports/ DairyCo (2012), ‘Wales Small / Farmhouse Processors’Will soon be available on the DairyCo website or by request
, .
34
Written evidence from the World Society for the Protection of Animals (DFW 06)
Introduction
WSPA is an international animal welfare organisation working in over 50 countries worldwide through our 17 offices around the world and our network of local partner organisations. As such we are the largest international animal welfare organisation in the world. We have onsultative status at the UN and at the Council of Europe.
Although WSPA is primarily driven by concerns about animal welfare, we have developed an expertise in all aspects of intensive farming, including health and other environmental risks, food security and economics. We are not opposed to dairy farming per se. Indeed, we support dairy farming which is on a scale and of a nature which facilitates high welfare and minimises damaging pollution while remaining economically viable for traditional farming communities. Our overriding concern is that the dairy industry, in the quest for short-term gain, should not sleep-walk into the kind of serious endemic welfare, human health and environmental problems which have beset other types of livestock production.
Summary of Main Points
c
1 The economic and social importance of the dairy industry to Wales: The increase in global markets provides an opportunity for Wales and Welsh dairy products. However any move towards increasing productivity shouldn’t mean a move towards the industrialisation of dairy farming as seen in the USA. WSPA is opposed to the industrialisation of the dairy industry and will challenge any moves towards this using existing animal welfare laws
2 The short-and long-term challenges facing dairy farmers, and recent developments in respect of milk prices: The high cost of production versus the low price for milk means there is a need to maximise profit by utilising natural resources such as grass to help keep costs down and the product quality high. Allowing cows to graze predominantly outdoors will permit cows to exhibit their natural behaviour nd promote good animal welfare.
3 The future composition of the Welsh dairy industry, including the size of dairy farms: The average herd size in Wales is 80, and to increase the size and intensification of dairy farming threatens to change the landscape of Wales in a way that could increase poverty and deter investment by other businesses in the area. The Welsh dairy industry needs to work in harmony with its surroundings.
1 - The economic and social importance of the dairy industry to Wales
.
a
1 (1) The Welsh Affairs Committee has stated that the UK dairy industry is worth £3.7 billion. However it is currently operating at a £1.2 billion trade deficit. During the summer of 2012, the industry suffered a major crisis caused by price cuts announced by retailers and processors which resulted in farmers being paid less for their milk than it costs to produce. Although some price cuts were subsequently withdrawn, the long-term sustainability of the industry is uncertain. The decline in production over the period in the UK corresponds to reduced outputs in a number of other European countries. By contrast, production in China,
35
Pakistan, India, Brazil and New Zealand1 as increased considerably over the period which shows that there is a market for dairy products
1 (2) A recent report by the Wales Government Farming Facts and Figures Wales 20122 as the sheep sector as the main livestock industry for Wales but the dairy sector also has an important part to play. Welsh cheese, butter and other dairy products are for sale in most major supermarkets and the emerging markets overseas gives Wales the opportunity to export dairy products across the globe.
1 (3) Due to the increasing crisis in dairy farming in the UK, many are looking at how to use new technologies and new farming practices to improve the economic viability of this industry. Many see adopting the US intensified style of large scale “mega farms” also known as Concentrated Animal Feeding Operations (CAFOs) as the answer.
1 (4) However WSPA opposes the intensification of the dairy industry in the UK including Wales because we believe not only that it will be detrimental to animal welfare but also because research from America shows that mega dairies or CAFOs have a negative impact on rural communities. We will use existing animal welfare laws to push for an alternative to the intensification of the dairy industry and we have recently launched a 5 year campaign to halt the intensification of the dairy industry in the UK and across Europe. We want to see animal welfare as one of the main factors in creating a sustainable model of farming
1 (5) A key objective of animal legislation is to avoid unnecessary
h.
h
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suffering. WSPA will make the case that dairy farming of the sort proposed by mega dairies or CAFOs would inevitably
cause unnecessary suffering. We accept that necessity must be judged in the general context of commercial dairy farming, where a degree of suffering may from time to time be unavoidable, even in the best-run establishments. Even within this general context, however, the scientific evidence shows strongly that cows in mega dairies suffer in ways, and to an extent, which cows in traditional much smaller-scale dairy farms do not. It is perfectly possible to practise dairy farming in a traditional way. Not only has this been how dairy farming has been practised for millennia, but it is also how it is practised by the vast majority of farmers in Wales and the rest of the UK today. It follows that the suffering, or additional suffering, experienced by cows in mega dairies is unnecessary, and therefore in breach of the law.
1 (6) We believe that the system of husbandry proposed by the intensification of the dairy industry would be systemically illegal, under EU3
EU Directive 98/58 (the directive) governs the welfare f farm animals. Article 3 says
and Welsh law.
o :
airy industry in the UK: statistics: Oliver Hawkins Social & General Statistics Section30 June 2011
www.parliament.uk/briefing-papers/SN02721.pdarming Facts and Figures, Wales 2012 http://wales.gov.uk/docs/statistics/2012/120627farmfacts12en.pdealth and Consumers: animals. Protection on farms
http://ec.europa.eu/food/animal/welfare/references_en.htm
1 D f
2 F f 3 H
36
‘Member States shall make provision to ensure that the owners or keepers take all reasonable steps to ensure the welfare of animals under their care and to ensure that those animals are not caused any unnecessary pain, suffering or injury’ (emphasis added)
1 (7) The directive gives effect to the European Convention for the Protection of Animals kept for Farming Purposes by the Council of Europe (the convention). The EU is a contracting party to the convention (as is theUK, have ratified it. The Council of Europe has published a number of Recommendations under the convention, including that relating to cattle in 1988 (the Council of Europe Recommendation).
1 (8) The UK and its constituent parts had to transpose the directive (and therefore in effect the convention) into domestic law. They have done this, in Wales, via the Animal Welfare Act 2006 (the Act); the Welfare of Farmed Animals (Wales) Regulations 2007 (the regulations); and codes of practice issued under section 14 of the Act. One such code is the Code of Practice for the Welfare of Livestock (2010) issued by the Ministers (the code). Although, under section 14 of the Act, breach of the code does not necessarily constitute a criminal offence, it can be taken into account in deciding whether an offence has been committed
Section 4 of the Act creates an offence where a person causes unnecessary suffering, by act or omission, to a protected animal (such as a cow), a key factor in assessing whether suffering is unnecessary being whether it could reasonably have been avoided or reduced.
Section 9(1) provides
‘A person commits an offence if he does not take such steps as are reasonable in all the circumstances to ensure that the needs of an animal for which he is responsible are met to the extent required by good practice’
Subsection (2) goes on to say that ‘an animal’s needs shall be taken to include ... (c) its need to be able to exhibit normal behaviour patterns’
1 (9) The regulations also contain provisions of relevance. For example, paragraph 28(1) of schedule 1 provides: ‘Natural or artificial breeding or breeding procedures which cause, or are likely to cause, suffering or injury to any of the animals concerned, must not be practised’. Paragraph 29 then says: ‘Animals may only be kept for farming purposes if it can reasonably be expected, on the basis of their genotype or phenotype, that they can be kept without any detrimental effect on their health or welfare’
1 (10) As far back as 1997 The UK’s Farm Animal Welfare Council report on dairy cow welfare, recommended the following:
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UK) and all EU member states, including the
.
:
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.
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37
‘Achievement of good welfare should be of paramount importance in breeding programme. Breeding companies should devote their efforts primarily to selection for health traits so as to reduce current levels of lameness, mastitis and infertility; selection for higher milk yield should follow only once these health issues have been addressed.
1 (11) However cows that are bred for high milk yield still have a high susceptibility to serious health problems as listed below which results in the cows being culled at an early age
dairy cows is more likely to occur in the highest producing animals and has been found to be associated with reduced fertility, digestive, metabolic and infectious disease, especially mastitis’
1 (12) The mega dairy model cannot be classed as economic when it supports a system where the main asset i.e. the cows are bred with inherent problems and culled at an early age. WSPA has also found that consumers do not want to buy products that support a system which does not put animal welfare at the fore of its business model
2 - The short-and long-term challenges facing dairy farmers, and recent developments in
’
.
‘Excessive or prolonged negative energy balance in
4
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respect of milk prices.
2 (1) Milk First is a dairy cooperative owned by 2000 British dairy farmers, it has been working with the Oxford based organisation Food Animal Initiative (FAI) to incorporate the Trie 3Es of farming which are economics, ethics and environment which when working in harmony provides a sustainable model of dairy farming for the future. Animal welfare, utilising natural resources and innovations are at the centre of the way they will work in the future5
2 (2) The intensification of the dairy industry that houses cows indoors with zero to limited grazing is very reliant on expensive imported feed. By utilising a natural resource which is pasture, welsh dairy farmers can minimise and contain their production costs. In the summer many dairy farmers found that the cost to produce milk had outstripped the price they can sell their milk, plunging many into debt and forcing farms o close. Many farmers will see heintensification of their dairy farm as a way to produce more milk to sell. Apart from the animal welfare issues as stated above, the high cost and amount of feed needed by high milk yield cows to produce those extra litres of milk educes rather than increases profit.
2 (3) Milk First: First Things First report released in October 2012 by Milk First with the FAI highlighted that our climate and countryside is one of the best areas in the world to build a model of sustainable dairy farming.
‘However, several decades of focus on producing more per cow has seen a reduction in the use of forage in the UK in favour of purchased feedstuffs.
.
t t
r
’
cientific report on the effects of farming systems on dairy cow welfare and disease www.efsa.europa.eu/en/efsajournal/pub/1143r.htm
ilk First: First things first http://trie.co/firstmilk/ftf/FirstThingsFirst_FirstMilk_SR_2012.pd
4 S
5 M f
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This is also at a time when the competition for feedstuffs is rising as emerging markets increase their own food production including dairy. Therefore utilising local resources such as pasture to feed cows would help manage the fluctuating feed prices and give the cows the chance to exhibit a key natural behaviour which is grazing outdoors.
2 (4) Milk First is already working with 50 farmers in West Wales on Feed for the Future projects which will look at nutrients, soils and water project with the Environment Agency
2 (5) WSPA knows that consumers do not want to support an industry that doesn’t have genuine animal welfare at the heart of its economic model. This has been seen with consumer demand for free range eggs and other welfare-friendly foodstuffs and a ouGov poll by WSPA in October 2012 shows that this is the same for dairy roducts
When asked hich ONE, if any, of the following BEST describes your attitude towards buying milk and dairy products produced by cows kept permanently indoors?
I would always buy milk and dairy products produced by cows kept permanently indoors 2%
.
Y p .
: w
I would try hard to buy milk and dairy products produced by cows kept permanently indoors, but would choose another option if they were unavailable 4%
I have no preference, and would buy whichever was most convenient 18%
I would try hard to avoid buying milk and dairy products produced by cows kept permanently indoors, but would do so if no other option was available 51%
I would never buy milk and dairy products produced by cows kept permanently indoors 19%
Don't know 7%
3 - The future composition of the Welsh dairy industry, including the size of dairy farms.
3 (1) Wales has about 1,900 dairy farmers. he Welsh Government Farming Facts and Figures, Wales 2012 states that the average herd size in Wales is 80. Increasing herd size and looking to turn the dairy industry towards factory farming will change the landscape of rural Wales forever. Intensification of dairy farming has a negative impact on rural communitiesand can often lead to smaller local farms in the area going out of business.
T
39
3 (2) ity of Missouri stated in his paper6
Concentrated Animal Feeding Operations (CAFOs) which are industrialised farming units which includes the dairy industry stated that
ot a single community where Concentrated Animal Feeding Operations (CAFO) represents a significant segment of the local economy is looked upon today as a model of economic success or prosperity. CAFOs have consistently failed to bring about significant improvements in unemployment or overall economic well-being of local residents
By virtually every measure, poverty levels rise, not fall, after a community becomes identified as "CAFO friendly."
In calling for a nationwide moratorium on CAFOs, the American Public Health Association cited more than 40 scientific reports indicating health concerns related to CAFOs. The citations include research from such prestigious institutions as the University of North Carolina Medical School, the University of Iowa Medical School, and the Johns Hopkins School of Public Health. In testifying before a U.S. congressional committee, the Director of the Johns Hopkins School of Public Health cited scientific evidence concerning the contamination of air, water, soil, and foods with toxic chemicals, infectious diseases, antibiotic resistant bacteria, and E. coli 0157:H7. A prestigious commission funded by the Pew Charitable Trust concluded in their 2008 report, “The current industrial farm animal production system often poses unacceptable risks to public health, the environment and the welfare of the animals… the negative effects of the system are too great and the scientific evidence is too strong to ignore. Significant changes must be implemented and must start now.” 7
3 (3) In Wales, tourism employs approximately 100,000 people (roughly 8% of the entire workforce). Recent figures place tourist spending in the region of £3 billion a year, contributing 3.7% of whole-economy value added in Wales (excluding indirect value added)
“Tourism is big business in Wales. Tourists spend around £9 million a day whilst in Wales, amounting to around £3.3 billion a year.” dwina Hart AM Minister for Business, Enterprise, Technology and Science
The intensification of the dairy industry in Wales would have a hugely negative impact on tourism in Wales, as most people come to Wales to enjoy our rural landscape and countryside.
5 – Conclusion
John Ikerd, Professor Emeritus, Univers on
‘After several decades, n
.
8
E.
mpacts of CAFOs on Rural Communities: John Ikerd http://web.missouri.edu/ikerdj/papers/Indiana%20--
%20CAFOs%20%20Communities.htm#_ftn1ew Commission on Industrial Farm Animal Production: Putting Meat on The Table: Industrial Farm Animal
Production in America, http://www.pewtrusts.org/news_room_detail.aspx?id=38438
6 I
7 P , full report,
http://www.ncifap.org/. 8 http://www.assemblywales.org/tb-08-029.pdf
40
WSPA believes that the Welsh Affairs Committee has a chance to influence the way the dairy industry is shaped in Wales. This is an opportunity to optimise a range of factors unique to Wales such as: the natural landscape of dairy products; green technology; as well as meeting consumer preference for foodstuffs high in animal welfare with products which command a premium in price, as seen with free range eggs and organic foodstuffs.
