My Lords, I thank the Minister for his explanation to the House today. This is an incredibly important measure to help resolve deep-seated problems at the producer end of the milk supply chain.
I declare my interests and experiences from being involved in a supply chain, as I have owned a dairy farm and received payments for over 40 years. I supplied milk in the beginning to Milk Marque and subsequently to several other processors, as well as chairing a producer group and the milk co-op Dairy Farmers of Britain. I was also a shadow Agriculture Minister in the Lords during the passage of what became the Agriculture Act, opposite the noble Lord, Lord Gardiner. I thank him for committing Section 29 into the Act.
The milk industry is extremely competitive. It has evolved with the rise and consolidation of supermarkets. Their dominance in the grocery trade has migrated milk away from doorstep deliveries. The consolidation of the top, supermarket end of the supply chain has driven consolidation in the processing sector. I liken it to the challenge of playing musical chairs, whereby the number of processors is successively reduced by the expanding supermarkets, which channel the supply chain towards expanding processors. An example of this business is the Co-op, which, at that time, expanded by acquisition. It reduced its milk suppliers from two to one, whereby the Co-op’s amalgamation costs of £6 million were, in effect, paid for by the dairy supply chain competing to be the one supplier of milk, without much regard to fair dealing.
By contrast, the service sector can be equally unstable and volatile, supplying milk to outlets such as Starbucks and others. In the other place, the debate mentioned the possibility of waste. I agree with the Minister in the other place, Mark Spencer, that there is virtually no waste in the milk chain. The recent example of so-called waste, when Covid shut down such outlets, resulted from those dairy suppliers being suddenly told that there would be no collection of their milk for the foreseeable future, and they faced the problem of safe dispersal immediately, with full tanks and cows needing to be milked again. I pay tribute to Dairy UK and Defra, led at that time by the Secretary of State George Eustice, for rectifying the situation.
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I can explain that farmer co-operatives set up Westbury to produce milk powder so that the price of the commodity product, milk, was not set by the last supply to clear the market. The supply chain has also re-engineered milk away from the spring flush towards the supply trough at winter housing, which has taken considerable investment in the chill chain, such that milk freshness is now maintained at 4 degrees, from the farmer’s milk tank, through processing and distribution, to being on the supermarket shelf. The milk industry is a very mature, successful and effective sector of agriculture, yet it needs this regulation.
In the passage of the Agriculture Bill, debate took place around GSCOP and the role of the Groceries Code Adjudicator, situated in the Business Department, not Defra. I declare my interest as being in the Labour team that took that legislation through the House. The Groceries Supply Code of Practice is different; it is between supermarkets and their immediate business suppliers, not primary producers, which generally do not have direct contracts to supply milk to supermarkets. Careful consideration is needed to determine in which
department the agricultural supply chain adjudicator should be positioned. There is a belief that this code of practice can be swiftly implemented, but it has yet to be written. The powers of the adjudicator must be clearly understood in the supply chain and will not in any way relate to prices in the market. This took some considerable time to be understood in the GSCOP, where invaluable experience and advice will be useful, but residing in the Business Department. I agree that the regime should not be interfered with. The great success of the groceries code was in no small measure due to the appointment of the correct person in that independent role.
Farmers are generally not used to taking their products beyond the farm gate. Does the Minister agree that careful handling of the fair-dealing obligation in the milk sector must prove successful if this regime is to be expanded with confidence into further sectors of the industry, next being the pig industry? Any hint of price setting or collusion will entangle the Competition and Markets Authority. There must be no misleading in that respect, with regard to what this important framework must achieve in establishing fair, balanced contracts that are clear and transparent. It will necessitate nearly all processors issuing new contracts of supply and farmer/producer organisations of those processors coming out from under the wings of processors into effective business supply managers and negotiators, on behalf of their farmer members. There could be a need for training and support from the department to help them understand how they can make a difference.
It is positive that the business model of producer organisations will allow associations of producer organisations to arise without recourse to CMA attention. Can the Minister assure the House that, whoever the headhunters are, they understand and communicate the powers of the adjudicator’s office, where the first responsibility is to issue necessary guidance? Will that guidance be subject to industry consultation and endorsed by Parliament?
While it is now four years since the Agriculture Act, there has been exhaustive consultations and discussions within the industry. I pay tribute to the NFU’s Dairy Board, under the leadership of Michael Oakes, for contacting every processor and producer organisation to secure agreement that this regulation must be embraced and made to work effectively by the whole industry. It is vital that long-term relationships are built up for the benefit of consumers.