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Dairy Industry

Volume 764: debated on Thursday 17 September 2015

Question for Short Debate

Asked by

To ask Her Majesty’s Government what steps they are taking to support the dairy industry in the United Kingdom, in the light of the European Union aid package announced on 7 September.

My Lords, I am grateful to your Lordships for affording me this opportunity to ask the Question for Short Debate today. In doing so, I declare my interest as a member of the National Farmers’ Union. I am delighted that my noble friend Lord Gardiner of Kimble is to reply. He possesses a deep knowledge of the countryside in general and rural issues in particular. I know that he is well aware of the significant problems which face the UK dairy industry, especially as his family has long been associated with that industry. From small beginnings last week, I am delighted to see so many noble Lords taking part today, which shows the importance of this subject. I am most grateful for their participation and look forward to listening to their comments. I am genuinely sorry that the noble Lord, Lord Grantchester, is unable to join us on the Benches opposite on this occasion. I know that he has another appointment but he is an acknowledged expert on the dairy industry and we shall miss his expertise today.

Farmers are having a pretty rough time, with the dairy sector experiencing probably the worst of it. The situation is degenerating and dire. Farm-gate milk price returns to UK farmers have fallen by 25% to 30% since the summer of 2014. This equates to falls from around 35p per litre to an average price in May this year of 24p per litre. The variance in UK farm-gate milk prices is the widest ever seen, with farmers on retailer-aligned liquid milk contracts receiving prices above 30p per litre but others supplying into powder and milk brokering receiving prices down to 15p per litre. In fact my next-door neighbour at home, who only milks 60-odd cows, is on 14p per litre with First Milk.

This price structure has occurred as a direct result of falling global commodity prices, which were down by nearly 50% in the same period, and other external factors including the ban on imports by Russia. That ban has recently been extended by a further 12 months. Further factors are reducing purchasing by China and the Middle East. Currently, there are 9,777 dairy farmers in England and Wales; that is 488 fewer than in July 2014, and the figure is falling weekly. Many are leaving the industry because they simply cannot continue to fail to make ends meet and young, aspiring dairy farmers cannot get a foot on the ladder. It is really sad.

Just over half of the milk produced in the UK annually is sold as fresh liquid milk through retailers, and is subject to a competitive tendering process where processors bid for long-term contracts. Most retail milk is sold as skimmed or semi-skimmed, so liquid processors end up with a surplus of cream to be sold as retail or wholesale, or to be made into another product such as butter. The huge fall in global commodity prices has reduced the value of these milk constituents dramatically. Around a quarter of UK milk is processed into cheese, in the main into Cheddar. Cheddar is traded internationally and subject to high levels of competition from other countries, notably Ireland. The remaining volume of milk is processed into a variety of products, including yoghurt and milk powder as well as constituent products such as whey—and then we have the supermarkets.

Milk has been at the forefront of a UK retail price war as the major supermarkets compete for custom from hard discounters. Fresh liquid milk has been heavily reduced in price to the extent that the average price for four pints is just 98p. The full effect of these discounts cannot be easily understood, due to the commercial sensitivity of processor- retailer negotiations. But in the long term, this discounting devalues the product and could cause serious damage to the industry if there is not enough value to be passed down the supply chain. I believe that if retailers choose to operate in this way, they must absorb the cost themselves and not seek to recoup it further down that chain. Furthermore, I believe that the end customer would not object to a small rise in the cost of this highly nutritious and top-quality product, which currently is cheaper than bottled water. However, any such rise in price must be passed in its entirety to the farmer.

It is true that a few supermarkets have developed direct relationships with their liquid milk suppliers, paying a so-called cost of production-plus price to farmers, but only around 10% of UK milk is currently under such an arrangement. Cheese wholesale prices have also been falling dramatically, especially with the demise of exports to Russia, as I mentioned earlier, but there is little evidence of any of these cost savings being passed on to consumers—a move which would surely have the effect of bolstering consumption. Can my noble friend the Minister comment on the recent emergency agricultural council meeting, which I know he attended? Following that meeting, what strategic decisions for the long term have Her Majesty’s Government planned to further support the UK dairy industry?