To consider the intensification of the dairy industry as a way forward for Wales could ultimately see the country become solely dependent on factory farming methods that will create limited job opportunities and revenue, eliminating the thriving tourism industry and other business as well as putting the population of communities forced to live in these areas at risk
November 2012
; provenance
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41
Written evidence from First Milk Limited (DFW 07)
Summary
We believe that the core issue for the Welsh dairy industry is sustainabilitmodels used by farmers, processors and other parts of the supprobust enough for th f t r
In this response, we highlight not only issues, but specific solutions. We believe that implementing these solutions would deliver a more sustainable dairy supply chain in
mbly Governments to play an active role in delivering these. In terms of format, while we have addressed the matters that the select committee raised, we have not done this in a rigid
The particular issues we have highlighted and suggested solutions for
• Profit margins for dairy farmers are low or non e t• Further rout s o reduce costs on farm• Lack of industry a y• More international perspective u• Agriculture market research needs to be more t• Much of the recent focus on creating a better environment for farmers is simply
playing around t e g s
First Milk context
First Milk is the only major dairy company in this country owned by British dairy farmers. We have 2000 farmers across Britain and our farmers produce around 15% of the nation’s milk. We manufacture milk into cheddar cheese, soft cheese, skimmed milk powder and for sports nutrition products. We also sell milk from our farms to a number of liquid processors. We supply four key markets: retail, foodservice, business-to-business and international. Our turnover in 2011/12 was £589 million
In Wales specifically, we have nearly 600 farmers and two production sites: a cheddar creamery in Haverfordwest and a cheese packing site near Wrexham which packs all the cheese from our creameries acros iWelsh cheese. Around 10% is part of a Tesco liquid pool and the remainder is split between milk that goes to liquid processors in England and the organic
We have invested heavily in our Welsh sites and have received grant funding from the Welsh Assembly Government for two projects at our Haverfordwest Creamery: £967K
1. y – whether the ly chain in Wales are
e u u e.
2.
Wales and we would like the UK and Welsh Asse
format.
3. are: -exist n e required t str teg req ired targe ed
h ed e
4.
.
5.
s Br tain. Around 60% of our milk goes into making
market.
6.
42
towards commissioning cheese making equipment in 2006 and £1.2m towards a new whey processing plant n 0
In making this submission and highlighting issues and solutions, we absolutely recognise our own responsibility in making our supply chain, particularly our farmer shareholders businesses, more sustainable. Our drive is all about building an added value food company that can generate a range of new income streams at home and abroad, all with one over-riding solit a - o improve returns we can pass back to
Issues and Solutions
fit margins for dairy farmers are low or non-existent
i 20 8.
7.
ary im t farmers.
8. Issue 1: Pro . T ha had
sed fe d.
his issue splenty of airtime, particularly since the summer, with many farmers facing rapid increases in the cost of purcha e
The background to this issue goes back several decades. The focus on producing more and more milk per cow has seen a reduction in the use of forage (grass and locally-grown crops) in favour of purchased feedstuffs. Rolling annual production data shows that the average yield from forage is 31% and the yield from grazing j 1 %.
10. he constant drive to get more milk from cows leads to a focus on certain breeds and these type of cows require more food and of a high nutrient density to support increased yields. With the focus shifting to more yield and optimising complex feeding systems, then skills and focus on the grassland managem n e e
11. he increased complexity of the system then takes more management time on health issues, nutrient balancing, feed purchasing decisions, manure handling and dealing with staff. Fewer farmers have all these skills so while the best operators end up making a profit, even they are exposed greatly to feed price
12. olution: We believe that lmost every farmer can achieve more milk fro e f they follow some simple steps and that this will deliver a material economic benefit vs. purchas d f .
13. n that basis, we have set up on farm sustainability working groups focusing on sustainable rations and grassland management which builds on a successful pilot we undertook l a
14. n West Wales we have a group of 50 farmers involved in a nutrients, soils and water project in conjunction with the Environment e c gain we expect this to have an
9.
ust 7
T
e t hav slipp d.
T
volatility
S a m forag i
e eed
O
ast ye r.
I Ag n y. A
43
economic benefit for farmers, derived from lower fertiliser costs and better soil conditions. In addition, there will be environmental and ethical benefits for the land and rivers around the
15. e will share the results and learnings from these working groups with all our farmers and firmly believe that will improve margins across th
16. ith additional funding, we can broaden these working groups and deliver a faster economic benefit for farmers and create more sustainable farms across Wales. We would like the UK and Welsh Assembly Governments to consider this route which gets to the heart of the issues rather than looking for short-term fixes.
17. ssue 2: Further routes to reduce costs on farm
ir farms.
We board.
W
I . We work in partnership with another farmer-owned business called Anglia Farmers which enables our farmers to access savings for all farm inputs plus products as diverse as mobile phones, cars, and fencing. We are also working with a number of our farmers in West Wales to install small wind turbines on their land. Achieving planning permission from the local councils has been a long and drawn out p
18. l t nstalling these wind turbines will not only supply the individual farmers with a cheaper source of energy, it will provide our cheese factories with a renewable source of energy, thus increasing the money that we can pass back to our farmers. This reduces on farm costs and helps to build a more sustainable dairy model. The UK and Welsh Assembly Government supporting this route for renewable energy would be
19. u
rocess.
So u ion: I
valuable.
Iss e 3: Lack of industry strategy. O
e mark.
ur two production sites in Wales are the only major ones owned by Welsh farmers. Irish, French and Danish companies own sites at Lllangefni, Aberystwyth and Llandyrnog and profits are sent back to Ireland, France and D n
20. l t e pend lots of time attempting to build a co s s ith all the dairy players in Wales, but realistically the Welsh the context of their global operations and these companies are unlikely to actively push forward a joint strategy fo l
21. better use of time would be for the UK and Welsh Assembly Governments to work direct with companies like First Milk who have the plans, commitment and i c n i e(given the fact that we are owned by Welsh
So u ion: W could s nsen u wsites owned by overseas players are small in
r Wa es.
An e t v
farmers) to work to improve the Welsh dairy
44
i r .
22. u ore international perspective required
ndust y
Iss e 4: M . T
ndust y
o a certain extent, this links with Issue 3 above. While the international companies in Wales will have an external perspective; it is hard to see how this perspective is benefitting the Welsh dairy i r .
23. n terms of becoming more competitive glo lly, we already export cheddar cheese, soft cheese, skimmed milk powder, whey and sports nutrition products. We will continue to develop our exports and one of our senior executives is visiting China and Japan in November as part of a delegation to investigate further opportunities for our p o c
24. l t rom a UK and Welsh Assembly Government perspective, we can see value for companies like ourselves from sharing our export strategy on a confidential basis and then working on a joint plan where, for example, the UK and Welsh Assembly Government can provide in-market resources to help us understand specific international markets and areas such as trade barriers and impor t r f
25. ssue 5: Agriculture research, deve
I ba
r du ts.
So u ion: F
t a if s.
I lopment needs to be more targeted. It if mone is channelled by the UK Government into
t r e ed i pproa h.
s clearly positive that a large chunk o yagriculture research and development. The challenge is helping people and companies navigate through the complexity of the model and ultimately putting funding to the best projects. Separately, in terms of sharing R&D and practical improvement programmes with farmers, it is undeniable that bodies like DairyCo (funded by farmer levies) has provided useful data for farmers. However, we believe that DairyCo must become more a g t n its a c
26. l t e recognise that as an organisation we have a responsibility to engage with bodies like the Technology Strategy Board to understand their pan-GB remit, inter-connectivity with other bodies including devolved administrations and where they can help First Milk and our farmers. Similar to the solution we identified to Issue 3 above, we would value sharing our strategy on a confidential basis with representatives of the Technology Strategy Board and/or representatives responsible for R&D funding in Wales and establishing if there is crossover in terms f o u
27. n terms of Da e believe that instead of always trying to work across the entire dairy industry and every farmer in Wales, they would get more value by working yon outcome-focused initiatives with organisations like First Milk. Clearly this is a different business model for DairyCo, however this kind of commercial focus an e tlink to benefitting e.g. 600 First Milk farmers across Wales, would show the kind of hard
So u ion: W
o f c s.
I iryCo, w directl
d dir c
45
results that DairyCo sometimes struggles to d l
28. ssue 6: Playing around the edges.
e iver.
I Wited material im
the code of practice in setting a higher, fa
r i g.
e believe that the voluntary code of practice, EU dairy package and UK Groceries Code Adjudicator Bill will have lim pact on the future of the Welsh dairy supply chain. Perhaps the fact that we are owned by 2000 farmers across the Britain and 60% of our Board are farmers, gives us a different viewpoint from the other dairy companies. For example, while we welcome the work of
irer benchmark, as a farmer owned business we already go above and beyond the code in terms of transparency, communication, and a clear structure where farmers define our rules and ways of wo k n
29. l t at e pending lots of time on fine-tuning the rules, a better use of time for politicians and industry representatives will be to look at opportunities that drive commercial margins and economic benefits, particularly those that drive returns for farmers. This means politicians working direct with companies like First Milk that can deliver significant and widespread benefits, rather than concentrating attention swhere benefits are often e
November 2012
So u ion: R h r than s
on SME isolat d.
46
Written evidence from National Federation of Women’s Institutes-Wales (DFW 08)
Summary of Response
• The threat to the dairy industry is not just a problem for farmers. It has implications for consumers and the countryside much more widely. The dairy e t r rovides skilled jobs, puts high quality produce on our tables, plays a
countryside guardianship role and shapes our rural land c p • We need a sustainable supply chain that allows the viability of this key
industry to be maintain d • As well as the major supermarkets, there is scope for other large retailers of
milk and dairy products, such as coffee shops, high-street food outlets and chocolate manufacturers, to play their part in ensuring the dairy industry’s
a• Investment in marketing campaigns to promote Welsh dairy products is
• The voluntary code of practice on contractual relationships between dairy processors and milk producers is a major step forward and should be reviewed once it has had time to ta f
• The UK Groceries Code Adjudicator Bill must include powers for anOmbudsman to investigate contracts and to sanction those who do not abide by the Grocery Supply Code of r c
1. Background1.1 The National Federation of Women’s Institutes-Wales is the largest voluntary women’s organisation in the UK with 210,000 members in around 6,600 WIs. The WI is a grassroots, member-led organisation and all its campaigns stem from resolutions which are voted on by a majority of members attending its AGM.
1.2 The WI has a long standing commitment to farming and community sustainability. In 2005, a resolution was passed at the NFWI's Annual General Meeting urging ”WI members to do all in their power to raise public awareness of the unfair difference between the retail prices of milk and the price paid to the farmer”
1.3 The WI has a long-standing commitment to farming and we believe that the threats to the industry are a problem not just for the farming community but for every member of the public who uses dairy produce.
1.4 WI members got behind dairy farmers in their thousands during the Great Milk Debates in 2007 calling for farmers to receive a fair price for their milk. This was followed by further action in 2012 with the launch of the Mission Milk campaign which, once more, called for urgent action to secure fairer milk prices for British farmers
s c o ps a es.
e .
surviv l.
required.
ke e fect.
P a tice.
.
.
47
2. The economic and social importance of the dairy industry to Wales2.1 Many local businesses rely on dairy farmers. When farmers economise, or go out of business it as a knock on effect which challenges the viability of local economiesFarmers use their local services such as the post office and bank and the loss of their regular custom can have a detrimental impact on the viability of these and other local services which are already under increasing pressure
2.2 The dairy sector provides skilled jobs, puts high quality produce on our tables and shapes our rural landscapes. Investment and innovation were cited in the WI’s Great Milk Debate report as paramount to the growth, future and success of the farming industry
2.3 When farmers cut costs there are repercussions throughout the countryside as a consequence, for example, of farmers cutting back on or stopping investment in their land, in their businesses, in new technology and equipment. If farmers cannot reinvest when markets are healthy this poses real risks for long term productivity. This results, once more, in a knock-on effect in terms of sustainability.
2.4 For consumers of British dairy products and for anybody who enjoys the British countryside, this could lead to fewer British dairy farmers, less product choice and more importation of milk from abroad to meet consumer demand. There is a growing demand from consumers for local, quality assured and traceable food. The Welsh dairy industry is one to be proud of for its high welfare standards and its custodian role over the countryside.
3. The short-and long-term challenges facing dairy farmers, and recent developments in respect of milk prices3.1 Following the price cuts announced by retailers and processors in July 2012, NFWI called for urgent action to secure fairer milk prices for British farmers. WI members put public pressure on the key retailers by raising public awareness and concern about the scale of the problem. Members were involved in peaceful action at the Royal Welsh Show to demonstrate that as members of the public and consumers, they believe that everyone has a real stake in the vibrancy of the dairy industry and want to see retailers step up and do more to tackle the problem.
3.2 Retailers, processors, consumers and the Government have a part to play in ensuring that farmers have a fair deal and that there is a long-term future for British milk.
3.3 The development of dedicated relationships between retailers and dairy farmers has been a positive step in the right direction but only for those farmers who have been fortunate enough to obtain retail contracts. Over 2,000 of Britain’s 14,500 dairy farmers are involved in a dedicated relationship with a retailer.
3.4 Despite the fact many supermarkets have corporate social responsibility strategies
h .
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48
in place, too many farmers aren’t receiving a price that even allows them to meet the costs of production (around 30p per litre). Action is needed to redress the balance and to ensure that the crisis point that arose in July 2012 does not recur in the future.
3.5 Not all dairy products are sold on supermarket shelves. There is scope for other large retailers of milk and dairy products, such as coffee shops, high-street food outletsand chocolate manufacturers, to play their part in ensuring the dairy industry’s survival.
4. Marketing4.1 Investment in marketing campaigns is required to educate consumers about the importance of the Welsh dairy industry and to highlight that the future of the dairy industry is not just a rural and farming issue but that it affects us all.
4.2 Ongoing campaigns are required to publicise the high quality and standards of Welsh dairy produce. Consumers have a crucial role in supporting Welsh produce and in encouraging supermarkets to retail more Welsh produce
5. Voluntary Code of Practice5.1 We welcome the establishment of the voluntary code of practice on contractuarelationships between dairy processors and milk producers to enhance farmers’ negotiating powers. The agreement to the voluntary code is a major step forward and should be reviewed once it has had time to take effect
6. The UK Groceries Code Adjudicator Bil6.1 The WI has welcomed steps to introduce an adjudicator to ensure that the Grocery Supply Code of Practice is properly adhered to and guarantees fair dealings between large retailers and their suppliers. The Bill is a step forward and we welcome the commitment to introduce an Ombudsman with regulatory powers to ensure fair-trading. However it is crucial that the Ombudsman will have the power to investigate contracts and to sanction those who do not abide by the Grocery Supply Code of Practice. The recent crisis in the milk industry during the summer months is evidence of the need for the ombudsman to have strong powers with a remit to investigate contracts throughout the supply chain
November 2012
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l
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l
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49
Written evidence from the Welsh Retail Consortium (WRC) DFW 09)
Executive Summary
(
Retailers and the Welsh dairy market
• Most of the major retailers have dedicated supply chains to obtain supplies of liquid milk, working with groups of farmers. The security of these arrangements helps farmers plan and invest for the
• The most recent figures from the dairy industry’s levy board shows that farmers in these dedicated supply chains are receiving the highest milk pa me .
