§ 10.1 p.m.
§ Mr. Michael Jopling (Westmorland)
I beg to move,That an humble Address be presented to Her Majesty, praying that the Milk (Great Britain) (Amendment) Order 1978 (S.I., 1978, No. 469), dated 21st March 1978, a copy of which was laid before this House on 23rd March, be annulled.I must begin by declaring my interest as a farmer, but not as a dairy farmer. We have prayed against the order not necessarily to oppose it or to force a Division but to seize the opportunity of inquiring into the Government's intentions about the milk industry in the year or so ahead. We feel strongly that it is necessary to have the debate in view of the serious uncertainty now facing the milk industry.
I hope that the Minister of State has something in his brief that acknowledges that uncertainty. It is uncertainty that necessarily followed the end of guaranteed prices for milk at the end of 1977. It is uncertainty whereby the Milk Marketing Board cannot accurately forecast producers' prices as it used to be able to do for the period ahead. There is uncertainty about the whole future of the Board.
§ Mr. Speaker
Order. In order that everyone shall know my interpretation of how far we may go, I advise the House that, while it would be in order to discuss the reasons for the consequences of the proposed changes in the maximum prices at which raw milk may be sold for heat treatment for subsequent resale for home consumption, it would not appear to be directly in order to debate the price of milk for retail sale as that part of the 1977 order is no amended by this order.
§ Mr. Jopling
On a point of order, Mr. Speaker. We are in some difficulty. There has been a reduction in the maximum wholesale price for milk, which is the price received by the Milk Marketing Board. That has a serious implication for the whole of the milk industry. I hope that we shall be allowed to discuss the implications of the reduction in the wholesale price of liquid milk. We shall be in serious difficulty if we are not able to discuss the effect of the reduction in price on the whole of the industry, from 594 the milkman who delivers the milk on the doorstep to the man who gets the cows in at 6 o'clock in the morning. It is a matter that has serious implications throughout the industry and I hope that we shall be allowed to discuss them.
§ Mr. Speaker
I should also have said that it would be in order to point to the anomalies that arise from the fact that lower prices are being paid to farmers while the retail price remains unchanged. I shall be as tolerant as possible.
§ Mr. Jopling
Knowing your tolerance over many years, Mr. Speaker, I am sure that we shall be able to proceed in our normal way. We are most grateful to you, Mr. Speaker, for your help and your ruling.
I was trying to explain that the effect of the order adds a good deal to the uncertainty that already exists throughout the industry. I was able to explain some of the uncertainties that have arisen.
I was explaining how the effect of the order would add to the uncertainty that is caused, for instance, over the future of the Milk Marketing Board. That is a matter about which we have often spoken in the House. In fact, nothing brings the parties together more than our joint determination to keep our marketing boards with their vital powers.
I hope that the Minister of State will acknowledge that the Opposition have always supported him in his efforts to preserve the boards—particularly the Milk Marketing Board. This order will make the life of the board much more difficult.
§ Mr. Nigel Spearing (Newham, South)
The hon. Gentleman mentioned, I think to the surprise of some hon. Members who assumed that this was an increase in the price that would be paid to the Milk Marketing Board, a decrease. Can he tell us what the decrease is, because a decrease in any price is of consequence to the Board and to the whole of its operations?
§ Mr. Jopling
Yes. If the hon. Gentleman will look at the order that we are debating and the parent order—Statutory Instrument No. 2054 of 1977—he will find that in the Metropolitan police district the intention is to reduce the maximum price of raw milk on sale for heat treatment and resale by .720p per litre, to reduce the price at a dairy situated in England and 595 Wales which is not in the Metropolitan police district by .674p per litre and in a number of the outer islands, which I shall not read out, by .68p per litre. Those figures rely entirely on my arithmetic, which is not all that reliable. If the Minister of State would confirm them later, we would all be grateful.