What can Her Majesty’s Government do? The UK dairy industry is adjusting, albeit painfully, to an increasingly volatile global market. While the long-term prospects for dairying are positive and UK dairy farmers remain the most efficient in the EU, there are urgent short-term issues to be overcome. For instance, Her Majesty’s Government need to ensure a timely payment of the BPS in December to ease cash flow in the short term. There also needs to be a review of UK dairy processing capacity. In addition, fairness must be ensured in the supply chain by supporting and strengthening the work of the Groceries Code Adjudicator, while encouraging milk processors to comply with the voluntary code on milk contracts. Finally, in this shopping list of numerous items, there must be a reduction in the regulatory burden borne by dairy farmers.

In conclusion, in many ways the dairy industry in the UK is a victim of its own phenomenal success. We must build on that success, further improving our skills in efficiency, productivity and first-class animal husbandry. We in this country are proud to be world leaders in dairy farming and we must do everything possible to encourage and support our farmers to remain at the top of their game and to be viable, so that they can have the confidence to invest in the future.

My Lords, I thank the noble Earl, Lord Shrewsbury, for securing this debate. I am not an expert but put my name down to speak due to the notice on the A30 that said “Save our Dairy Farmers” and after watching local TV coverage of the drastic steps dairy farmers were forced to take to bring their plight to a wider audience.

I am fortunate to live in a village which has four active dairy farms, and others within a short distance. They are all, without exception, hard-working and diligent farmers, but not all are prospering. The averaging-out of costs of producing milk is a long-established practice but, like all averages, it does not suit all. There are many quirks in the system which seriously affect some farmers’ livelihoods and do not lead to fairness or transparency.

Speaking to local farmers, I hear some fairly distressing stories. Farmer A, on a contract to Müller Wiseman, received 33.6p per litre in May 2014. He is currently paid 23.15p; from October this will drop to 22.35p, down a total of 11.25p per litre. The cost of his feed has dropped over the same period, but the decrease is well behind the rate of the drop in price, and he is down over £14,000 per month. When he left school in 1977, there were 93,000 dairy farmers in the country. Now, there are now 9,500, and they are leaving the sector daily rather than weekly.

Farmer B, on a contract with 300 other dairy farmers to Dairy Crest for Sainsbury’s, gets 30.92p per litre. In October, he will have a small drop to 30.81p. His costs are assessed at 33.48p, so he will make a loss of 2.5p per litre. The milk tanker picks up the milk from both farmers on the same trip, and it is processed together, yet they receive widely different prices for their milk. This anomaly cannot be right and needs addressing.

Four miles further down the road is a very different farmer. This farmer won the Gold Cup at the Livestock Event 2015. He has a herd of 1,800 and milks three times a day. His farm and milking parlours are immaculate and he puts animal welfare at the heart of his operation. I commend him for his efforts and enterprise. But 1,800 cows take some feeding. I have been present at parish council meetings of villages which straddle the A30 and listened to concerns and complaints from the public about the size, speed and frequency of tractor movements through their village. Although I understand that the Government’s general agenda is that bigger is better, this is not always the case. As smaller dairy farmers give up in desperation, the larger conglomerates will take over. This will have an impact on the countryside as we know it, and will not always be good.

There is a disconnect between the cost and effort involved in farming and the public’s perception of where the food they eat comes from. Not everyone watches “Countryfile”, and many in our urban areas have never been in the presence of a cow. Their connection with the countryside, if any, is limited to travelling through to their holiday at the seaside. More publicity is needed to assist understanding of the process of getting milk on to supermarket shelves and thence poured on breakfast cereals in the home.

I welcome the EU’s €500 million package to support farmers but want to know what the UK’s share of this is, how it is to be distributed and how quickly. There is an indication that it will be from 16 October. Is the Minister able to give us more detail?

My Lords, I thank my noble friend for leading us in this debate on the state of the dairy industry, which, I submit, is overdue. I declare an interest as a farmer, although sadly not a dairy farmer any longer. My son persuaded me quite a long time ago now that there were more pleasant ways of losing money than milking cows, so we decided to diversify, which we still do.

