World Food Prices

My Lords, I congratulate the noble Lord, Lord Taverne, on securing this debate on the topical subject of food prices. As he so eloquently told us, the first aspect to note is that this is a worldwide phenomenon from which the UK is not immune. Even though only a small percentage of food is traded internationally, commodity markets are global. I shall concentrate my remarks on the effects in the western world. I declare my interests as a dairy farmer in Cheshire, as a director of the co-operative Dairy Farmers of Britain and as a member of both the NFU and the CLA. As a farmer, I am acutely aware of whose food prices we are talking about—food pricing at both ends of the supply chain. Historically, the retail price of food has been held through a combination of efficiencies and deflation down the supply chain and especially at the farm. The farm-gate price as a percentage of the retail price has been falling consistently over many years. A farmers’ co-operative’s prime function is to sell its members’ supplies at the highest price possible and to push prices up for its suppliers’ prosperity. In the dairy sector, that has been extremely difficult, with spare capacity in the processing sector failing to react quickly enough to consolidation in the retail sector. The Bank of England’s monetary panel’s ability to meet the Government’s inflation target has certainly been made easier by the actions of the grocery trade. Many a debate in your Lordships’ House has felt the pain suffered by the farming community. In the milk sector, supermarkets are able to take advantage and have built their margins to 40 per cent or more. Moreover, the recent price rises at both ends of the supply chain do not mean that the farm end of the chain is now sustainable. Much consolidation is still required. The price of oil is intrinsically linked to food prices. The chill chain, packaging, transport and fertilisers are all heavily dependent on oil. Despite the massive rises in farm-gate prices since spring 2007, supplies of milk are down 6 per cent year on year. Farming confidence is extremely fragile. The supermarkets have responded by reducing price rises through a reduction of their margins to 20 per cent and are looking to enter into long-term relationships to secure their supplies. Any future price wars are likely to be at the expense of their own margins. What does that mean for the future? Has food been too cheap, and is it merely rebasing? What does it mean for government policy? To return to the global situation, the price rises have been for a combination of reasons. While supplies declined through some poor harvests, demand has increased, especially in China and the developing world. Alternative biofuels have been developed to compete for land use. Energy prices have rocketed. In addition, some exporting countries have responded by export bans, and the turbulent situation has been exacerbated by commodity speculators. Food policy has evolved alongside those changes. In the 1970s and 1980s, farmers were encouraged to produce. The policy was food from our own resources. With the resulting food mountains at taxpayers’ expense, policy evolved towards addressing the environmental consequences of changes in the production methods that brought about those food surpluses. Notions of sustainability argued for a balance between the economic, social and environmental aspects of policy. Can they be made compatible? Is there a trade-off? Who pays for public goods? Payment on the basis of income forgone in production methods had unintended consequences, as the measure was often against continuing downward movement on prices and hindered a more integrated approach. Policy has evolved again towards an understanding of the multifunctionality of the countryside. To the three aspects of sustainability—economic, social and environmental—have been added animal welfare, price and climate change. The debate has become more complicated; the trade-off between so many outcomes to policy has resulted in a lot of mixed messages, which has become confusing to the public. The era of cheap, safe and plentiful has drawn to a close. Issues such as waste, recycling, the effect on third-world economies, climate change and renewable energy mean that food and supply policies need to be reassessed. This country’s strategic approach within the context of a European policy needs re-evaluation. No doubt many aspects of present policy will remain, but it must be recognised that we need a more global approach, and a more co-operative approach will become necessary. How far does the situation call for more of the same—for example, areas of more intensive agriculture and the acceptance and application of more scientific advances, such as genetic modification? Do we need a continuation of the present liberalisation of trade policies without protectionism and taxpayer support? It is interesting to note that the response of many in the developing world is to implement export bans, as they see price rises as continuing to undermine their domestic development. Security of supply must not be confused with self-sufficiency. I argue that government policy must concentrate on joining up policies on climate change, land and water. Models which show the trade-offs between those outcomes need to be developed. The role and responsibilities of Government need to be readdressed. What should be the focus of any UK research and who should pay for it and what it delivers? I argue that it needs to refocus on production systems that reduce the need for water and energy. Transitional research needs to inform the debate. We need to show some urgency in our debate. On a global scale the BRIC countries—Brazil, Russia, India and China—are exerting huge economic influences, with annual growth more than 10 per cent per annum. Their strategies must be acknowledged. On the domestic front, the persistence of economic pressure means that there is a developing skills shortage at the farm gate. Pillar 1 support is still critical to farm profits, while resources are transferred to Pillar 2. There is a need to link the two, underpinning land use. Supply chain contracts need to become less volatile to secure profits through longer term contracts and more co-operative relationships which are understood by the competition authorities and to the benefit of consumers. Global pressure means food prices are unlikely to fall back to the relative levels of the past. I look forward to the policy debates initiated by the Government into land use, food policy and food security. Continuing support of the UK farming industry is vital. It must continue to be evidence based, scientifically sound and demonstrably seen to be benefiting the consumer. I remain confident that a new policy framework will emerge.