• However, as only half the milk produced in Wales is used as liquid milk and only part of this is sold by retailers, the contribution of other parts of the supply chain is im
Groceries Code Adjudicator
• e a e s support the Groceries Supply Code of Practice (GSCOP) and are committed to working with everyone in the food supply chain, including dairy farmers, to ensure that customers have reliable supplies of high quality, safe and affordab o
• The Groceries Code Adjudicator and GSCOP concerns the contractual relationship between retailers and their
future.
y nts
portant.
R t il r
le f od.
direct s et i ers. uppliers. Very few farmers supply directly to r a l
Future of the Welsh dairy industry
• Retailers recognise that securing long term, sustainable UK supply chains requires appropriate investment and c t i t
• Retailers continue to support UK produce, including through the Assured Food Standard and clear information on country of origin. Retailers are currently the only companies that are committed to the industry principles on country of origin la l .
• It would help the future of the Welsh dairy industry if other parts of the food sector were as clear in their sourcing policy and support for UK pro t
er a n y.
bel ing
duc ion.
50
Intro
he WRC is the representative organisation for retailers in Wales and we welcome the opportunity to share our comments with the Committee. The WRC represents the broad spectrum of Welsh retailing, including large multiple retailers, department stores and independents; selling food and non-food products and services; on the high street, out of town, in community and rural shops, and online. Around 10 per cent of Welsh businesses are retailers and we are the nation’s largest private-sector employer, with approximately 131,000 employees (over 11 per cent of the wor f r e .
ur membership includes all the major food retailers, who between them account for over 90% of all grocery sales in Wales and we also have a growing membership amongst food to go members who have stores on many Welsh high streets. We are therefore at the forefront ofdiscussions regarding the future of food policy, the way in which consumers buy and consume food and the way in which goods are sourced, packaged
Retailers and the W l airy k t
he impact of retailers on the dairy sector’s sustainability is best demonstrated through their dedicated supply chains. A number of major retailers have established these to obtain supplies of liquid milk, working with groups of farmers. These have proved extremely effective for both farmers and retailers, providing security and confidence for both parties. The security of these arrangements helps farmers plan and invest for th f t r .
he most recent figures from DairyCo, the dairy industry’s levy board which publishes regular information on contract prices, shows that farmers in these dedicated supply chains are receiving the highest milk pa 1 In addition, many retailer aligned producers receive additional non-financial support, such as free veterinary advice and free carbon foot-printing audits. However, as only a proportion of the milk produced in Wales is required to meet retailers requirements, the contribution of other parts of the supply chain is imp r t
airy sales are important to supermarkets; however, retailers are not the only buyers in the market. Approximately half the milk produced in Wales is used as liquid milk. Most of that will be sold in supermarkets and convenience stores but a significant proportion – over 20% – is used in hospitality and catering or sold through doorstep deliveries. The remaining half of milk produced in Wales is used for manufacturing for butter, cheese, yoghurt and skimmed milk powder. Again, retailers will sell a proportion of butter, cheese and yoghurt through their own
1. duction
1.1. T
k o c )
1.2. O
and sold. 2. e sh d mar e
2.1. T
e u u e
2.2. T
yments.
o tan .
2.3. D
igures published 12 October 2012, see: http://www.dairyco.org.uk/market-information/milk-prices-contracts/milk-1 F
calculator-and-contracts/league-tables
51
brands, but a part will be used for manufactures’ brands, in further processing and in catering and hos t .
his means that while retailers’ position in the Welsh dairy market is important they are not the only buyers and are far from being the only ones that influence the profitability of the sector. Major non-retail buyers, such as the food manufacturing and food services sectors as well as public bodies (e.g. schools, prisons and hospitals) are significant customers of milk and play a key role in the UK market. However, many dairy products are globally tradable commodities and the price is determined outside the UK
The Groceries Code Adjudicator Bil
he Groceries Code Adjudicator will enforce the Groceries Supply Code of Practice (GSCOP), which governs the relationships between grocery retailers and their dir . It will not be involved in wider issues about the food supply chain and cannot intervene to increase the price a supplier is paid for a r d
e a e s upport GSCOP and are committed to working with everyone in the food supply chain, including dairy farmers, to ensure that customers have reliable supplies of high quality, safe and affordable food. The current system is working well because it is in retailers’ own interests to have strong relationships with their suppliers. They depend on a successful and resilient supply chain to keep their shelves stocked with the produce customers want to b
ince being introduced in February 2010, GSCOP has had a significant impact in improving and strengthening the contractual relationship between food retailers and their direct suppliers. Although it built on a previous code, its breadth has been expanded and it now covers ten retailers rather than only the four largest. The issues it covers are clearly defined and designed to meet alleged failings in the supply chain identified by the Competition Commission in its grocery market u r .
ll retailers covered by GSCOP are required to ensure compliance with it. This involved considerable investment in advance of its introduction in February 2010, including training for all relevant staff, such as buyers. The GSCOP is now firmly embedded within retailers and substantial investment continues through, for exsignificantly in internal compliance systems to manage enquiries from suppliers, including a complaint escalation process. All retailers covered by GSCOP are required annually to report to the OFT on the operation of the Code, including all records of complaints and how they have been resolved. To date the small number of complaints received have all been resolved successfully internally and to the satisfaction of the supplier without the need for es o
pitali y
2.4. T
market. 3. l
3.1. Tect suppliers
p o uct.
3.2. R t il r s
uy. 3.3. S
inq i y
3.4. A
ample, refresher training. Retailers also invested
calati n.
52
is important to stress that the Adjudicator and GSCOP concerns the contractual relationship between retailers and their
3.5. However, itdirect
le foo .
suppliers. Very few farmers supply directly to retailers; though this hasn’t stopped retailers investing heavily in agriculture to ensure reliable supplies of high quality and affordab d
F h l airy t
etailers recognise that securing long term, sustainable UK supply chains requires appropriate investment and certainty. They are providing this by working closely with groups of producers, most notably in dedicated supply cha .
loser supply chain working ensures milk is produced in a manner that meets consumers’ requirements in terms of animal welfare, sustainability and environmental criteria. Farmers receive a good price for their milk to allow them to invest in their farm working with a reliable
etailers continue to support UK ncluding through the Assured Food Standard and clear information on country of origin. Retailers are currently ies that are committed to the industry principles on country of origin l l .
hese measures reinforce retailers’ long term support for the UK and Welsh dairy industry. It would help the future of the Welsh dairy industry if other parts of the food sector were as clear in their sourcing policy and support for UK pro t
November 2012
4. uture of t e We sh d indus ry
4.1. R
ins
4.2. C
with the assurance of partner.
4.3. R produce, i
the only companabel ing
4.4. T
duc ion.
53
Written evidence from Dairy UK (DFW 10)
Executive Summary
- The dairy industry is self-evidently of considerable economic and social significance t l
- The Welsh dairy industry now operates in a volatile globalised market envir n
- Short-term dairy farmers are being subject to a significant margin squeeze due to a variety of f
- In a globalised market environment the long term challenge facing Welsh Dairy farmers is to to maintain and impr r ompeti v
- The future of Welsh dair arming o e y inked to the future of the processing sector and vi e
- The industry should have every confidence in its ability to be competitive in the future. The Welsh dairy industry is far better endowed with capability and natural c dvantages for milk production than most of its com e i
- The strategies for sustaining competitiveness for both processors and dairy farmers fall broadly into the headings of efficiency and product differe t o
- Central to efforts by the UK and the Welsh Government to assist the Welsh dairy industry is the implementation of the Common Agricultural Policy i l
- How the options available under the Dairy Package are implemented in Wales and the rest of the UK could have a major impact on the future development of the u t y
- In the longer term, if the UK and Welsh Governm t a e o assist Welsh dairy farmers, then policies have to be tailored towards assisting the sector to deliver the strategies that it is pursuing to improve its competitiveness.
Dairy UK
Dairy UK represents the interests of the entire dairy supply chain including farmers, farmer co-operatives, manufacturers of dairy products, and processors and distributors of liquid milk throughout the United K m
Between them Dairy UK's members collect and process about 85% of UK milk production. Dairy UK members operating in Wales include First Milk, Arla Milklink, Volac, Glanbia, Tomlinson’s Dairies, Saputo, Carmarthenshire Cheese Company and South Caernarfon Creameries. In
o Wa es.
o ment.
actors.
ove thei c ti eness.
y f is cl s l lc versa.
climati ap t tors.
n iati n.
n Wa es.
ind s r
en s r t
1.
ingdo .
2.
54
addition a number of Dairy UK members purchase milk from Wales for processing outside of
The economic and social importance of the dairy industry t W
The dairy industry is self-evidently of considerable economic and social significance t l
The total gross output of agriculture in Wales in 2011 is estimated at £1,393m of which dairy accounted for the largest share at £417.6m (source: Statistics for Wales).
In addition to 1,900 dairy farmers, the Welsh dairy processing industry directly employs another 1,300 people (source: Promar). To this must be added figures for staff employed directly on farms (stockmen etc), and individuals employed in the supply industries for both the farming and processing
Environmentally, dairy farmers are responsible for managing a significant portion of the Welsh landscape, which in itself, through its amenity value and importance for tourism represents a significant asset to the Welsh economy.
QUESTIONS
The short-and long-term challenges facing dairy farmers, and recent developments in respect of mil
Recent Developments in Respect of Milk Prices
Context
The Welsh dairy industry now operates in a volatile globalised market envir n
The European Union, supported by successive UK Governments, has progressively de-regulated the EU dairy market. The EU no longer engages in active market management to ensure price
The result of this policy is that Wales, in common with the entire EU industry, now operates in a globalised market environment that is extremely competitive and enormously volatile. No part of the UK industry, even the domestic liquid milk market, can be insulated from world market t e d
10. his volatility affects all the major milk producing regions of the world that rely on sales to the world market to provide an outlet for milk production. This includes all of the EU and U
Wales.
• o ales;
3. o Wa es.
4.
5.
sectors. 6.
A. k prices;
7. o ment.
8.
stability.
9.
r n s.
Tthe SA.
55
11. rices in de-regulated agricultural commodity markets are set by the interaction of supply and demand. This means that farmers do not have their production costs covered at every point in the pr e
12. hilst markets are volatile, they are also cyclical. Consequently the price prevailing at any given point in time is not indicative of the average price that might prevail in th
13. arkets are currently on an upward trend following a slump in prices produced by declining market returns for dairy products during the early part of the year. Price developments are expected to remain positive in the medium term due to reasonably robust global demand and either stable or declining milk production in most of the major milk producing regions of the world. This should generate a favorable supply/demand bala
Short-Term Challenges Facing Dairy Farmers
14. hort-term dairy farmers are being subject to a significant margin squeeze due to a variety of factors. These n l d
Persistently wet weather throughout 2012 which res Limited grazing opportunities due to saturated g o
Rising feed costs: feed w 25% since September last year and soyameal by over 40% (source: D )
Milk prices: whilst prices are on an upward trend, and are at historic hjust recovered to the levels seen at the beginning of t e a
15. n combination with rising feed costs this has generated a very unfavourable feed/price ratio which has created one of the most challenging commercial environments seen for so t
16. he same experience has been replicated very largely across the UK which has resulted in a sudden down turn in milk productio
P
ic cycle.
We future.
M
nce.
S i c u e:
a) ulted in:
(i) r und (ii) Poor quality silage (iii) Poor quality forage
b) heat has risen around
airyCo
c) ighs, they have only h ye r.
I
me ime.
Tn.
56
17. owever, despite the current market vicissitudes of the sector, historically dairy farming in Wales is broadly pr f a l .
Table 1 verage Farm Business Income per Dairy Farm (£)
Ho it b e
– A
2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 England 30,800 55,100 69,400 59,000a 66,000a 84,000a Wales 30,500 51,300 62,200 49,700a 57,100a 63,900a Scotland 47,200 69,600 78,400 58,900 73,600 n.a. N.Ireland 27,300 58,700 37,500 19,900a 51,600a 61,500a
a = new seri Source: Defra esLong Term Challenges facing Dairy Farmers
18. n a globalised market environment the long term challenge facing Welsh Dairy farm r maintain and improve t itiveness. How this can be achieved is discussed under the next q
The potential for the Welsh dairy industry to diversify and become more competitive within the UK and glo l ;
19. he future of Welsh dairy farming is intimately linked to the future of the processing sector, (both that operating in Wales, and those processing companies using Welsh milk outside Wales). Neither can prosper without ea
20. he challenge of competitiveness is faced by all segments of the supply chain, both dairy farmers and processors. The industry should have every confidence in its ability to be competitive in the future. The same challenge is being faced by all European dairy industries. The Welsh dairy
I e s is to heir compet
uestion. B.
ba ly
T
ch other.
T
57
industry is far better endowed with capability and natural climatic advantages for milk production than most of its com
21. his was clearly set out in the conference organized by DairyCo on the Welsh dairy industry on arch 2012 in Llanelli where speakers provided evidence of the natural advantages enjoyed
by the Welsh industry. They included independent consultant Ian Browne who stated: “With the level of rainfall, a good range of air and soil temperatures promoting year-round grass growth, conditions are near perfect for dairy f
22. he strategies for sustaining competitiveness for both processors and farmers fall broadly into two h a
Efficiency) Improved managerial pr) Economies of scale, through consolidation/m r e e c
Supply chain colla o a i
Product diversification or differentiation h o nnovation, bran e c
Welsh Dairy Farm Competitiveness
23. ptions for dairy farmers for product differentiation could include marketing raw milk on the basis of provenance, environmental or welfare standards, animal b t .
24. his requires creating a product pro that appeals to the industry’s customers and consumers. Provenance is an obvious opportunity for the Welsh industry if it can develop the appropriate positive connotations.
25. roduct differentiation for raw milk can be a protracted and complex process requiring sustained investment, but if successful, can help farmers to take more control over their market
26. outes to efficiency for farmers can n d
Improved Managerial P c s
Studies by DairyCo indicate an enormous range in the efficiency f individual farms. Raising the performance of farms essentially means the communication and adoption of best practice. There are a variety of routes this can be achieved. One of the most effective is participation in benchmarking exercises supplemented by discussion groups. This is the sort of activity undertaken DairyCo
The precise managerial practices that Welsh dairy farmers should seek to adopt would depend on the circumstances of each individual farm. However, most Welsh dairy farmers generally enjoy natural climatic and topographical advantages that should provide a strong foundation for improving the industry’s competitiveness. In particular this rests on Wales
petitors.