We joined a sector of farming that had 25,000 farmers milking cows in 2000. Now, as has already been said, the number is well below 10,000 and falling. At the same time, during that period, we have lost 314,000 cattle slaughtered with bovine TB, costing the taxpayer over £500 million, a figure that is still rising. The important figure to remember here is that the deficit in the balance of trade in dairy products increased in 2013 by £91 million to a total of £1.36 billion—that is a trade deficit in products that we can produce ourselves.

The European Union presented a €500 million package the other day for the whole of the European dairy industry, of which we will of course get a small share. However, what is needed is not palliative measures or short-term handouts but a fair market price and a more stable market in long-term business. The frustration of farmers—dairy farmers in particular—is therefore understandable. In theory, we have a comparative advantage in dairy production over the rest of Europe and even of the world, given the ability to grow grass and to ride the impact of climate change, with the potential to supply an increasing population.

There are many problems. The first is the international market, compounded by the Russian trade ban, the effect of which is estimated by some as equivalent to about 2p a litre on milk. Then there is the increased production still taking place in New Zealand, where they have very large dairy herds; the downturn in Asian demand; and oversupply in the rest of the European Union. We have to strengthen and bolster our domestic sector so that it is more resilient against such external issues. We have experienced supermarket price wars, which I need not dwell on, and food price deflation, especially over the last 18 months.

I am mostly encouraged by many aspects of the Government’s decisions in recent times and by their ethos of supporting business and hard work rather than market intervention and the imposition of nanny state rules. We need to get rid of many of those rules that are already there and see that no more are produced. I am pleased that the Government have a commitment to a 25-year food strategy, and the dairy sector has to be a major part of that. I welcome the support for the Groceries Code Adjudicator, who has the ability now to fine in cases where it is obvious that there is unfair trade. It is important to consider further powers in that direction. I welcome tax averaging for farms. Farming is a long-term business and tax averaging over a period of years is essential. I welcome the recognition of food production and processing as the largest manufacturing sector in the United Kingdom, with a commitment to follow science and ring-fence research and development funding.

We also lost the marketing organisation years ago, which we should not have done. In these circumstances, can the Minister bring together people in the dairy industry to try to agree solutions acceptable to all and renew the confidence in all parts of it? We have been—we are still—living through times of austerity. Therefore, surely, it is crazy economics to see a balance of trade deficit in the dairy sector of £1.3 billion. That is a national disaster, not just a farming crisis.

My Lords, I too thank the noble Earl, Lord Shrewsbury, for securing this timely debate. The current crisis in the dairy industry is indeed severe, as he so clearly articulated. Moreover, it is causing great stress and hardship to our dairy farmers, who rightly attract much public support. They work incredibly hard for very modest reward; they cope with the disasters of epidemic diseases such as foot and mouth every few decades; and they cope constantly with the persisting endemic disease problems, such as bovine tuberculosis. Sadly, but perhaps not surprisingly, they suffer the highest suicide rate of any working group.

The current situation is complex. It involves an ephemeral conjunction of events, as has been described: the Russian ban, a global glut in production, a fall-back in Chinese demand and other factors. All that is overlaid on a long-term agricultural revolution, as the industry seeks to achieve financial sustainability in a competitive global marketplace. That latter challenge is one that many of our industries have had to face in the past 40 to 50 years, but I would argue that there is a strong case for some special support for our dairy farmers—particularly in the short term.

Special pleading is never easy, but I suggest that it is justified for a number of reasons. Our dairy farmers produce a nutritious, essential staple food, which contributes substantially to our food security. We cannot afford to lose the industry. Moreover, our dairy farmers are major stewards of the countryside. They have a key role in the rural economy. Finally, the UK has the geography and, dare I say it, a very good climate for growing grass, which dairy cows very efficiently convert from something that we cannot eat to a nutritious edible product.

What is being and what can be done? The recently announced EU support package has been referred to by several noble Lords, and the €500 million is certainly extremely helpful, but in reality it is fairly modest set against the value of the dairy industry in the EU of about €40 billion per year or the loss of the Russian market, which in Europe stands at about €5.5 billion a year. In the UK, I understand that the slice of the emergency package that we are likely to get is about €36 million. Again, that should be set against the loss of the Russian export market, which our farmers have hitherto enjoyed, valued at about €2.3 billion.