In view of the effects of the order on the future arrangements of the Milk Marketing Board, we should appreciate a progress report from the Minister on how the negotiations for the future of the board are working out in Brussels. It is very close to the meat—or the milk—of this order. We have heard stories in the past few days that many of the first proposals over the future of the board are likely to be resolved in a satisfactory way. I shall not go into detail on those matters. In particular, we understand that a reduction in the percentage of liquid milk sales and fresh product sales from 50 per cent. to 40 per cent. is likely and that a reduction from 150 to 25 cows for producer retailers who want to opt out of the scheme is also likely. These matters seem quite satisfactory. However, I should be grateful if the Minister of State would confirm whether these stories are correct.
There is above that a vital issue which is causing just as much uncertainty in the milk-producing industry at all levels on both the distribution and the production sides. I wrote to the Minister of State about this matter this afternoon. I hope that he got my note. I see from the way that he is nodding that he did. It concerns the present negotiations over the future of the Milk Marketing Board.
I know that a number of people are concerned that a settlement might be reached in Brussels which, while appearing satisfactory in the short term, would leave a serious danger that, after a number of years, the board's powers might be removed. It is felt to be essential that whatever arangement is reached should be permanent and that it should not leave the board uncertain as to its position within the constitution of the Community in future, a position that could be challenged in the courts in years to come. I am sure that the Minister is aware that this matter is causing a good deal of concern throughout the industry. There- 596 fore, we should be grateful if he would assure us that the Government will in no circumstances agree to a solution with these shortcomings in it.
I turn to the heart of the order. Its effect is to stabilise the retail price of milk to housewives. At the same time, it reduces the wholesale price of liquid milk. This dual act seems to sum up most of the dilemmas facing the Government in the intricate maze of action and reaction surrounding the milk market.
I acknowledge the fiendish difficulty with which the Government are faced in trying to stabilise the milk market using the various price structures which exist. I shall give examples of the action and reaction involved. Following the poor year for milk sales in 1977, which was caused partly by the escalation of tea and coffee prices, unfortunately there has been a further fall in liquid milk sales in 1978, following the rise to 12½p per pint on 1st January. The Milk Marketing Board told me today that it expects the March-April sales figures to be down about 2 per cent. on 1977. It would be interesting if the Minister of State commented on that figure.
We do not argue with stabilising the price on the doorstep at this time. Milk sales are highly volatile, depending on price, and it is probably right not to raise the retail price for the time being. But the Milk Marketing Board has said that it thinks that there should be a further rise of ½p per pint at the beginning of June. This is a matter upon which we find it difficult to comment. But it would be helpful if the Minister of State told the House the Government's reaction to that proposal.
The second interaction following the order is caused by the reduction in the level of the maximum wholesale price for liquid milk. The implication of the order is to reduce on average the wholesale price of milk by about 0.7p per litre from 1st April. It is intended to allow the distribution trade its extra costs. The House will agree that in a period of inflation, with distribution costs increasing as they are, when there is a commitment to recoup the distribution trade for these increased costs, the Government have no option but, first, to increase the retail price or, secondly, to reduce the wholesale price. They can perhaps do a little 597 of both. They have chosen to reduce the wholesale price.
At this time of increased distribution costs, with sales of liquid milk slightly down, we do not quarrel with the Government's decision to stabilise retail prices and to reduce wholesale prices. But this step gives rise to a whole set of new actions and interactions in addition to those I have already mentioned.
A reduction in the wholesale price of liquid milk cuts the crucial gap between the wholesale price of milk for doorstep sales and the wholesale price for manufacturing into cheese, butter and other products. I refer to this as a crucial gap because if that gap were to become too large, it could give rise to temptations to import milk from the rest of the Community. We believe that that would be disastrous for our liquid milk market.
If liquid milk were imported, it would go for sale primarily in the supermarkets. Those sales would erode doorstep sales. That would push up the unit price of distribution. We should then be in a vicious circle of cause and effect. What is the Government's view about the dangers of imports? What is the crucial level of the gap between the wholesale price for liquid milk and the wholesale price for manufacture which will prevent imports?
To what extent can our health and hygiene regulations be used to prevent liquid milk imports? Although the reduction in wholesale prices that is implicit in the order makes imports less likely, we are still deeply worried and would be grateful for any information from the Minister.