T23rd M
arming”.
Te dings:
a. : through
i actices ii e g r t iii) b r t on
b. t r ugh i ding t
O
reed e c
T position
P returns.
R i clu e:
a. racti e
o
.
58
being an ideal region for growing grass. This should enable to Welsh dairy farmers to reduce their exposure to bought-in feeds and consequently xercise greater ontrol over their costs of production.
Economies S a e
Properly managed there are economies of scale associated with farm size. Throughout the developed world average farm size is rising. Welsh dairy farmers therefore need the opportunity to be able restructure their businesses to whatever scale of operation is appropriate to their production model
Collaborati
Supply chain collaboration is important in reconciling the needs of the different components of the supply chain. In particular, the Welsh dairy industry needs to find solutions that enable dairy farmers to exploit grass based production, with its consequential seasonal profile of production, whilst meeting the needs of milk processors to maximize plant utilization. This is why a co-operative approach and continual development of contractual relationships is important to the industry
Welsh Dairy Processing Industry Competitiveness
27. s state b v he strategies open to processors to improve competitiveness are broadly similar to those available to
28. owever, key to any dec invest in Wales by processors, whether they are already operating in Wales, external investors or companies sourcing Welsh milk from outside Wales, is a competitively priced supply of raw milk. Raw milk can account for between 50% to up to 80% of the cost of producing dairy products. The price of Welsh raw milk has to move in alignment with the prices of competing products in the markets Welsh dairy products are sold into, otherwise processing will not be susta
29. ny development which threatens to distort the o e a f the raw milk market that could render Welsh raw milk prices uncompetitive must be avoided. The implementation of the Dairy Package is particularly important in this respect (se )
30. nother issue that needs to be highlighted is transport infrastructure. The topography of Wales and the distance from markets means that more needs to be invested in the road network to reduce transpo s
The efforts by the UK and Welsh Governments to assist the Welsh dairy industry, and the progress in implementing a voluntary code of conduct on milk c
UK and Welsh Government Policy
e c
b. of c l
.
c. on
.
A d a o e, t farmers.
H ision to
inable.
A p r tion o
e below
A
rt co ts.
C. ontacts;
59
31. entral to efforts by the UK and the Welsh Government to assist the Welsh dairy industry is the implementation of the Common Agricultural Policy in Wales. This now primarily operates at the
r r evel through direct payments, either through the single farm payment, or through agri-environment schemes such a G a t
32. he reform of the CAP could have a significant impact on the value of the single farm payment to Welsh dairy farmers. The payment accounts for a sizeable portion of income for dairy farmers.According to the Farm Business Survey the single farm payment amounted to an average of £33,576 for lowland dairy farms in the year to March 2011 and an average of £28,103 for hill and upland dairy
33. urrently the allocation of the payment to all Welsh farmers is on the basis of historic entitlement. This will be phased out and replaced by flat rate regional pay
34. airy farmers will be significantly disadvantaged by this process due to the magnitude of the payments that they receive and their generally higher investment in capital. Ways must be found to mitigate the transition to regional payments to give dairy farmers time to a a
35. nother important aspect of the CAP is the operation of the safety net. The dairy industry has been de-regulated in the absence of any developed private sector instruments to manage price risk. Until they can be developed the industry is reliant on the operation of residual market management mechanisms by the Commission to mitigate the impact of extremes of downward price volatility. This should be in the form of an effective safety net system. That system cannot be regarded as effective unless there is some means of reviewing reference prices otherwise the system will become irrelevant ov r i .
36. n the longer term, if the UK and Welsh Governm n a e o assist Welsh dairy farmers, then policies have to be tailored towards assisting the sector to deliver the strategies that it is pursuing to improve competitiveness. This requirement also holds true for policies affecting the processing s c o .
Progress in Delivering the Voluntary Code of Practice
37. he code of practice should have a positive impact on supply chain relationships. It will give farmers confidence that their contractual relationships are not holding them back from getting the best possible price for their milk. In the longer term it should provide a basis for improvement in supply chain relationships by providing a foundation for the further development and refinement of co a t
38. he Code of Practice has only recently been agreed. Most of the major milk purchasers in the UK have agreed to subscribe to the code, which means that it has already achieved a high degree of coverage. However, it may take some time before its principles are directly incorporated into farm c
C
fa me ls l s ir.
T
farms.
Cments.
D
d pt.
A
e t me
I e ts r t
e t r
T
ntr c s.
T
ontracts.
60
D. nd
The potential impact of the EU Dairy Package and the UK Groceries Code Adjudicator Bill on the Welsh dairy industry; a
Impact of the Dairy Package
39. ow the options available under the Dairy Package are implemented in Wales and the rest of the UK could have a major impact on the future development of the industry. They include regulation of contracts, formation of Producer Organisations, creation of Inter-Branch Organisations and supply management of PDO/PGI
Contract Re
The Code of Practice should obviate the need for regulation of contracts under the Dairy Package which would seriously de-stablise supply chain relationships in the industry. Consequently the Welsh Government, along with Defra and the other devolved administrations, have all supported the development of a voluntary code of practice as an alternative to regula o
Regulation of contracts under the Dairy Package would effectively require contractual relationships between purchasers and farmers to be terminated every time there was a requirement to change prices. In a volatile market this would make the continuation of open-ended evergreen contracts impossible. The industry would have to resort to either short contracts or contracts with short notice periods. This would undermine confidence in the security and stability of supply chain relationships which are so important for long term development. Processors would not have a secure supply and farmers would not have a secure outlet for their milk.
Producer Organ s t s
Farmer Organisations will provide dairy farmers with a new means for collectively marketing raw milk. There is still a great deal of confusion about how such bodies can be formed and operated. It is not clear what inherent advantages they will have over co-operatives, which is model that has historically served farmers extremely well
Steps should be taken to ensure that any Producer Organisations that are created are robust and credible and capable of playing a meaningful role in the supply chain. This should be achieved by the development of common criteria for the recognition of POs by UK authorities and through the development of industry guidance on their formation and operation. This work should be undertaken jointly by both sides of the supply chain
The really significant difference afforded by POs is the exemption given to POs from competition law. This, in theory would allow the creation of regionally dominant milk supply monopolies. Whilst superficially appealing, consideration has to be given to whether the existence of such monopolies would make the regions resorting to such models an attractive area for investment
H
cheeses.
• gulation
ti n.
• i a ion
.
.
.
61
9
Inter-Branch Organisat s
Generally the depth and co-operation between existing trade bodies is felt to make the creation of a elsh dairy industry IBO unnecessary.
Supply Management for PDO/PGI Cheeses
This is not regarded as an attractive proposition because of the difficulty in achieving PDO/PGI status and the opportunities that would be lost from not competing in the market place
Implementation of the Groceries Code Adjudicator Bil
40. he creation of an adjudicator will not reduce the requirement for the dairy industry to take on the challenges of the mark t
41. he adjudicator will have very little direct impact on dairy farming as it only covers direct suppliers to retailers. The Bill’s strict limitation of the activities of the Adjudicator to implementing the requirements of the GSCOP means that even if it was extended to direct suppliers the impact would be i e w of the practices covered by the code are used in the dairy industry supp h
The future composition of the Welsh dairy industry, including the size of dair .
42. he Welsh dairy industry will continue to restructure at the farm and process l
43. s indicated in paragraphs 21, the in u t s pursuing a nu f e s o ensure its future competitiveness, including economies of scale at the farm level. The number of Welsh dairy farms can be expected to continue to decline with a consequential increase in average size. It is therefore important that dairy farmers are given the opportunity to restructure by local planning au i
44. estructuring does not necessarily mean a proportionate reduction in employment opportunities. It may mean a reduction in opportunities at the farm management level, i.e.; number dfarmers, but it will probably mean a greater division and specialization of labour and a greater reliance on bought in e
45. estructuring amongst processors will probably be a more complex affair, with the continued emergence of smaller new entrants exploiting market niches along with occasional investment in major new plant by external investors.
November 2012
• ion
W •
.
l
Te place.
T
l mit d, as very fely c ain.
E. y farms
T ing evel.
A d s ry i mber o strat gie t
thorit es.
R of airy
xpertise.
R
62
Written evidence from the Farmers’ Union of Wales (DFW 11)
Introduction
1 The Farmers’ Union of Wales was established in 1955 to protect and advance the interests of Welsh families who derive an income from agriculture. The Union has sixteen offices distributed around Wales which provide a broad range of services for members. The FUW is a democratic organisation, with policies being formulated following consultation with its twelve County Executive Committees and nine Standing Committees. airy ector s Milk and Dairy Produce Committee
The Economic and Social Importance of the Dairy Industry to Wales
2. Approximately 30% of all Welsh agricultural output was attributable to milk and milk products in 2010. In contrast, cattle, sheep and all crops and horticulture contributed 23, 19.4 and 6.2% respectively1 he value of agricultural output produced in Wales in 2011 was valued at around £1,393m. Dairy cattle in Wales constitute approximately 12% of the total UK dairy herd and produce over 11% of the total UK ilk volume
3. Statistical estimates suggest that for every job created in the cattle industry, just over 2 full time equivalent jobs are created in the wider economy. In addition to providing incomes to around 1,900 farming families, over 7,000 people are employed in milk production and processing in Wales. In 2012, 40 of the 90 processing facilities in Wales supported around 13,000 jobs.
4 Wales is largely classified as rural3, and in addition to dairy processing, dairyfarming directly and indirectly supports a wealth of secondary businesses in both rural and urban areas, including builders, contractors, feed and fertiliser companies, and the veterinary and medicines sector
5. Dairy farming also plays a key social role in rural Wales, including the preservation of Welsh culture and heritage, the mitigation of rural depopulation, the preservation of rural infrastructure, and maintenance of the rural environment4
.
D s issues are dealt with by the Union’.
. T
m .
2
.
.
.
arming Facts and Figures: Welsh Statistics, Welsh Government, 2012elsh Government Rural Development Plan for Wales 2007-2013 Strategy Document, 2007ECD Trade and Agriculture Directive: The Role of Agriculture and Farm Household Diversification
in the Rural Economy of the UK, 2009uylenbroeck, G. Multifunctional Agriculture: A New Paradigm for European Agriculture and Rural
Development, Ashgate Publishing Ltd, 2003
1 F 2 W 3 O
4 H
63
Short and Long-Term Challenges Facing Dairy Farmers
i duction in Producer Numbers and New Entrants
6. Between 1996 and 2006 the UK farmgate price of milk fell by almost 27%. However, by 2011 average UK farmgate price had risen by less than 10% when compared to 1996 levels5. Production costs have increased significantly ver this period, while producer margins over feed osts fell by almost 12% etween 2011 and 2012 lone.
. Re
o c b
6 a
7 Since 1996, the percentage retailer margin on liquid milk has increased by more . than 3100%, while farmer and processor margins have fallen by 37% and 16% respectively. During the same period, the retailer margin on mild cheese increased by 51%, while farmgate margins for milk supplied for cheese production fell by 80%7
8 Low and volatile dairy farm profitability o an erosion of confidence in the Welsh dairy sector, and unless such problems are mitigated, the Welsh dairy industry will continue to face a reduction in the number of skilled entrants due to a lack of opportunities, a lack of resources, a reduction in recruitment and staff retention and a lack of confidence in future opportunities or innovations
ii Reduction in Processing Capacity
.
. has led t
.
. 9 In 2010, 1.46 billion litres of milk were produced in Wales8, 51% of which was .
processed in the country3. Six of the 460 or so milk processors in the UK purchase almost 65% of UK raw milk. A further 23% of UK raw milk production is purchased by fewer than 20 other large processors. Thus, just over 87% of UK milk is purchased by just 5% of UK processors. The remaining 13% of milk is purchased by the remaining 440 or so medium or small UK processors.
10 of Dairy Farmers of Britain. The collapse resulted in major financial losses for one in every eight Welsh dairy producers, and threatened more than 450 Welsh jobs. Similar pressures have been felt by other processing companies, leading to the closure of numerous Welsh plants, including those at Llangadog, Longslow, Lampeter, Felinfach and Bridgend. These have led to significant job losses, and major hanges in regional processing capacities c .
11. in Welsh processing capacity will stifle the industry’s ability to A reductionrespond to the expected global growth in dairy consumption and will reduce the
airyCo UK Farmgate Prices, Published October 2012. NB: Prices exclude milk purchased by DFoB.ilkminder Dairy Costings National, Published October 2012. NB: In this context, the term ‘margin’
relates to ‘margin over feed costs’iquid Milk and Mild Cheddar Margins, DairyCoairyCo and AHDB Dairy Statistics: An Insider’s Guide, 2011
5 D 6 M
. 7 L 8 D .
64
capacity for the Welsh dairy sector to respond to competitive world markets and new or innovative produce lines
iii Abolition of Milk Quotas
12 the EU, the FUW has long objected to plans to abolish milk quotas in 2015, on the grounds that this would cause a fall in farmgate and commodity prices; increase price volatility; undermine producers in more remote areas; make EU “safety-nets” for the sector less defensible; and threaten the displacement of Welsh dairy produce by imports, particularly fromEire.
13 e published an economic analysis of the regional impact of reform of the milk quota regime9. The report predicts that the abolition of milk quotas will result in a 10% decline in raw milk prices across the EU, a reduction in Welsh milk production of at least 8%, and a 4% fall in Welsh agricultural income
14 the Republic of Ireland aims to expand milk production by 50% and create approximately 100,000 new jobs in the sector. Generic Irish export targets suggest that this could result in a 17% increase in Irish dairy imports to the UK by 202010
he Common Agricultural Policy
15 n from historic to flat rate Pillar 1 payments under the post 2013 reform of the Common Agricultural Policy could have a significantimpact on Welsh dairy farms, most notably due to possible reductions in Single Payment entitlement values and restrictions placed on dairy farms under current ‘greening’ proposals
16large dairy farms in Wales losing at least 30% of their current Pillar 1 receipts11
17 osed incorporation of greening measures under Pillar 1, and advocates a proportionate and gradual transition towards a payment system which minimises disruption for all sectors o this end, the Unionhas been at the forefront of modelling work aimed at identifying the best options for Welsh agriculture under a reformed AP
.
.
. Like other farming organisations across
. In August 2009, the Joint Research Centr
.
. Following the abolition of milk quota,
.
iv. Reform of t
. The impending transitio
.
. It has been estimated that some CAP reform scenarios could see almost half the .