Consumers can help. We can buy British, as the noble Lord, Lord Plumb, said. Incredibly, in this time of crisis for processed dairy products, there is a trade deficit of about £1.2 billion. We could be producing those products and consuming them ourselves.

Milk schemes for children should be maintained. They not only support our farmers but provide valuable nutrition for our young children and promote a healthy diet. That leads me to my first question. Can the Minister assure the House that the EU school milk scheme and the UK’s nursery milk scheme will be continued?

We can do more to ensure fair contracts for dairy farmers. The groceries code was introduced after a Competition Commission report into the supermarket sector which found that the main problems were between the 10 biggest supermarkets and their suppliers. Now, most of the milk produced by farmers in the UK is bought by just two processors. Will the Government bring forward the review of the groceries code during April 2016 and legislate to extend protection to primary producers of milk?

My Lords, I, too, am grateful to the noble Earl, Lord Shrewsbury, for raising these important issues today. I declare an interest as a beneficiary of the Church Commissioners, who own 11,500 acres of land which is used by dairy farming tenants across the country, and as part of a church which serves more than 8,000 rural parishes across England and Wales, many of which are intimately connected to the farming community.

Both my parents worked in the dairy industry, and I know from my work on rural affairs that the UK dairy industry is a great British asset which forms an important cornerstone of our wider social and economic infrastructure. British dairy is at the forefront of farming research innovation.

The farming industry is different from other industries. The primary duty of government is to make sure that the population is fed. Just as global markets have meant that prices have collapsed, there will come a time when they will suddenly rise dramatically. That is how markets work. The point about milk and dairy is that you cannot simply turn it on again. You cannot keep cows tucked away somewhere just in case. It is vital that we make sure that we continue to have a basic ability to produce food.

With that in mind, I start by welcoming the Government’s show of commitment to supporting the British dairy industry in the long term. I am particularly encouraged by Her Majesty’s Government’s commitment to source local food for public services and central government. Indeed, I would welcome an update from the Minister on what progress has been made on that front.

However, many of the Government’s initiatives are inevitably long-term endeavours, but farmers are facing an immediate crisis that currently threatens the industry and is causing great concern, heartache and anxiety. To this end, the emergency European aid package for farmers agreed last week is most welcome, as it has given the UK Government much greater flexibility over how they respond to the immediate needs of dairy farmers. Perhaps most significantly, the EU Commission has acceded to UK requests for extra flexibility on the rules surrounding direct payment under the basic payments scheme, ruling that on-the-spot checks will not need to be completed before payments are made. There are still question marks over whether that flexibility will be enough to ensure that direct payments can be made on time, or whether the Rural Payments Agency will be able to take advantage of early payments from mid-October. Making sure that farmers are given a clear and accurate timeline of when they can expect payment is essential to their planning.

The EU Commission has already confirmed that Britain will be receiving €36 million in targeted aid, and that member states have been granted scope to provide additional aid to support farmers facing cash-flow problems. I look forward to hearing how Her Majesty’s Government plan to use that targeted aid and whether they will provide further state aid for struggling farmers. The case for state aid is a good one, particularly if early October direct payments will not be possible.

Something that the EU Commission did not do, despite requests from many farming unions and European Governments, is to announce a review of the current intervention prices. I know the complications and arguments about that; they have been well rehearsed. I understand that the EU Commission has its reasons for resisting such a review and that the UK Government supported the Commission’s position. However, at 16p a litre, the current intervention price is patently too low to offer any real protection to farmers. Such protection is important: as I said, the nature of milk production is such that it cannot simply be turned on as soon as demand increases. Can Her Majesty’s Government indicate whether they are willing to consider their position on the intervention price should the current position extend, say, into the new year?

My Lords, I declare an ex-interest as a Suffolk farmer: 8 October 2004 was the last day we milked cows at home. We gave up because of the price. At the time, the price was 18p a litre and it was costing us 21p to produce. We were producing about 1 million litres. The arithmetic is simple: 3p a litre on 1 million litres is about £30,000, and that was a negative on the bottom line. There was nothing we could do about that. It was a sad wrench. I had milked my father’s cows as a schoolboy. During the school holidays, the cowmen would throw pebbles at my window at 5 am to wake me up. Full of sleep, I would stagger off to help milk by hand my father’s small herd of Guernsey cows. I could still do the hand milking in my sleep.