The order will have serious repercussions for the milk producers. If the wholesale price of liquid milk is reduced, the producer is paid less. That is a matter of serious concern to him. As with the distribution trade, where margins are protected by this order, the dairy farmer's prices are rising, too. The Milk Marketing Board told me today that whereas between April 1977 and April 1978 distributors' margins went up by about 12 per cent., during that same period producers' margins increased by only 2 per cent. We see here the same uncertainty to which I referred earlier.
The order, in seeking to make good the effects of inflation on distributors' margins, 598 reduces the boards' income from liquid milk and puts them at a serious disadvantage. Perhaps one of the most important implications of the order, is that it puts producers at the same disadvantage.
It will become extremely difficult for the boards to influence the seasonal aspects of milk production, which is one of their vital functions in a market so heavily weighted towards liquid milk sales. The boards will be unable to announce future prices, which means that farmers will be unable to plan properly. Previously the boards have been responsible for considering how increased costs should be handled in order to ensure a continuity of supply, especially in the winter months. Now the Government seem to have taken over that role under the order. We believe that Whitehall, with the present policy of political interference by Ministers, will not do the job as well.
§ Mr. Jerry Wiggin (Weston-super-Mare)
This is a most important point. As I understand it, the problem is guaranteeing producers' prices not for the term of this order but for next winter. That is the producers' main fear.
§ Mr. Jopling
I am grateful for my hon. Friend's intervention. I shall come to that point.
Will the Minister explain the Government's intentions on this new level of interference with the milk price, the structure of the industry and the seasonal aspect of production, which was hitherto the responsibility of the board? He should use this debate as an opportunity to explain how far the Ministry intends to do the jobs which have been done so successfully—there is unanimous agreement on that—by the boards in the past.
I turn to the price of the milk that goes into the manufacture of butter, cheese and other products. In that respect it is possible that the boards could do something to maintain producers' returns in view of increased costs which have caused difficulty for the board. Because of the Government's action the Milk Marketing Board has had the ground pulled from under it.
What were the implications of the Government's reaction to the debate at the beginning of the year? The Government then refused to acknowledge the 599 wording of the motion agreed by the House—namely, that the green pound was to be devalued by 7½ per cent. forthwith. We still have not had a 7½ per cent. devaluation on milk. We were told in January that the 7½ per cent. devaluation on milk was likely to come into effect when the new Community prices came into effect. We hoped that that would happen on 1st May but, because the talks are dragging on, we are now told that the date will possibly be 20th May—and it will not surprise me if the eventual date is 1st June.
The consequence of the Government's refusal to accept the will of the House in implementing a green pound devaluation forthwith has meant that masses of dairy produce, particularly butter, have flooded into this country to beat the time when a lower level of MCAs would be paid in respect of imports of dairy produce.
That flood of dairy produce has totally depressed the market and the board tells me that it sees little chance during the year of increasing the price of milk that goes to manufacture in order to stabilise producers' returns through that method. That is a serious indictment of the way in which Government action has brought added uncertainty and prevented producers from getting a better price to recoup their high level of increased costs this year.
Where is the producer left at the end of all this when the implications of the order come into effect? He is faced with rising costs and little chance of having them fully recouped, with no idea what price he will receive for the rest of the year. I am now dealing with the point mentioned by my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin). The producer sees the possibility or likelihood of grain and therefore feed prices being set to a considerably higher level than they were last season.
Furthermore, the producer finds a great deal of uncertainty over whether the Government will be pressured into banning exports of live animals. I do not want to go too deeply into that subject, but in passing I wish to say that the producer sees before him a good deal of uncertainty, because he does not know whether the Government will allow themselves to 600 be pressured into banning live exports. Such a ban would have a serious effect on the returns of dairy farmers in terms of sales of calves and culled cows.
I do not remember a time when there was greater uncertainty facing the dairy farmer than there is today. The National Farmers Union has already said that the dairy farmer is left as a residual legatee, as it were, since he is last in line when milk prices are considered. The Government have a good deal of explaining to do, and I hope that the Minister will acknowledge this uncertainty. It will not do for the Government to say that there will be a thorough review in the late summer when maximum prices for the future will be set. The Opposition believe that the milk industry could be in a serious mess before that review is complete, and in a worse mess during autumn and winter periods.