. The FUW therefore objects to the prop
. T
C .
egional Economic Analysis of Milk Quota Reform in the EU, JRC Scientific and Technical Report,
August 200910 ood Harvest 2020: A Vision for Irish Agri-Food and Fisheries. Republic of Ireland Department of Agriculture, Fisheries and Food, August 201011 Government Informal Consultation: The Common Agriculture Policy (CAP) Reform Conversation on the way forward for Wales, 2012
9 R
F
Welsh .
65
Efforts by the UK and Welsh Governments to Assist the Welsh Dairy Industry
18 livered £5.6m for dairy projects across rural Wales. More recently, it was announced that the Welsh Government would be reallocating more than £3m in support through the Dairy Supply Chain Efficiencies scheme
. The current Rural Development Plan has de
.
19. Farming Connect (FC) remains a method of funding programmes to improve on-farm profitability via the use of on-farm technologies such as animal genetics, nutrition, grass breeding and management. The transfer of knowledge is an essential component of a successful dairy industry, and it is essential that FC continues to engage with stakeholders in order to deliver a programme based on the requirements of the sector as a whole. The Welsh Government has now introduced specific FC components for dairy farmers and, in October this year, the time allocation provided to dairy producers rose from five days of support per farm business to eight
20. Welsh Government recently committed to the establishment of a Dairy Forum in Wales to ‘support the Welsh Government in the future development of the dairy sector’. It is imperative that the membership of such forums comprises those with experience and knowledge of the industry, and those with a mandate to represent grass roots level dairy producers
21. dairy contract procedures is set to commence this year, and the Union hopes that this will aid in developing and shaping the potential use of legislative measures should the dairy sector Code of Practice fail to successfully benefit Welsh dairy producers.
22. The Scottish Government recently announced £100,000 in funding to the establishment of the umbrella body Dairy Farmers Together’. This initiative aims to provide a framework by which dairy producers might strengthen their negotiating position within the dairy supply chain, and maximise the benefits that a new voluntary code of conduct for the sector may deliver he FUW would therefore welcome Welsh Government funding towards the development of Dairy Farmers Together and similar initiatives
Progress on the Voluntary Code of Practise
23. a viable and healthy dairy supply chain, it is essential to eliminate unfair contracts and establish more balanced terms and conditions in producer-processor contractual relations. However, it must be borne in mind that the introduction of more flexible contracts by any one processor ahead of similar moves by competitors may weaken its position within the market place, leaving it particularly vulnerable to aggressive moves by companies wishing to expand their milk fields
.
.
A Welsh Government consultation on
‘
. T
.
In order to establish
.
66
24 of Practise on Contractual Relationships (CoP) was in part an industry-led response to supply chain power imbalances, and was largely designed to address a number of long-standing problems associated with dairy supply contracts
25. 12 months, and the Union would seek to ensure that a proper, thorough and independent evaluation of the Code occurs in order to swiftly ascertain its relative success, and any need to police the Code. It is essential that a review determines the level to which each of the elements of the CoP have been adopted have adopted the CoP in its entirety
26 on of market-based pricing formulas in contracts between processors and producers, such as those developed by NFU Scotland based upon Actual Milk Price Equivalent (AMPE) and Milk for Cheese Value Equivalent (MCVE) prices. An analysis of AMPE and MCVE prices during the past decade reveals that UK farmers on such formula-based contracts would have received higher milk prices 63% of this time12. Although the use of market formulas exposes producers to marketplace volatility, the Union believes that theirinclusion in dairy contracts would nsure that the benefits of favourable market conditions re passed back to producers
27. rious conditions upon which a market-based pricing mechanism may be included in contracts. Under the Code, contracts must set out a clear price or a clear pricing mechanism, nd the latter may be either ‘negotiated or agreed by both the producer and the processor’ or ‘at the purchaser’s discretion’. Furthermore, the CoP only stipulates that large processors – those with more than 250 producers – should offer two or more different pricing options
. The genesis of the dairy industry Code
.
The CoP is set to be reviewed after
, and to what extent processors.
. The FUW has long supported the inclusi
e
a .
The CoP provides va
a
.
28 . The CoP aims to partly protect producers from sudden falls in farmgate prices byrequiring processors to provide at least 30 days notice of such changes and by , allowing producers to terminate contracts with purchasers, without penalty, on a maximum of 3 months notice following an unfavourable price change. However, it should be noted that the ability of producers to switch processors is severely limited in many areas by the number of purchasers operating in those areas
29 the balance of power will remain with the purchaser, and that purchasers will be able to ‘cherry pick’ from the available elements of the CoP in a way which leaves maller producers and those in remote areas vulnerable
Impact of the EU Dairy Package and the UK Groceries Code Adjudicator Bill on the Welsh Dairy Industry and Interaction with the Dairy Code of Practice.
.
. Given this, the FUW is concerned that
s.
12 U Proposals for the Dairy Sector and the Future of the Dairy Industry - Environment, Food and Rural Affairs Committee: Supplementary written evidence submitted by NFU Scotland.
E
67
30. The EU Dairy Package, passed into EU law in March 2012, covers four main areas,
including the regulation of contracts and the formation of Producer Organisations (POs)
31 s fully supportive of the package, and in particular believes that POs could be instrumental in redressing current imbalances of negotiating power.
32. The EU dairy package allows Member States the flexibility to decide whether certain elements of the Package are enforced within their territories, andcurrent preference is for a workable voluntary code, both DEFRA and the Welsh Government have reserved the right to legislate under the EU Package
33 e CoP, any failure of the Code to achieve its prime purposes should result in legal enforcement of relevant measures under the EU Dairy Package regulations or other mechanisms.
34. One mechanism by which the CoP could be properly policed and enforced would be through a strengthening and expansion of the powers offered to a groceries adjudicator
35 the Groceries Code Adjudicator Bill should result in the appointment of an adjudicator with sufficient powers to prevent unfair practices, including by acting thoroughly and swiftly; imposing financial penalties which act as a deterrent; and preserving the anonymity of those who submit complaints. Such powers should extend to the policing of the CoP
The Potential of the Welsh Dairy Industry to Diversify and Become More Competitive Within the UK and Globally
36 stence global milk production will increase by around one third between now and 2020, whilst the globally traded milk market will increase by more than 70% over the same period. Drivers for this rise include increased consumption by middle class consumers throughout the developing world, particularly in Asia
37. in mestically. However, there is substantial trade in processed products, and in 2011 the deficit in the UK trade balance in dairy products stood at £1.14bn. Processors and producers must have the resources requisite to maximise market returns, and it is essential the dairy supply chain in Wales has the production capacity to cope with the demands and preferences of a growing consumer pool. Continuity of supply, competitive scale processing, efficient production technologies, and long-term market development are essential
.
. The FUW i
whilst the
.
. While the Union fully supports th
.
. The FUW believes that
.
. Fonterra have posited that non-subsi
The majority of liquid milk consumed Britain is produced do
.
68
38 dairy produce. However, typical Welsh and UK cheese varieties, such as cheddar, constitute only a small percentage of European trade, and much of this commodity is used in lower value processed cheese production. The UK could benefit from capitalising on higher value cheese commodities es and powders, whilst simultaneously increasing exports of lower-value dairy commodities
39. of added value products and niche markets in order to allow dairy businesses to reach their potential during favourable market conditions. However, whilst there is room for improvement in developing new markets and trade opportunities, it must be noted that over-emphasis upon niche markets, at the cost of mainstream markets upon which the vast majority of dairy producers depend, will likely be detrimental to the dairy sector as a whole. This is particularly pertinent given the current financial climate, and the impact that this has on consumer spending on dded value produce
The Future Composition of the Welsh Dairy Industry
. Europe remains a large market for UK
, such as speciality chees.
The FUW fully supports the development
a .
40 cer numbers in Wales continue to demonstrate a marked . Figures relating to produdecline, with almost 2000 dairy farmers exiting the sector since 1999. More than 60 dairy farmers left the industry between June 2010 and June 2011, and current estimates predict that a further 7% of UK producers – the equivalent of 2.4 per day - will exit the industry in 201213
41 o Defra statistics14. According t the average UK dairy herd size is in the region of 117 cows. In 2010, the average herd size in Wales was 7815. In 2012, the average dairy herd size in Wales is likely to be somewhere in the region of 110-115 cows. It is generally the case that dairy producers in Wales continue to experience the pressure to expand their herd size.
42 mer Intentions Survey13, the majority of dairy . According to the 2012 DairyCo farproducers planning to leave the industry tend to possess smaller herd sizes (10-49 cows) and producer lower volumes of milk (<500,000 litres). Smaller producers are also less likely to invest in the dairy business and are less likely to have a successor
43 dairy enterprises benefit from efficiencies of scale, it should be noted that the average Welsh and UK herd size is more than double that reported for the EU15 (n = 42). However, over the last decade, Welsh producers have invariably received less than their European counterparts. For example, in 2010, UK dairy producers received 5.8ppl less than the weighted EU27 average
.
. Despite claims that larger
13 airyCo Farmer Intentions Survey, 2012 14 efra Dairy Industry Statistics 2012: http://www.defra.gov.uk/food-farm/food/food-industry/milk-industry/15 arming Facts and Figures, Welsh Government Publication 2011
D D
F
69
price and the lowest price of the EU1516. It is therefore unsurprising that almost one quarter of those planning to leave the industry in the next 12 months cited poor profitability as the root cause of the decision13.
44. GB dairy producers have an income solely At present, less than one third ofderived from dairy production. Just under half of those producers stating an intention to leave the industry in the next 2 years had no other enterprise income providing support to the dairy business.
45 nancial and labour costs of production, the costs of capital reinvestment, and any income drawn from such businesses, and it is these three key factors that contribute to the confidence or otherwise of dairy farm businesses. Given this, it is likely that a continuation of poor profitability and rising input costs will increase the number of smaller dairy farmers leaving the industry; leading to a trend of fewer producers with larger herd sizes. For farmers remaining in business without the capacity to expand, it is likely that there will be an increasing reliance on secondary farm enterprises or upon off-farm incomes to support the main dairy business. This leaves little room for investment and will likely further undermine confidence in the sector.
55 ich exist on dairy units, it is believed that sufficient monies exist within the dairy supply chain to provide equitable returns for an industry which retains its current structure, and that pressures to accelerate consolidation of the industry fail to recognise the significant benefits of retaining traditional family farms by redressing imbalances of power along the supply chain; ensuring fair contractual arrangements; and encouraging better cooperation between farmers
November 2012
. Dairy income is offset against the fi
. While the FUW recognises the pressures wh
.
16 airyCo Statistics, Insiders Guide 2011 D
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Written Evidence from Alun Davies AM, Deputy Minister for Agriculture Food Fisheries and European Programmes, to the House of Commons Welsh Affairs
Committee Inquiry on the Future of Dairy Farming in Wales. DFW 12)
This is to inform attendance of the Committee’s session to be held on Thursday 8th
November in Aberystwyth
Summary
The dairy sector is the largest agricultural sector in Wales in terms of the overall turnover. It accounts for around 30% of the Welsh total - with 23% from beef, 20% from sheep and 27% from crops, poultry, pigs and other agricultural a t y
in Wales is decreasing similar to the position elsewhere in the UK. Between 2004-05 and 2010-11 the number of milk quota holders fell by around a quarte .producers, the volume of milk produced in Wales was slightly larger in 2010-11 than it was in 2004-05.
The dairy sector is a key part of our food and farming industry in Wales, and the Welsh Government is working to ensure it has a prosperous and sustainable
cifically identifies dairy as a priority and the strategic drivers for the future development of the industry is l
Connecting to the mar p a eProducing sustainably and p t b ySafeguarding animal health & welfare, plant health and fo eSustaining our countrysi eEncouraging in a
The following evidence sets out the sector in more detail and what support measures are being considered and delivered by the Welsh Government to support the industry. Support will help the industry meet future challenges and take advantage of the opportunities presented in an increasingly volatile and globalised e o
Working with industry
. Food and Farming is one of the Welsh Government’s priority sectors in the Welsh economy. There is a Food and Farming Sector Panel comprising experts from across the sector to advise the Welsh Gove n .
. I hosted a Welsh dairy “summit” in June of this year with representatives from across the sector – primary producers, purchasers, processors and retailers. This meant I was able to take their views forward into the negotiations on the Voluntary Code of Practice which was agreed in July. This useful event convinced me of the need to include within my Plan for Milk, the establishment
(
•
c ivit (2010). The number of milk producers
r Despite the fall in the number of dairy
•
future. Our Programme for Government speinked to:
• ket l c • rofi a l • od saf ty • d • nov tion
•
con my.
1
rnme t
2
71
of a Dairy Forum comprising experts in the industry so that I can di t eissues as they arise with key people working directly in the i s
. In July I convened a food summit with key individuals from all parts of the food and drink supply cha e summit was to establish future priorities and inform strategic thinking. I was pleased that the event was planned and delivered in partnership with Wales’s Commissioner for ustainable Development, and the Botanic Garden of Wale ssages from the summit are already feeding in to the Government’s strategic plans for support and direction. There are follow up meetings planned to enable the network established to influence the policy
. My Plan for Milk demonstrates that I am taking both a practical and long-term approach to ensuring that the Welsh dairy industry emerges from its current difficulties in a strong i o
Challenges
. The dairy sector has to be ready to face the challenge that the abolition of the Milk quota regime in March 2015 will present. The industry may face an influx of dairy products from Member States that have the capacity to increase production once free from quota lim n
. There are pressures due to the increasingly global market for dairy produce iis subject to currency fluctuations and increasing demands from increasing populations. I understand that much of the processing capacity in Wales needs investment and the level of innovation in the dairy sector may need support in order t t r .
. Milk from Wales has to travel to the larg r entres of population and markets. There is a traditional approach to milk production and a need to increase the production of higher added value dairy products which could offset the higher transport costs we have to face. Stakeholders inform me that there is an impetus needed now to substitute the high value imports with such foods as artisan c e s s nd ot d y roducts m
A sustainable industry
commitments to sustainability and we actively encourage all parts of the supply chain to do all they can to mitigate the environmental footprint. The Welsh Dairy industry has collaborated to plan ways to lessen the carbon footprint for the dairy food chain, which was supported by the Welsh Government. This plan is published as the “Dairy Road Map for
a
scuss h ndu try.
3
in. The aim of th
Ss. The me
. 4
pos ti n.
5
itatio s.
6 wh ch
o h ive
7 e c
h e e a her air p ade here.
8. The Welsh Government has made strong
W les”.