The problem has changed relatively little. As we heard, only half of the milk produced is drunk as liquid milk, the rest being converted. So the supermarkets know they can cut prices, even if it forces milk producers out of business, without risking their supply of liquid milk. That is the key factor. The figures speak for themselves. In 1995, there were 36,000 dairy farmers in the UK. Now there are 13,000. In the five years between 1995 and 2000, 20% of dairy farmers went out of business. In the next five years, a further 29% did. In the most recent five years, it was another 13%. Yet the crucial figure is that the national output of milk has stayed static during the past 20 years. In 1994-95, we produced 14 billion litres of milk. In 2014-15, we also produced 14 billion litres.

The average herd size has increased but nothing like as much as one would expect. In 20 years, it has gone up from 75 cows per farm to 133. That is in spite of the huge herds of which we heard from the noble Baroness, Lady Bakewell, a few moments ago. Many small producers, for example in the West Country, have no alternative but still struggle to survive and do so at a survival level. Honestly, with the income per person for some of those farmers, there is real poverty. Now, driving from London to Cornwall, cows by the roadside are merely something for the kids to play the “spot a cow” game with. I do not really see a solution to this, only ways to ameliorate the position.

I rather wish my noble friend Lord Deben, who is in his place, was speaking today because he could then explain whether he still feels that the abolition of the Milk Marketing Board—which gave farmers a stable price—was a good thing. That abolition liberated the supermarkets to do their worst. The situation is extremely gloomy. It is essential for Britain’s countryside, the farming community and our food supply that we continue to have a dairy industry.

My Lords, I, too, thank the noble Earl, Lord Shrewsbury, for initiating this timely Question for Short Debate. I declare an interest as an owner of agricultural land.

The background to this EU-wide farming crisis is well known and has been well rehearsed. However, maybe some repetition at this point would serve for a bit of emphasis. A price fall of from 25% to—some say—50% since last summer was caused by a fall of global commodity prices, the Russian import ban, less demand from China and the Middle East as their economies falter, and, above all, overproduction in the EU. According to the National Farmers’ Union, nearly 500 dairy farmers in England and Wales have quit production in the past 12 months or so.

The UK industry works in a global market and of its own free will. There is no right to a fair price. Over-production always means lower prices. However, that should not mean producers having to subsidise retailers at prices below the cost of production. Once a dairy farmer ceases, they hardly ever return to the industry. We should remember that most commodities are under extreme pressure and there is no easy answer. We heard that about half the milk produced is sold fresh through retailers. The rest is split roughly between cheese and yoghurt and powders. All this is affected by movements in international dairy markets, with farmers at the bottom of the supply chain.

Supermarkets are often demonised, and they should share risk and reward equitably. If they wish to sell four pints of milk for less than a pound, they should absorb that cost themselves and not get it from their suppliers. It follows, as we heard, that the work of the Groceries Code Adjudicator must be strengthened to stamp out unfair trading practices. Other helpful suggestions from our farming leaders include longer-term thinking to embrace points such as fixed-margin contracts, much better country-of-origin labelling, the development of an effective dairy futures market to manage volatility and timely payments to farmers for the work they have already undertaken. They should preferably be paid in the autumn, as before.

The majority of the €500 million package is for targeted aid taken from the super levy on over-quota producers. That would not come out of the wider EU budget and therefore seems a very sensible purse. However, it is essential that this payment is invested in a planned manner and not frittered away aimlessly. Alongside that is the proposal to bring forward some of the direct payments to 16 October. This will most likely be mired in cross-checking and fear of penalties from the authorities.

Nevertheless, some farmers remain amazingly optimistic. I hope that the implementation of some of these suggestions might justify this hope. Do the Government share this sentiment?

My Lords, I add my voice to those thanking the noble Earl, Lord Shrewsbury, for bringing forward this debate on an issue that is vital not only for hard-pressed dairy farmers but for the wider rural economy and tourism in dairy areas, where in the last 10 years the number of dairy farms has halved.