I do not in the least belittle the fiendishly difficult problems that the future of the milk industry sets for Government, but it is vital that the Government use this opportunity of explaining to the House, and thus to the whole milk industry from the milkman who delivers on the doorstep back to the man who gets the cows in at 6 o'clock in the morning, just what the future will be. There has never been more uncertainty, and there has never been a better opportunity for Government to explain what the future is and how they intend to reduce those uncertainties.
§ 10.25 p.m.
§ Mr. Nigel Spearing (Newham, South)
It may be that the Government have some questions to answer, but the hon. Member for Westmorland (Mr. Jopling) and his friends at least cannot entirely blame this Government for the problems now facing the dairy farmer and the Milk Marketing Board, because of their advocacy of our signature to the Treaty of Rome, which makes it clear that marketing comes within its orbit.
I have come back to this late-night debate from the doorsteps of West Ham, on which there are some of the 32 million pints of milk a day delivered by British dairies. I believe that there are about 38,000 milkmen involved nationally in this fine delivery system.
I am grateful to the hon. Gentleman for the information he gave when I 601 interrupted him. But I should like to direct the attention of my right hon. Friend the Minister of State to the wording of the order. When I got it out of the Vote Office last week to see what the debate was about I naturally assumed—perhaps illogically, but I think forgivably—that the schedule set slightly increased prices per litre. The explanatory note made no reference to whether the prices were either increased or decreased.
I suggest that in pursuit of open government, in future explanatory notes the Government not only draw attention to the parent order, which one would have to look up to see whether the change was an increase or decrease, but say specifically whether it was an increase or decrease. I see no reason why they should not do that. Failure to do so is to be unduly secretive. The signatures of my right hon. Friends the Minister of Agriculture, Fisheries and Food and the Secretary of State for Scotland should not have gone on the order until the explanatory note was a little fuller and a little more honest in its purport.
§ Mr. Spearing
My right hon. Friend reminds me that it is not explanatory if it does not include these points. Therefore, it is not what it sets out to be.
As I understand it, the price system for milk in this country operates on four levels. There is the price to the producer, the guaranteed price as it used to be, guaranteed by statute but no longer guaranteed. One of the laws of Britain has been swept away by a simple Order in Council pursuant to the European Communities Act.
There is the price as which the Milk Marketing Boards sell wholesale to the dairies for liquid milk, the subject of the order. There is the price at which those dairies sell retail to the consumer, and there is the price, referred to by the hon. Gentleman, at which the boards sell to milk processors for dairy products.
All four prices are closely interlinked. If one moves, it has an effect upon the others. As I understand it, we are beginning to dismantle this closely integrated system of prices, which until this year was largely in the hands of the Minister of Agriculture, Fisheries and Food, who- 602 ever he be. In doing so, we are beginning to undermine, maybe in structure but certainly in terms of confidence, the magnificent system of milk production, processing, collection and delivery that we have in this country. Dismantling this system of prices, with the unexpected method of adjusting the price, doing it only through the wholesale price, is causing and will cause increasing uncertainty. It is beginning to undermine the confidence of dairy farmers and the dairy trades more than it would otherwise have been undermined by what is happening in the EEC.
I assume that the reason for the reduction is the seasonal reduction in milk prices which sometimes used to be reflected in the retail price index. No doubt the hon. Member for Westmorland (Mr. Jopling), who is a farmer, knows that this is so, but he did not read it into the record. With the flush of spring, down comes the price of milk. But it used to be the retail price. On this occasion the Minister has decided that it is the price to the producer that will be reduced.
I hope that the Minister will tell us whether this has happened before. If, as I understand, it is a novel feature, will he tell us why it has been done? It will give dairy farmers and the dairy trades even less confidence and, as a result of recent happenings, they will not have very much confidence left at all if things go on as they are.