72
9
w
. Improvements in the sustainability of the dairy industry need to be underpinned by responsible behaviour by retailers and partners from across the supply chain. Welsh Government is working increasingly with various retailers operating in Wales to explore the issues. My next step is to build on the excellent connections
e ave to create omprising representatives from the supermarkets to discuss the ma s s s th y a i
for Milk (attached at Annex 1)
recognise that the sector itself is working to resolve the immediate issues around the price paid for milk. The Welsh Government is keen to do all it can to support the Welsh economy. I published my Plan for Milk at the Royal Welsh Show last
ernment is taking both a practical and long-sighted approach to ensuring that the Welsh dairy industry emerges from its current difficulties to a sustainable and viable future. The component measures of the Plan are outline e
Public Procurement for Dairy products
he Welsh Government has a role to play in increasing the proportion lFood & Drink procured by the public sector in Wales. We have already made good progress, with the Welsh public sector purchasing £8.21 million of dairy products per annum. Whilst this £8.21 million shows the significant public procurement market place for dairy products, it has to be seen in the context of the overall value of the Welsh dairy retail grocery sales (£615 million), therefore proportionate efforts should be made in developing all markets for dairy pr d
am waiting for the comp e i f a new survey into public sector procurement to assess progress on this matter. The findings will be compared to those in June 2010, so we can provide a clear picture of the situation and continue to develop this important r e .
The industry’s Voluntary Code of Practice on milk supply contracts
ctively supported the process that led to the industry agreement on a Voluntary Code of Practice on milk supply contracts. aintain that the industry is best placed to address the contractu l s s and welcomed this agreement from supply chain partners on voluntary, GB-wide measures to help ensure a level playing field across the domestic dairy market. I believe that the Code has the potential to provide a better balance in price negotiations as well as greater transparency in contractual arrangements across th s c t simportant that the operation of the new Code is kept under review. I want to see the Code deliver real change in the industry as soon as is practicable. If
h a forum cin i sue a e r se.
The Plan 10. I
July. The Plan outlines how the Welsh Gov
d b low.
11. T of We sh
o ucts. 12. I l t on o
ma k t
13. I a I m
a i sue in the dairy industry
e e tor. I i
73
implemented effectively, I believe that the Code will avoid the need for legislation in t a .
e have reviewed the legislative options available to us under EU regulations and my officials have prepared draft legislation on the form and coverage of contracts within the dairy sector should it be needed. I will also be seeking the views of the industry on the provisio y farmers to cooperaproducer or wider supply chain groups or more formal Producer Organisations in Wales, should they decide that doing so could increase their bargaining power in negotiations on the price they achieve for their milk. The timing of this consultation will be co-ordinated with parallel discussions taking place across the UK as the trade in dairy products happens across our country’s borders and the impact of change will affe s .
Grocery Code Adjudicator
t is my view that the legislation progressing through the UK Parliamen n t eintroduction of a Groceries Code Adjudicator to monitor the operation of the Grocery Supply Code of Practice needs to be strengthened so that it can provide direct sanctions for non compliance. It is the view of Welsh Government that improvements in the sustainability of the dairy industry need to be underpinned by responsible behaviour by retailers and their partners in the supp i
he Adjudicator must have the power to levy fines for non compliance as a matter of course. I will continue to press the argument with the Department for Business Innovation and Skills (BIS) and I wrote to the Minister - Norman Lamb MP, last July to request a meeting on the issues. I would also suggest that some knowledge gained in the development of the Adjudicator could be relevant to the need to
y Code of Practice on milk supply contracts and would encourage urgent consideration of that possibilit
Farming Connect
he recent reduction in milk price has resulted in many producers receiving a price below the cost of production at a time when variable co
ntly. The Welsh Government’s Farming Connect programme has been beneficial to many Welsh farmers and can provide easy-to-access and bespoke advice and information on how to cut costs and increase profitability. There are tailored components of Farming Connect which offer Welsh dairy farmers’ targeted advice on how to cut the costs of production, benchmark performance and increase efficiency. The Farming Connect service has helped dairy farmers who require financial advice e.g. cascontracts, and on forage and winter feed planning, taking into account difficult forage conservation conditions caused by the bad weather this
his rea
14. W
ns allowing dair te to form informal
ct u all
15. I t o h
ly cha n.
16. T
review the effectiveness of the Voluntary.
17. T
sts such as feed, fertiliser and fuel have increased significa
h flow or milk
summer.
74
18. T
le future.
he impact of a relatively low milk price will impact not only on cash flow but more fundamentally on long term business viability. Dairy farmers can receive strategic advice on alternative options for the business such as restructuring or introducing new enterprises and income streams. Planning issues can be an important factor to consider so Farming Connect offers fully funded planning surgeries for farmers so they can receive advice and guidance. Advice on succession planning is available to help farmers secure a sustainab
Supply Chain Efficiencies scheme
he current RDP has delivered £5.6m to dairy projects across rural Wales. The Welsh Government has now targeted £3.3m of support through the Dairy Supply Chain Efficiencies scheme. The pr pecific m u e :
Environmental Module - addressing energy and water usage efficiency
Health Module - covering knowledge transfer and dissemination of best practice in relation to anim
Production Efficiency Modemand and instill a collaborative venture approach to address the challenge of increasing e
Supply Chain Module and Communication
e are also targeting dairy support through the Cywain project which gives help and support to add value to primary produce. This is achieved through developing new products or markets with the emphasis on collaboration to assist in the creation of a sustainable future for the sector. Facilitation, expert advice and a quality mentoring service is available which has a strong emphasis on adding value
hrough the Processing and Marketing Grant Scheme (PMG), a range of projects have been supported to enhance the dairy industry in Wales. This has included projects from installation of ice cream processing lines on farm to the construction of a bespoke dairy capable of processing 50 million litres of milk per
n
Glastir Land Management Scheme
lastir is the Welsh Government’s sustainable land management scheme available to farmers across Wales. n extensive number of options in the entry
19. T
oject has 4 s od l s
al health
dule - to manage grass growth relative to stock
herd siz
20. W
.
21. T
an um.
22. G There are a
75
level scheme that covers a wide range of agricultural practicenot historically been accessing current schemes in large numbers and yet there are environmental issues on dairy farms biodiversity and water t .
he dairy package within Glastir allows a 10% points uplift for some options for farmers that have a milk contract. There is also a slurry injection option which is available to any business with a slurry storage capacity of 100,000 litres o r128 dairy farmers have taken advantage of the 10% dairy uplift and entered into a 2012 Glastir contract, and a further 1 iry farmers have expressed an interest in joining Glasitr .
4.0 million has been committed in the first year to Glastir Efficiency ge and energy efficiency items which
particularly benefit dairy farmers. Funding is available to increase slurr s eto 5 months which enables manure and slurry to be spread when the crop requires it, reducing the amount of purchased ertiliser unding is also
ading equipment that reduces ammonia losses to the atmosphere and for soil aerators which will improve soil conditions for crop uptake of nutrients and reduce nutrient l a h n
he Energy and Water Efficiency theme will allow farmers to purchase new equipment or to replace existing equipment that will improve energy and water efficiency. A number of these items are specifically for dairy businesses such as high efficiency direct expansion tanks and heat recovery and exchangThese items will reduce the running cost improving viability of milk production and reduce the greenhouse gases involved in energy pro u
Rural Development Plan for Wales 014-2020 (RDP)
have set up an Advisory Group to advise and support in formulating the new RDP. I am making sure that the dairy industry’s views are taken into account as we shape the future of the RDP for when the current programme begins in 2014. The structure of the processing capacity in Wales will need to be considered in our RDP planning, as will the marketing strategy and the capacity for innovation and product developme
he new RDP aims to complement many of Welsh Government’s own initiatives under the Programme for Government. There are changes proposed within the regulation to increase programme flexibility which will ensure we can deliver a tailored programme to meet the specific needs of Wales. The competitiveness of our farmers and our farms will be a core theme. I want profitable farms that support local employment and local purchases that export top quality products and s a e heir commu i
. Dairy farmers have
that need to be addressed including quali y
23. T
r mo e.
15 dain 2013
24. £
Grants which focuses on slurry storay torag
f needed. Favailable for low trajectory slurry spre
e c i g. 25. T
es units.
d ction.
– 2
26. I
nt. 27. T
timul t t nit es.
76
CAP Reform
he fundamental basis for payments to farmers is being revised under the proposals for CAP Reform. It is moving away from historical factors to one that is based on hectarage. There is a danger of dairy producers who had high value historical entitlements suffering significantly as a result. One of my key objectives for the reform is to have a manageable transition for Welsh farmers, and this is central to my negotiating. My staff are working with industry stakeholders to draw up a payments framework that will assist a fair transition. However, I may have to consider the need for a coupled support scheme if our other mechanisms will not yield the resu
Working Smarter
he Welsh Government’s Working Smarter initiative represents a fundamental re-working of how regulation of agriculture works in Wales. It is not simply about "red tape" but is far more ambitious and seeks to reduce not only the burden of regulation but also to introduce a system that is appropriate and fair, and more readily balances risks and ou c
Dairy forum
w l a e Dairy Foru o e rimary function will be to advise the Welsh Government on the future strategic direction of the dairy industry and associated supply chain
Young Entrant Support Scheme (YESS)
ttracting and retaining a knowledgeable and skilled work force is a challenge not only for Wales but across all member states in Europe. The Young Entrant Support Scheme provides assistance to facilitate the establishment of young farmers who possess adequate skills and competence and are setting-up as head of the holding for the fi t i .
he scheme has been operating for 3 years and to date 380 young farmers have received support, of which approximately 25% are young dairy
Closing comments
28. T
lt I want.
29. T
t omes.
30. I il cre t a m wh s p
.
31. A
rs t me
32. T farmers.
77
33. T
ranging
a re i and the drawing up the nent Plan. I am fully engaged on
t ened
w
e sur s
here are many complex issues here and I am determined to get the best possible outcome for our farmers from the many changes our dairy industry is facing now. That is why the Plan for Milk I announced in July is wide .
There are issues affecting us arising from Europe – such as the new provision for Producer Organisations in the dairy sector, reform of the CAP, the planned abolition of the Milk Quot g me xt Rural Developme all these issues and my commitment is clear, I will do all I can to ensure that our dairy industry and economy is streng h .
There seems to be a determination in the industry to address key issues, I as pleased to play my part in the industry’s initiative to agree a more transparent system on milk supply contracts, and will work with the industry to clarify the options available. I am confident that the robust working partnership I have established with the Dairy industry will continue to inform development and rollout of these vitally important m a e .
NNEX 1Plan for Milk
Deputy Minister for Agriculture, Alun Davies unveiled the Welsh Government’s plan for milk following the Royal Welsh Show in July 2012
Speaking at the Royal Welsh Show lun Davies said
“The dairy sector is a key part of our food and farming industry in Wales, and the Welsh Government is working to ensure it has a prosperous and sustainable future. Our Programme for Government specifically identifies dairy as a priority sector for attention and support. I now want to say what this means
“I hosted a Welsh dairy “summit” last month [June 22nd] which involved the industry in discussions about what support it needs from the Welsh Government and how this and other interventions might best be delivered. The event was attended by representatives from across the sector - producers, purchasers, processors and retailers - and will inform the decisions I will make in developing support for the dairy industry. I will make a further statement on this in the autumn
"I recognise that the sector needs both to resolve the immediate issues around the price paid for milk, but at the same time also to put in place structures and mechanisms that will help underpin its long-term viability
"The Welsh Government supported the process that led to this week's welcome agreement within the industry to a voluntary Code of Conduct on milk supply contracts.
A
.
, A :
.
.
.
78
The Government believes that in the first instance this will help provide greater fairness and transparency in contractual arrangements across the sector. It will be important that the operation of the new Code is kept under review. The Welsh Government will continue to be fully engaged in the process to help reach final agreement on this initiative in the coming weeks, and I want to see the Code deliver real change in the industry as soon as is practicable
"However, the Welsh Government also appreciates that the Code alone will not resolve all of the issues currently facing the dairy supply chain, and we support the strengthening of an appropriate statutory framework to help regulate the market.
"The legislation currently before the UK Parliament to establish a Groceries Code Adjudicator to monitor the operation of the Grocery Supply Code of Practice, which applies to large retailers, needs to be strengthened. The Adjudicator must have real power and the ability to levy fines. I have written twice to the UK Government since the Queen’s Speech making the case to strengthen the powers of the Adjudicator. I will continue to press the argument and I welcome Defra's commitment to look again at these issues. I believe that it would be appropriate for the Adjudicator to play a role in reviewing the effectiveness of the voluntary Code of Conduct in future
"The Welsh Government believed that the best way to address the contractual issues in the dairy industry was for supply chain partners to agree on voluntary, GB-wide measures to help ensure a level playing field across the domestic dairy market. This week’s industry agreement of Heads of Terms on a code was therefore an important first step. If implemented effectively I hope that the Code will avoid the need for legislation in this area.
"However, I have asked my officials to review the legislative options available to us under the EU dairy package and we will prepare draft legislation that would enable the Welsh Government to intervene, if necessary, on the form and coverage of contracts within the milk sector. In addition, I will also be seeking further substantive discussions with the industry with a view to strengthening the position of farmers in the supply chain, including considering the introduction of formal producer organisations in Wales. I will be consulting on possible options in the autumn
"I am well aware that the recent proposed cuts in the price paid for milk have come in parallel with substantially increased input costs for many parts of agriculture, not least the dairy sector. The Welsh Government’s Farming Connect programme has been very popular with farmers and can provide easy-to-access and bespoke advice on how to cut costs and increase profitability. We will now be introducing tailored components into Farming Connects work to offer Welsh dairy farmers targeted advice on how to cut their costs of production
.
.
.
.
79
"I am also conscious that improvements in the sustainability of the dairy industry need to be underpinned by responsible behaviour by retailers and other ˜downstream parties in the supply chain. Here at the Royal Welsh Show I have been meeting with the multiple retailers to emphasise this point; over the course of the coming weeks and months I will be taking a similar message to representatives of other milk retailers based in Wales, including those in the discount sectors of the market.
Earlier this month I published an update on progress being made on the Working Smarter initiative. This represents a fundamental re-working of how regulation of agriculture works in Wales. It is not simply about "red tape" but is far more ambitious and seeks to reduce not only the burden of regulation but also to introduce a system that is appropriate and fair, and more readily balances risks and outcomes
"The Welsh Government continues to support CAP Pillar 1 direct payments to farmers at current levels, which form a vital part of many producers’ income and help strengthen the fabric of rural Wales. We will continue to make a strong case for substantial Pillar I and Pillar II CAP support, at both UK and EU level.