The business of producing milk has been one of the great influences on the shape of our British countryside and British rural life. It helped create the patchwork quilt of small fields and hedgerows threaded together by lanes and punctuated by rural hamlets. It sustained small family farms for generations and inspired artists and writers to give expression to a sense both of place and of who we are as a country. If we want vibrant rural communities in future, then the Government must retain a very sharp focus on supporting our dairy industry and its farmers.

We know that milk prices are no longer protected. The reality is that they are and will remain at the mercy of the global market. Other noble Lords expressed many of the pressures that that puts on the industry. However, I welcome what our Government and our partners in Europe are doing. There is no single solution to this crisis, and it is better that we work with our European partners to support them in making the situation much better.

In the time I have available, I will touch on two issues: the importance of strong supply-chain relationships, and how the Government champion and respond to rural issues. Strong supply-chain relationships exist between some dairy suppliers and supermarkets, including Waitrose, Marks & Spencer, Sainsbury’s and the Co-op, which have schemes in place to ensure farmers are paid a price above the average cost of production for fresh milk for at least a portion of their liquid milk supply. However, as the noble Earl said in his opening remarks, that accounts for only 10% of the market. Much more could be done. Like the noble Lords, Lord Plumb and Lord Trees, and the noble Duke, the Duke of Somerset, I hope that the review next year of the operation of the Groceries Code Adjudicator—a welcome introduction under the coalition Government— will, as the House of Commons EFRA Committee recommended earlier this year, look at how the GCA remit can be extended to incorporate suppliers throughout the supply chain.

Further, it is very clear that producer organisations build greater resilience into the industry and individual businesses, giving more collective power. We see that the strong co-operative structure within the organic sector has helped to keep supply and demand in balance as it has discouraged overproduction and developed added-value products, opened export markets and been able to negotiate with processors on behalf of its members. As such, organic dairy farmers are weathering the crisis better than their non-organic neighbours, as prices have not been decimated in the same way. What specifically are the Government doing to encourage more farmers to unite in producer organisations?

The issues affecting dairy farmers cannot be seen in isolation. There is an interconnected and often symbiotic relationship between those issues and the solutions that need to be looked at and the needs of wider rural communities—and, indeed, the need to protect our nature. It is vital that there is one department that has responsibility for them all—rural businesses and communities and the environment—as Defra does at present. We have a Secretary of State able in Cabinet and in Europe to argue the case for our farmers while mindful of the needs of rural communities and nature, which sustains them both. Rural businesses and communities and nature need one champion in government, and it would be a significant blow should it be dismantled. In the light of the forthcoming tight spending review, can the Minister confirm that the Government have ruled out disbanding Defra?

My Lords, in thanking the noble Earl, Lord Shrewsbury, for his kind words about my noble friend Lord Grantchester, who is himself a farmer, I am delighted on this occasion to stand in his shoes as the shadow Consumer Minister, because, of course, this affects consumers where, in this case, our interests align with those of farmers. The Opposition firmly believe that farmers should get a fair deal for their milk. We have heard of the crisis facing the industry—the source of a very healthy and to me highly enjoyable product. Higher milk production and the action of wholesale purchases has led to farm gate prices falling below average production costs. That is untenable.

We support the dairy industry’s voluntary code of practice, but want to see it adopted by the entire industry. Milk producers need improved bargaining power. At the moment, they are outmanoeuvred by the supermarkets engaging in price wars, with milk simply used as a weapon. That is bad for farmers, but also bad for consumers, who see a message that milk is a mere marketing tool. We need to see British milk on supermarket shelves—yes, at prices which encourage consumers to buy it in preference to unhealthy fizzy drinks, but not purchased from farmers at prices which force them out of business.

So we would also like to see a tough new supermarket watchdog that can look across the supply chain by expanding the powers of the Groceries Code Adjudicator and protect food producers from unfair practices by the major supermarkets. The GCA covers only a narrow part of the supply chain between supermarkets and suppliers at the moment. Indeed, its head told the House of Lords that it could not get suppliers to produce evidence of breaches of the code, perhaps fearing retribution from big supermarkets. Will the Government support the calls made here today and earlier to extend the remit and powers of the GCA?