We discussed this matter in March. My right hon. Friend the Member for Battersea, North (Mr. Jay) was unable to be here, but he put his name to the amendment moved by my hon. Friend the Member for Hemel Hempstead (Mr. Corbett). The last sentence of that amendment included the words:and to press for an agreement which fully safeguards the Milk Marketing Boards and the discharge of their essential functions."—[Official Report, 21st March 1978; Vol. 946, c. 1364.]I should have thought that a reduction in the price paid to the Milk Marketing Boards at a time when their costs and the costs of producers are not going down was a threat to their essential functions.
The whole House, including the hon. Member for Westmorland, supported that amendment, which was accepted by the Government. I know that it referred to an EEC document, but if the House wanted to protect the boards' essential 603 functions from assault from Brussels, why can it not protect them from internal assault as well? I hope that the Minister will say why he seems to be undermining the essential functions of the boards by reducing the price paid to them at a time when their costs are the same or even increasing.
The passing of that amendment and the words "essential functions" covered a wide variety of the workings of the boards. We have heard of the difficulties within the EEC and I do not want to venture too far along that road, but I ask the Minister to tell us what functions of the boards are not, in his view, essential. If they are to get less, on what services to the farmer are they expected to economise? The Minister is asking them either to do that or to dip into their reserves. Is he suggesting that if they dip into their reserves, he will later increase the price to increase those reserves again?
I understand that all the functions of the boards are essential to the discharge of their purposes. That is why they exist. They provide services for individual farmers, including advice, sometimes, no doubt, of a warning nature. Their transport pooling charges enable farmers, particularly those in remoter rural areas, to produce milk that they would otherwise not be able to produce because of the high transport costs. All the functions of the Milk Marketing Boards are essential. If the Minister does not agree, perhaps he will tell us which are not.
The fact that the retail price is not to be squeezed might be helpful, because, as my right hon. Friend will no doubt say, it will help to keep up consumption. That is something that the milk industry wants. I wonder whether it is what everyone in the industry wants, or whether it is everything that the Government or the EEC want.
I do not think that it is irrelevant to this debate to note that in Farmers Weekly of 28th April there is a news item headedOut of milk—and into the moneyIt says:A farmer getting rid of a 70-cow herd producing around 250,000 litres (55,000 gallons) would receive up to £23,750 in three payments.604The EEC Commission has proposed the new non-marketing and dairy herd conversion scheme to replace those that end this month. And to try to persuade more of Europe's dairy farmers to stop production it has proposed a substantial increase in the rate of grants and the abolition of the current top limit that excludes most of Britain's herds from the schemes.Although my right hon. Friend might argue that retaining the retail price—if it is to be retained—will encourage production, it seems that the supranational form of government is to cash in—or cash out—on the uncertainties produced by this and other measures, many of them EEC measures, to provide these colossal sums—they sound colossal to me, although they may not be so to dairy farmers—enabling dairy farmers to go out of production.
§ Mr. Wiggin
Has the hon. Member not grasped the basic problem of the dairy industry within Europe, namely that in this country we produce just over half our requirements, whereas in the Community as a whole we have a gross excess? Is it not in the interests, particularly of the British dairy farmer, that that excess on the Continent should be put out of business in some way or another? The proposal which he has just read out seems to me, and to other fair-minded men, a very good one. Has he an any more positive suggestion for dealing with the problem? His continual harping on this subject does no good, either to the farmers or the consumers, whom he apparently represents.
§ Sir Anthony Meyer (Flint, West)
Before the hon. Member replies to that point, may I ask whether, in view of his intervention, we can now look forward to the hon. Member for Newham. South (Mr. Spearing) championing—
§ Mr. Spearing
I shall certainly give way to the hon. Member for Flint, West (Sir A. Meyer) in a moment. The hon. Member for Weston-super-Mare (Mr. Wiggin) has misunderstood my point. I have no objection to the German or French Governments, individually or together, producing a scheme to help some of their small dairy farmers to go out of dairying if there is a surplus, as there is, in those countries. We in this country 605 have a unique system of dairy production, collection and marketing. With the increased consumption of milk in schools, which we may get shortly, we need to keep up milk production. If these funds are available even where there is no surplus, as is the case in this country, as I understand it, the production of milk is likely to fall. Ift that happens, if the market can stand it, the price of milk is likely to rise. That would not necessarily be to the advantage of anyone. What the hon. Member is saying is logical for the two countries I have mentioned but it is not logical for the United Kingdom.