I believe that these measures demonstrate that the Welsh Government is taking both a practical and long-sighted approach to ensuring the Welsh dairy industry emerges from its current difficulties in a stronger position to succeed in the future. We believe in ‘chwarae teg’ - a fairness to all in the milk supply chain “from the farm-gate to the consumer it is vital to the long-term interests of all concerned”
November 2012
"
.
.
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Written evidence from two Monmouthshire Dairy Farmers DFW 13)
Issues of the Welsh Dairy Industry
These are some brief introductory thoughts into the historical, current and future state of the welsh dairy industry
• The UK dairy industry was altered beyond repair with the publishing of the agricultural act in 1993 when it was found that the Milk Marketin a
r. As a result de-regulation came about and private processing firms entered the industry. It was found that a single processor could only have a 33% share of the industry and as such the MMB split into three to try and keep hold of the industry. However private processers entered the market and informed farmers that they would pay 1p/l more than the MMB firms. There was no discussion about the cost of production as at this time the price per litre was well above the cost of production. This was the start of the downfall of British dairy n
• In 1995 the average price per litre was around 25p, it fell to a low of around 16p between 2002 to 2006. The current average is around 27p, that is an increase of 2p/l in 17 years. In that time the cost of a litre of diesel has gone from 9.9p/l in 1998 to 70p/l in 2012, this is a 700% increase in variable costs with other large costs such as fertilizer and feed increasing similarly and with only a 10% increase in income it is amazing how farmers have stayed in
• The current situation facing the dairy industry today, I believe, is due to the overwhelming influence the supermarkets have on not only agriculture but other industries, for exa he recent Comet administration has come
e internet sales of electrical goods but also the over powering broad spectrum of products the supermarkets offer. s a result of this the days of the high street booming have disappeared leaving the "ghost town" effect nationwide. Supermarkets work on very small profit margins over their whole company and expect their suppliers to work the same way however it is not possible for farmers to expand a e s y
• Today a litre of milk is retailed at around 70p in the supermarkets, the farmer receives 27ppl if he is lucky and ticks all the boxes with the hoops he has to jump through to even sell this vital product, the cost of production is 30ppl, the processor claims they can't afford to pay more as the supermarkets won't pay them more, therefore there is a margin of 30-40p per litre which the supermarket is enjoying as believe the pie is big enough its just not being shared fairly between the three players in this
• As young entrants in to the industry dairying does not offer the positive draw that it did do years ago, the family farms are disappearing as many farmers are advising their children to pursue a career in a different industry. As such ground is being sold off and farm houses being lived in by people outside of the industry. Our own farm encompasses land that used to be farmed by 5
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(MMB) had a monopoly on the secto
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farmers, and this is still classed as a medium sized enterprise. Super dairies are coming more common but land prices are rising dramatically and as such individuals soon come to the end of their expansion cap b l i
• The dairy sector in Wales needs a injection of enthusiasm to stimulate the members as with the weather that farmers have had to endure of the last few years and the rising variable costs and milk price fluctuations I can see that many elder farmers may look to retire out of milk and to keep less intensive stock on th
• The future is bright the future is food: Although the issues addressed above have hampered welsh dairy farmers over the last 15 years I do believe that the industry will improve, there are only three things that a human being needs to survive and that is water, shelter, and food. We do not need phones, TV, luxury items. We have become a society of wants rather than a society of needs and it seems that our wants have become so large that our needs are being neglected. However mother nature is reducing the supply of our wants and as any amateur economist will tell you if demand out weighs supply then the price of the commodity will sky rocket. As such those who produce a commodity that is a need such as milk will be in high dem
• The nutritional benefits of a bowl of whole grain cereal and whole milk need to be advertised better, this offers a cheap and healthy meal that will start the day
e l ill this simple start to the day, starting your metabolism with such a healthy breakfast help the obesity epidemic that we face? Whole milk is advertised as full fat however if it was advertised as 96% fat free milk it would be an easier produ e
November 2012
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Written evidence submission from Tesco 14)
We are pleased to take this opportunity to outline to the Committee our approach to the dairy industry Wales. Tesco has a strong commitment to the Welsh dairy sector and we continue to work promote a sustainable sector, which meets customer expectations and delivers long term value in the supply chain.
The TESCO Sustainable Dairy Group
• The Tesco Sustainable Dairy Group (TSDG) was established in 2007 after years of dairy farmers operating in an extremely difficult market with farms going out of business
• TSDG now has over 700 farmers who exclusively supply Tesco with all its own brand fresh milk
• TSDG ensures the price paid to the farmers for their milk is fair. Using a "cost tracker" run by an independent consultancy, the price paid is an accurate reflection of a farmers' costs
• We meet n hly with producers to discuss their key priorities
Now in its fifth year, the Tesco Sustainable Dairy Group was established to bring cost stability and address the uncertainty faced by dairy farmers d by continuing volatility in the markets. Under the Tesco Fair Price Guarantee, Tesco always pays TSDG farmers a price that is above the cost of production, ensuring that their business turns a profit so they can plan and invest for the future. ur TSDG now has 720 farmers in Scotland, England and Wales who exclusively supply our
fresh milk and cream. We meet their delegates quarterly every month to discuss projects, pricing arrangements and to generally better understand the supply chain. Tesco is the only major supermarket to guarantee that its milk is 100% segregated, meaning that consumers can be assured that every litre of own‐brand milk they purchase has come from a TSDG farmer. n independent review of the price paid to TSDG farmers is carried out every six months by
Promar, the UK’s largest agricultural and agri‐food consultancy. Our most recent review was September 2012. Our new and current pence per litre is 31.08, an increase of 2.02ppl, reflecting increases in the cost of production from 29.06ppl, primarily driven by the significan increase the cost of feed. Reduced milk volumes as a result of bad summer weather have also caused the overhead contribution per litre to increase. SDG members can receive an additional 0.5ppl through the Promar supplement, taking the standard litre price to 31.58ppl effective from 1st October 2012. The Promar supplement is paid to farmers who supply Promar with details of their cost structures; helping to keep the price we pay an accurate reflection of the costs of production. From the submitted to Promar, we agree upon a fair price for the milk, a figure fo unpaid family labour is added, and income streams, such as subsidies and cow/calf sales are left separate.
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We work very closely with TSDG mers, holding an annual national conference as well as regional conferences. We meet our farmers face to face and regularly consult them about how well the TSDG is serving them. At our November Conference, 86 percent of the farmers responded that they were proud to be a member of the TSDG
Since its creation, Tesco has invested £165 million into the Tesco Sustainable Dairy Group and in paying above‐the‐average price to farmers. The success of the model means we are now looking at rolling it out to our beef and pork producers.
The University of Liverpool
The Tesco Dairy Centre, in partnership with the University Liverpool’s Faculty of Veterinary Science, is a national resource centre for farmers who are of the Tesco Sustainable Dairy Group, offering expertise in cattle lameness, fertility and calf health. The Centre aims to help farmers in enhancing the commercial benefits of their work, as well as offering advice on animal health and welfare to consumer trends. In January 2008 we also launched a visitor centre which is a national resource point for schools, farmers and dairy industry experts.
TESCO Sustainable Dairy Group in Wales
We have 96 TSDG Welsh producers. This is made up of Welsh core producers in North Wales who work with Robert Wiseman Dairies 75 Core Producers in South Walesprocessed by Milk. Robert Wiseman Dairies core farmers produce 28.5 million litres per year and 42.5 million litres comes from First Milk each year. In total our 71 million litres year from Wales represents around 4.62% of the total Welsh milk supply, based on total Welsh milk production (2011) billion litres.
‘Proper Welsh Milk’
Proper Welsh Milk opened in 2011 on the site of the former Whitland Creamery and their brand offers what they are calling “100% Proper Welsh Milk”. We were proud to be the first supermarket to stock Proper Welsh and it went into our stores across North Wales in January.
It works with dairies in North Wales and guarantees consumers that their Milk is processed and bottled in Wales. With growing customer popularity, the Proper Welsh Milk is growing its business through Tesco, and is now in 38 of our stores across West, South & Mid Wales.
When the dairy recently announced it would pay its farmers an extra 3p per litre of milk in an effort to keep production in Wales, Tesco agreed to absorb the cost so customers would not face a price rise. We now sell between 18,000 and 20,000 litres of this Milk across our Welsh stores each week.
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Recent Innovations
We have recently changed our milk labels, so that we highlight to customers the TSDG on our 4 and 6 pint bottles, including highlighting our www.tescomilk.com
website. Furthermore, we are developing new scholarship programme open to members of theTesco Sustainable Dairy Group. G farmers or their family members are offered the chance to study elements of dairy farming such as animal welfare, animal fertility and sustainability.
After carrying out their studies, beneficiaries of the programme will aim to promote new innovations and ideas throughout the TSDG. Beneficiaries of the programme will also be given the opportunity to visit the Tesco Dairy Centre of Excellence at Liverpool University to discuss their plans and obtain advice and support from members of the dedicated team.
Last year we moved all our standard own‐brand cheddar to be 100% British, and all our territorial cheeses (e.g. Lancashire, Cheshire etc.) and our farmhouse cheeses are sourced from the UK. All our own‐brand cream and butter is 100% British, as are 89 of our 101 yoghurt lines, including our Yoo venture brand range. We continue to look at what we can do to increase British sourcing across the dairy category; for example in yoghurt lines.
Ensuring Animal Welfare
Our cows produce 7,500 litres of milk each a year so it’s important to us that they are as healthy and happy as possible. To ensure this we have a dedicated agriculture team at Tesco, who are responsible for writing and implementing our strict Livestock Codes of Practice. We also work with independent experts to ensure we keep improving things. To make sure our suppliers always follow these codes, our dairy farmers are now visited every year by an independent auditor.
We set targets for improvement each year, and monitor important areas such as lameness, cleanliness and cow health in each farm. This allows farmers to compare their performance with the rest of the group and allows us to target any help and resources to the areas where farmers need it most.
We would be happy to provide any further details the committee may be interested in.
December 2012
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Written evidence from the Minister of State for Agriculture and Food, Department for the Environment, Food, and Rural Affairs (DFW 15)
Executive summary
1.
ic enc es.
Against the background of global market volatility, rising prices and costs and greater market orientation with the forthcoming abolition of quotas, it is imperative that the Welsh and British dairy industries should continue to explore all scope for improved eff i i
This will help to improve the competitiveness of Welsh and British milk and products gainst imports and on export ma k t .
Progress will depend on collaborative long-term solutions. All parties in the supply chain should have fair contractual terms and condition de of practice is a major step f r
Governments across the UK will implement the EU dairy package domestically as soon as practical following consultation. Participation in producer organisations can help farmers to share technology and know-how to boost overall perfo ma
The UK dairy industry needs to take proactive steps to develop important initiatives such as the Dairy Roadmap and Dairy 2020 and form a strategy to capitalise on the opportunities provided by growing global demand for dairy pr d t .
I have challenged the industry jointly to develop a longer-term strategy by the time of the next Dairy Supply Chain Forum in Spri
The Government will continue to encourage and facilitate the industry’s develop
Commentary
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3. s and the new industry co
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summer including the protests by farmers. Some n made
This written evidence is provided following the oral evidence session on 27 November 2012. The Committee has examined the main reasons why the industry faced difficulties in the
important progress has since bee .
Against a background of global market volatility, rising prices and feed costs and the abolition of quotas, it is important to focus on ensuring the long-term health and future of the UK dairy i d
10. The emphasis must be on collaborative solutions. he industry has done a great deal of work already in agreeing the groundbreaking code of practice on contractual relationships. Many individual operators, their customers and the farmers who supply them are now working constructively on a range of new contractual and pricing arrangements. We must all support
ive reasonable time for these contractual changes to take fu c .
11. UK Governments have now launched consultations on the domestic implementation of the EU dairy package. This provides the opportunity for farmers to collaborate to form Producer Organisations which may then negotiate contracts on behalf of their members. These groups
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can also help their members to realise the benefits of collaboration; driving further efficiencies, sharing technology, know-how and different market app e .
12. A positive future for the UK dairy industry can also be driven forward through further development of the Dairy Roadmap and Dairy 2020 initiatives and more proactive work to develop a long-term strategy. The most recent meeting of Dairy Supply Chain Forum demonstrated the industry’s appetite for a common strateg o u
13. Improving skills, unlocking innovation and further enhancing our efficiency and productivity will be crucial in a fiercely competitive market place. This is key to offering value to customers, displa i g imports and taking-on the challenge of export to target markets. This would increase demand for British milk and bring new revenue into
14. The Government is committed to helping to improve the competitiveness of the British dairy u t ut there are further ch need to be addressed. Evidence from the Dairy
Science Forum (June 2011) has shown that the variation in technical performance between farms with similar production systems can be as much as a third. Industry programmes such as the DairyCo Continuous Professional Development schemes ‘DairyPro’ and ‘Milkbench’could help to improve farm performance and efficiencies and increase the profitability of some dairy a
15. Defra and UKTI are also developing a Dairy Exports Summit for Spring 2013. This will provide a springboard for UK dairy farmers, processors and traders to look at the potential for export r t .
16. The Committee considered the Groceries Code Adjudicator Bill during its oral evidence session. Since then the Government has announ hat the Bill has been amended to provide the adjudicator with the power to fine any of the participating retailers if they treat suppliers
17. The Committee specifically requested an explanation of why Government does not have information on the price that is paid for milk supplied or sold within Government. Government departments are not directly involved in milk purchasing. Private companies are contracted to provide catering services to staff and each contract must meet the mandatory Government Buying Standards (GBS) for Food and Catering Services. Those private companies have declined to say how much they pay their suppliers for milk on grounds of commercial sen t .
18. My own department, Defra, has a catering contract with ‘Eurest’ which sources food to meet UK or equivalent standards of production and indicates the origin of products. Eurest has significantly exceeded the GBS target of at least 10%, by value, of raw ingredients to be produced, certified or assured to higher level environmental standards. Eurest supplies Defra
roach s
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sitivi y
1 Pro initial funding was provided by Defra using residual Milk Marketing Board monies for the specific benefit
of English and Welsh farmers. The ‘Milkbench’ benchmarking system is open to GB dairy farmers - Dairy
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with liquid milk from two UK dairy companies, Rachel’s Dairy and Yew Tree Dairy, but declined on grounds of commercial sensitivity to share how much it pays r l .