The UK nursery milk scheme gives children under five at an educational setting one-third of a pint of milk free a day, which I remember from my own youth, providing farmers with a ready market and helping to form life-long healthy diets. Under the EU school milk scheme, which we have heard about, children over five get subsidised milk. The EU is discussing reforms to the scheme, and the School & Nursery Milk Alliance has called on the Government to seize this opportunity to deliver the maximum benefits for schoolchildren and the dairy industry. Will the Minister clarify whether his department will continue claiming the subsidies from the European school milk scheme after the proposed changes? What discussions has he or his department had with the dairy industry about how it can benefit from the European school milk scheme? Perhaps he could also update us on plans for labelling of milk and milk products.

As the right reverend Prelate the Bishop of St Albans said, we cannot keep those cows tucked away in case we need them. This needs good action by the Government, and we will support them to help not just farmers but consumers so that we continue to get the milk, which is good for all of us, at a price good for consumers but also for the dairy industry.

My Lords, I declare my farming interests as set out in the register. I am a member of the National Farmers’ Union. I, too, am most grateful to my noble friend Lord Shrewsbury for raising this important issue for debate. Coming as I do from a family much involved in the dairy industry over many generations, I know that it is a vital part of our £100 billion food and farming industry. Indeed, my first summer job was with the Royal Association of British Dairy Farmers, and I am proud to wear its tie today.

I know of the pressures that farmers are under because of global volatility and a current surplus of milk on the world market. The Government have highlighted the need for EU-wide action to help farmers overcome the severe cash-flow pressures that they are undoubtedly under, and I was able to do so directly at the emergency Agriculture Council in Brussels last week. The Commission has listened to our calls and announced a support package for dairy farmers. The package will focus on three key areas: addressing the cash-flow difficulties; developing a dairy futures market, to which the noble Duke, the Duke of Somerset, referred, similar to those that already exist for grain and sugar, which would help the industry through periods of unpredictable price shifts and give farmers more certainty over prices; and increasing openness and fairness in the dairy supply chain. Commissioner Hogan announced further details of this package at the informal Agriculture Council on Tuesday of this week. Indeed, the noble Baroness, Lady Bakewell of Hardington Mandeville, asked about this, and the precise figure is that the UK has been allocated €36.07 million in direct aid for dairy farmers, the third- largest of all the member states, in recognition of our calls for the Commission to provide support for UK farmers suffering from cash-flow problems. Rightly, the question has been asked on this, and as a matter of urgency we are working on the right way to allocate these funds, speaking to the devolved Administrations in Scotland, Wales and Northern Ireland about distribution across the United Kingdom

Other elements of this package are aimed to safeguard farming for the future, and the sustainability of the dairy supply chain. To this end, we welcome the announcement of a high-level group to look at the futures market and other ways in which to spread risk more evenly. I have to say to the right reverend Prelate the Bishop of St Albans that the Government believe that that, rather than going down the route of intervention on prices, is the best and most contemporary way forward; I think he understands that because I have said it before. In addition to distributing immediate direct aid, the Government recognise the importance of timely payment of the basic payment, as my noble friend Lord Shrewsbury and the right reverend Prelate have said. That is important to ease the cash-flow problems that farmers are facing. Ministerial colleagues and the RPA are working together to ensure that these are paid as soon as practically possible when the statutory payment window opens on 1 December.

As my noble friend Lord Shrewsbury said, it is vital to ensure that dairy farmers are not subject to undue regulatory burdens. In addition to our aim of seeking simplification of the CAP, our processes will be streamlined to make better use of the technology and data to reduce radically the number of inspections. By summer 2016, farmers will have to deal with only one single farm inspection task force, which will combine farm visits with mandatory checks. As well as taking action to support UK farmers now, I assure my noble friends Lord Marlesford and Lord Plumb that the Government want and intend to support the industry to become more resilient and ready to take advantage of the growing demand for British dairy products both at home and overseas.