19. I have challenged the industry to develop its thinking on a longer-term strategy for UK dairying for discussion at the next meeting of the Dairy Supply Chain
January 2013
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Further written evidence from Alun Davies AM, Deputy Minister for Agriculture Food Fisheries and European Programmes, to the House of Commons Welsh Affairs
Committee Inquiry on the Future of Dairy Farming in Wales. (DFW 12 B)
Further to my attendance before the Welsh Affairs Select Committee Short Inquiry on the Future of Dairy Farming in Wales, on Thursday 8th of November in Aberystwyth, please find enclosed the supplementary evidence which I agreed to provide to you
I include my letters to Ministers at Department for Business Innovation and Skills regarding the Groceries Code Adjudicator. These are the letters I sent to the then Minister Norman Lamb MP dated 18th of July, and my follow-up letter to Jo Swinson MP, dated 23rd of November
I also enclose the statement I made to the National Assembly of Wales on 25th September1, which was an update on how we are supporting the dairy industry as set out in the Plan for Milk that I announced in July. The Plan confirms my commitment to do everything I can tohelp the dairy industry. This includes strengthening the advice and training available to producers through the Farming Connect initiative, providing business support and reducing the regulatory burden placed on the sector wherever possible. I explained to you in November that I remain engaged with representatives of the whole supply chain, including primary producers, processors, retailers and consumers to identify what can be done to deliver improvements and growth in the industry. This etwork is helping to shape our thinking on the next Rural Development Plan - from 2014. I continue o engage with the other UKgovernment administrations and ministerial colleagues on key issuessuch as the latest proposed CAP reforms
My next steps include establishing a new Dairy Task Force for Wales so that I will be able to discuss key issues as they arise with representatives drawn from across the industry. My policy decisions ill be directly informed by this engagement
In closing, I was pleased to note Jo Swinson's recent announcement that the intention is now to give the Groceries Code Adjudicator power to fine those who are identified as acting in serious breach of the Code immediately, rather than having to embark on a lengthy process of referral to ministers for special dispensation to do so. This is something I have persistently advocated including in the Bil ince the very early stages of this process
I trust you will find this helpful and I look forward to reading the results of your inquiry
APPENDIX
Letter from Alun Davies AC/AM to Norman Lamb dated 18 July 2012
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GROCERIES CODE ADJUDICATOR (GCA) BILL
Thank you for your letter of response on 13 June, regarding the Groceries Code Adjudicator(GCA) Bill. We disagree on the importance of giving the GCA the power to fine from outset.However I would like to press you again on the issue I raised in relation to UK reportingarrangements
I previously raised the point that there needs to a more formalised engagement with WelshMinisters within the Bill. I am still not content that adequate provision has been made forsuch vital UK wide dialogue, other than at the discretion of the Secretary of StateMy expectation was that Welsh Ministers would be defined, within the body of the Bill, asofficial copy recipients to the GCA's annual reports, and also to reports of any reviews of theGCA. Being sensitive to any concern you might have for the reserved nature to remainclear, I was content that this be phrased in a way that did not imply any devolution ofcompetition policy. Given the nature of the groceries supply chain within food and farming, Ibelieve there remains a strong argument to establish a method of formal inclusion, as amatter of constitutional courtesy
I am pleased to hear that the longstanding and ongoing co-operative working, between ourrespective officials has been helpful. I also welcome your commitment to continue to workwith Welsh Ministers and their officials, in the course of the GCA's establishment
It may be that, in principle, you support my argument for greater inclusiveness on this criticaUK wide issue. However, I recognise that in your position, you may be reluctant to be seento be setting any sort of legislative precedent. It would be unfortunate if the importance ofestablishing a GCA - even without the necessary free-standing powers to set fines - aslost within a constitutional disagreement. I would therefore like to suggest that we task ourrespective officials to discuss what options are possible, both inside and outside of he Bilitself, and for them to develop proposals for Ministerial consideration
The GCA will heavily impact upon devolved areas of food and farming, and has thepotential to assist farmers by regulating food supply chains and ensuring fair pricing. Assuch, enshrining Welsh Ministers responsible for food and farming policy within the bill, ascopy recipients, would in my view improve clarity not detract from it. If here is analternative option outside of the bill, for us to reach a Ministerial agreement that aMemorandum of Understanding (MOU) between both governments be discussed andagreed by officials, then I would welcome this. I would also welcome a meeting between us,as a timely opportunity to discuss both the GCA and some wider aspects of the regulation ofthe UK supply chain. Please contact my Diary Secretary ... to arrange a convenient date and time to meet
I will remain engaged in the progress towards the GCA's establishment, and I look forwardto working with you on this as matters unfold
I am copying this letter to Jim Paice MP, Richard Lochead MSP, and Michelle O'Neill MLA
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Letter from Alun Davies AC/AM to Norman Lamb MP dated 23 May 2012
Groceries Code Adjudicator (GCA) Bil
I am writing to you following the introduction of the Groceries Code Adjudicator (GCA) bilinto the House of Lords
Welsh Government support for the introduction of an effective enforcer of the GroceriesSupply Code of Practice (GSCOP) is longstanding. Although competition policy is reservedbecause of the substantial impact on the devolved area of food and farming, my officialshave been closely engaged with their counterparts within the Department for BusinessInnovation and Skills (BIS) since the Competition Commission's recommendation in 2009Alongside food and farming officials from across the UK, my own officials were part of theBIS co-ordinated interdepartmental group (lOG) negotiations during this time. Thesedebates at official level led to the eventual UK government acceptance of the need for anenforcer of the GSCOP, and the subsequent public consultation in 2010.
More recently, I have been pleased to note that these communications at official level havecontinued, through various meetings and exchanges on previous drafts of the Bill. Thisongoing dialogue has been augmented over this period with Ministerial exchanges at keypoints. Given the highly significant impact of the GCA and GSCOP on food and farmingthis mature and ongoing constitutional courtesy from BIS is acknowledged
Indeed, my last formal Ministerial letter on this matter was on 21 October 2011 and was toyour predecessor during pre-legislative scrutiny. In this previous letter, while broadlysupportive of the then draft GCA Bill, I expressed a number of concerns. Those concerns orrecommended improvements - related to securing the anonymity of complainants, thepower of the GCA to levy fines from the outset, and the need for the greatest possibleaccessibility to the GCA (including from third party representatives)
Looking now at the GCA Bill as it has been published on 10 May 2012, I acknowledge theimprovement as regards access, which is now much less restrictive than in the previousdraft, and thereby more in tune with the spirit of Competition Commission's earlierrecommendations. I also note that the provision to ensure confidentiality remains
These confidentiality provisions, together with the improvements in access, enable the GCAto investigate and consider any source of information, if the GCA has reasonable grounds tosuspect a breach of the code or a failure to follow a recommendation. I believe this new andless prescriptive approach as to what can trigger a GCA investigation, and to whainformation it can consider, is vital if the GCA is to function effectively. This will allow theGCA to consider the relative merits of completely anonymous complaints or those from thirdparties. This provision enables the GCA to monitor and consider any unofficially reportedtrends at its own discretion. I believe this to be particularly important, because the evidence
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from complaints made under the previous Code was that suppliers are often unwilling tobring forward an official complaint if they fear that they can be identified by the retailer. As Iread it, the GCA Bill allows for this consideration. The GCA is then in a position toencourage changes at an earlier stage, which has the potential to reduce the administrativeburden on all concerned, including the major supermarkets
As such I remain broadly supportive, but there are still areas where I seek improvement. Inmy view, for the role of the Adjudicator to work effectively, two additional componentsshould be in place from the outset
Firstly, the GCA must have the power to levy fines from the outset. The GCA requires theappropriate powers to tackle retailers who treat their suppliers unfairly and breach theGSCOP. I still do not accept that negative publicity in the form of 'naming and shaming' isadequate. Failure to give these powers to levy fines from the beginning would in my viewweaken its effectiveness and credibility. At the last meeting between our respective officialson 5 March 2012, the issue of fines and legal challenge was briefly discussed. If yourconcern and belief is that fines are more likely to attract a legal challenge from retailers andintroduce unwanted delays, then I would wish to see the evidence that supports that viewTo my mind, this is ultimately a policy decision rather than a legal one, and I would not besurprised to see retailers challenging any decision of the GCA amounting to some form orebuke, whether it be a fine or a public naming and shaming
Secondly, there needs to a more formalised engagement with Welsh Ministers within theBill. I am not content that adequate provision has been made for such vital UK widedialogue, other than at the discretion of the Secretary of State. My expectation is thatWelsh Ministers be defined as official copy recipients to the GCA's annual reports. and alsoto reports of any reviews of the GCA. I am aware that you would want this phrased in a waythat does not imply the devolution of competition policy. However, given the nature of thegroceries supply chain within food and farming, I would see this inclusion as a matter ofconstitutional courtesy
I would welcome more co-operative working arrangements between us on this issue and wilremain engaged in the progress towards the Adjudicator's establishment, and I look forwardto working with you on this as matters unfold
I am copying this letter to Jim Paice MP, Richard Lochead MSP, and Michelle O'Neill, MLA
Letter from Alun Davies AC/AM to Jo Swinson MP dated 23 November 2012
Groceries Code Adjudicator (GCA) Bil
I wrote to Norman Lamb MP on the 16th of July regarding the Groceries Code Adjudicator Bill. As I have not received a reply, I am writing now to raise the points with you that I believe would merit further consideration
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While the Bill addresses several of my previous concerns. I believe that the role of the GCA needs to be stronger than the current Bill provides for if it is to fully address unfairness wherever it is suspected. I maintain that the GCA should have the power to fine perpetrators from the outset, rather than it being a matter of last resort
I am also of the view that there needs to be a more formalised engagement with WelshMinisters within the Bill. I am not convinced that adequate provision has been made for such vital UK-wide dialogue
My initial expectation was that Welsh Ministers would be defined within the body of the Bill, as official copy recipients of the GCA's annual reports, and also to reports of any reviews of the GCA. I am aware that establishment of the GCA is a reserved matter and I appreciate that the role of the GCA should be made clear to all concerned from the start
It may be that, in principle, you support my argument for greater inclusiveness on this UK wide issue. However, I do recognise that you may be reluctant to be seen to be setting any sort of legislative precedent. I would therefore like to suggest to you, as I did to Mr Lamb, that we task our respective officials to discuss what options are possible, both inside and outside of the Bill itself, with a view to developing proposals for ministerial consideration
The GCA will operate in Wales as it will in England. I see that it will impact upon thedevolved areas of food and farming, and has the potential to assist farmers and others in the supply chain here by regulating food supply arrangements. As such, enshrining Welsh Ministers responsible for food and farming policy within the Bill, as copy recipients, would in my view have improved clarity, not detracted from it. If there is an alternative option outside of the Bill, for us to reach a Ministerial agreement, such as a Memorandum of Understanding (MOU), then I would welcome this
I am pleased with the longstanding and on-going cooperative working, between our respective officials which has proved helpful during the introduction of the Bill and could now assist us in reaching agreement on the way forward. Many in government and the industry here share my support for the introduction of the GCA and I trust that you will continue the commitment we have had from SIS to work with Welsh Ministers and their officials on this
I would welcome a meeting between us as a timely opportunity to discuss both the GCA and some wider aspects of the regulation of the UK supply chain. I'd be grateful if you could contact my Diary Secretary .., to arrange a convenient date and time to meet
I remain engaged on the establishment of the GCA and look forward to working with you onthis, as matters unfold
January 2013
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Further written evidence from Dairy Crest Ltd (DFW 04B)
Dairy Crest n Overview
1. The dairy sector is one of the largest food market categories in the UK worth
£10bn.
3. Dairy Crest is one of the UK's largest purchasers of fresh milk, buying 2 billion
litres every year.
4. We are now the only UK listed dairy business and the only major liquid milk
processor in British ownership.
Dairy Crest Direct n Overview
1. Dairy Crest Direct is the farmer business that represents the majority of our
direct suppliers. The group was established in May 2004.
2. Elected regional representatives operate within a Farmer Forum - to
determine the direction and aims of the business. The Forum in turn elects a
Management Board that is responsible for running the organisation.
Voluntary Code of Practice
. Dairy Crest was proud to be the first processor to adopt the voluntary code of
practice governing the business relationship between farmers and processors,
before it was officially signed off on 31 Augu
2. The code gives a commitment from milk processors to new contract terms,
allowing farmers to move their milk supply with only 3 months’ notice ollowing
a milk price change and giving farmers longer notice of any price changes.
Dairy Crest is currently writing both of these changes into our farmers’
contracts.
3. The code also asked processors to move to a more transparent milk pricing
model. Dairy Crest and Dairy Crest Direct have been working on a pioneering
mathematical formula to be launched in April.
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Milk Pricing Formula
1. Dairy Crest and DCD have confirmed their intention to offer farmers on
standard Liquid contracts the opportunity to move to a ground-breaking
formula based milk price from 1 April 2013.
2. The formula price mechanism has been developed by Stephen Bradley, who
is a well-known and respected within the dairy sector for his milk price
comparison website, milkprices.com.
3. Stephen Bradley was jointly appointed by Dairy Crest and DCD with a brief to
find a simple, more transparent formula method of agreeing the milk prices
currently negotiated between the two parties.
4. Both Dairy Crest and DCD hope that its adoption will help take some of the
heat out of milk price negotiations and address some of the challenges seen
earlier this year
5. The finer details of the actual formula calculation are currently being finalised
but it will take into account movements in both key on-farm costs and dairy
market indices.
6. The formula driven price is to be offered on a voluntary basis from 1st April
2013. Farmers will be able to take out the option to place 25%, 50% or 75%
of their volume on this ontract
7. Dairy Crest, with the support of DCD is continuing to recruit farmers to
increase its direct milk supply. Feedback suggests that the potential to supply
milk on a formula price will be an attractive option for new suppliers
February 2013
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Further written evidence from the Welsh Retail Consortium (DFW 09B)
During the evidence session on Tuesday 27 November Iwith more detail on the importance of country of origin o consumers.
The Institute of Grocery and Distribution (IGD) is the UK research organisation that covers all aspects of the supply chain prepare regular briefings on consumer trends and have supplied the following slides based on their research
The first slide (below) is the current consumer response when asked which aspects would encourage them to pay a premium. It puts into perspective the importance of country or origin, but also shows that ocal produce is more important.
agreed to provide the Committee t
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In overall terms IGD has told us interest in country of origin has declined slightly in the last few years, although local produce has increased in popularity. The next slide gives a detailed breakdown of country of origin interest in recent months
These slides demonstrate that Welsh produce may well be attractive to Welsh customers, where it will be seen as ‘local produce’ (many of our members have Welsh milk, butter and cheese products). However, trying to sell Welsh dairy produce in other parts of the UK will be more difficult if simply relying on country of origin. The greater selling points are more likely to be other factors, such as higher quality ingredients or animal welfare standards
February 2013
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