The noble Baroness, Lady Parminter, referred to Defra and its work and what the Secretary of State and ministerial colleagues are doing. Last week, the Secretary of State set out a series of initiatives. There are quite a number, which I will go through in slightly staccato form because it is important for noble Lords to know about each one. They include an urgent industry-led review of best practice in the dairy supply chain facilitated by the Agriculture and Horticulture Development Board. We also need more investment in processing capacity, which needs to be looked at. We have made a new commitment to publish details of central government catering contracts, including their renewal dates, to bring transparency to the market and allow dairy farmers the opportunity to prepare and compete for contracts. The right reverend Prelate the Bishop of St Albans referred to this. There will be a review of procurement across the wider public sector, including hospitals, schools and prisons. Our aim is that all fresh milk and more than 90% of butter and cheese bought by central government is British. We also want to improve the promotion of British dairy produce within the public sector by working with major catering providers. We also intend to use the Food is GREAT brand to showcase high-quality produce at home and overseas. We intend to work with the food industry, including supermarkets, retailers, manufacturers and caterers, on more consistent labelling and branding of British dairy products. I hope that the noble Baroness, Lady Hayter, will derive some satisfaction from this being something that we are very strong on. We will press the Commission on this because we want it to make it easier for consumers and food businesses to know when they are buying British dairy products.

It is clearly in everyone’s interest—perhaps this is a message to the supermarkets—that supermarkets, caterers and the food industry have security of supply of milk and dairy products. Some supermarkets share with farmers the risk of price fluctuations. I hope and believe that supermarkets should be sensitive to what many noble Lords have said about farmers and consumers.

The Secretary of State will lead a trade delegation to China in November, which will include eight British dairy businesses, to promote quality British products to that growing market. This is part of our commitment to continue to expand export market opportunities, which grew to a record £1.4 billion for the dairy sector last year.

A number of noble Lords asked about the Groceries Code Adjudicator. We have recently given that adjudicator more teeth, providing the ability to fine 1% of turnover. I will take back all the points that have been made by the noble Baronesses, Lady Hayter and Lady Parminter, my noble friends Lord Plumb and Lord Shrewsbury, and the noble Duke, the Duke of Somerset. This is clearly somewhere where we need to think through how best we can assist.

The noble Baroness, Lady Hayter, and the noble Lord, Lord Trees, referred to milk for children. The Government continue to provide free milk for all children of nursery school age at a cost of £63 million. This clearly recognises that milk has many benefits to children’s health and is important for their development. Around 1.5 million UK children under five in 55,000 childcare locations currently receive a free drink of milk—a third of a pint—each day they attend. I am short of time, but there are interesting details on the EU and domestic school projects that I would like to share with noble Lords who have spoken in the debate.

We should not lose sight of the fact that there is great potential for significant long-term growth in the sector, with milk production at a 10-year high and exports at record levels. The latest analysis from Rabobank is that commodity prices,

“are expected to enter a recovery phase”,

late this year or early in 2016, once Chinese buyers start to re-enter the market.

Food and drink is the largest manufacturing sector in the UK, and last year exports of food and drink reached an impressive £18.8 billion. Dairy is our fastest-growing export sector, and we should all be incredibly proud of the British produce that is world-renowned. More than 700 named British cheeses are produced in the UK. With these celebrated products, as well as the Government’s push to open new export markets for the dairy sector, it is perhaps unsurprising that dairy exports to non-EU countries increased by 25.5% between 2013 and 2014. There are real opportunities for development in the industry. The global market is expected to grow at a rate of more than 2% —around 13 million tonnes—a year for the next 10 years.

While the UK is self-sufficient in liquid milk, we are importing significant quantities of other dairy products—ice cream, yoghurt and cheese—which could be produced in this country. Let us all buy more British produce.

To me, dairy farming is at the very heart of the best of British agriculture. It is animal husbandry and the breeding of a top-quality herd of cattle, which is a lifetime’s work by men and women devoted to their animals. The noble Baroness, Lady Parminter, spoke about the landscape that dairy farming provides for us. This is all part of a rural way of life with which many of your Lordships will identify.

The Government believe that through a combination of short-term and longer-term measures we can, should and must safeguard the viability of the UK’s dairy industry through a time of global volatility. This industry is important to us all in the United Kingdom.