§ Sir A. Meyer
I am merely making the point that the hon. Gentleman is constantly putting forward as a criticism of the common agricultural policy that it leads to the formation of butter mountains, milk lakes, wine lakes and the rest, and when proposals are produced for interpreting the policy in such a way as to reduce these mountains and lakes he is not satisfied either. Is there no satisfying him?
§ Mr. Spearing
Again I think that the hon. Gentleman misunderstands me. As far as I am aware, these butter mountains and dried milk piles do not exist in the United Kingdom. What I am saying is that here we have the Milk Marketing Board, with a system of prices that apparently is now in process of being dismantled by this House and our own Ministers in our own country by our own domestic Statutory Instruments. Yet it is a system that has served the country and our dairy farmers very well over the years. Indeed, for many townspeople it has operated silently and unknown. I do not think that people will have realised what the Milk Marketing Board does. As far as they are concerned it is the United Dairies, the Express or the Co-op.
I suggest to the hon. Gentleman that here is a very good argument, that we have a system that suits this country, suits our consumers and suits the dairy farmers. This sort of jiggling around, whether it be by the EEC or by our Minister, unless he can give good explanations, is not in the interests of either the producer or the consumer, and we could well do without it.
§ 10.42 p.m.
§ Mr. Colin Shepherd (Hereford)
This order, as explained by my hon. Friend the Member for Westmorland (Mr. Jopling), effectively reduces the prices paid to producers of liquid milk for the foreseeable future. If there is to be no increase in the retail price of liquid milk, returns to producers must come from somewhere else, since it is, I think, indisputable that producers' costs are also rising.
The Dairy Trades Federation feels that at the moment higher calf prices, higher cull cow prices and lower costs of hay will be sufficient. But—and this is most important—these are very much dependent on factors outside producers' control. It is important to bring things into the control of producers if they are to have the confidence necessary.
Calf prices and culled cow prices depend very largely on confidence in the beef sector, and this is dependent on Government action with regard to the green pound. The hay costs for 1977–78 were, indeed, very much lower than in the previous year. But who can say what the weather will be like this year? Who can say what the yield will be like this year?
In addition, whereas feeding barley was last autumn £65 to £67 per tonne, this year it is expected to be in the region of £80. Fertiliser costs have increased, rents have gone up this year, and cowmen's earnings also will have to be increased in line with everybody else's, which is a reasonable expectation. These costs, together with other fixed costs of the enterprise, will have to be recovered from somewhere. They will be the X factor in the calculations.
In the very short term, urgent Government action is called for, since the 1st May devaluation of the green pound by 7½ per cent., as agreed by this House on 23rd January, has not yet happened. My hon. Friend indicated that we shall be lucky if it conies through by 20th May. Will the Minister comment? Will the Minister be able to tell us exactly what the Government's intentions are now that they have failed to achieve this devaluation?
This additional delay has allowed importers of butter to build up stockpiles in 607 anticipation. The whole element of surprise has gone. The situation will not help our own producers. Our milk producers must know very soon how they stand in this matter. Can the Minister take this opportunity to make the situation clear?
Today, as we look at it, the consumer can be left out of the question, because the retail price is being pegged. It is the producer who is very much concerned with the outcome of the debate. It is readily apparent that the current limit of price acceptability of the "pinta" has been reached, even marginally passed. The drop in consumption in January, immediately after the price went to its present level, was 3.4 per cent.; it was 1.8 per cent. in February; the March-April average was about 2 per cent. These figures are indicative that any increase in retail price will further damage retail sales, and that must be avoided if the whole valuable structure of the liquid milk sales is not to be undermined.
Producers' returns must be increased to cover their increased costs and, in the absence of an increase in the retail liquid milk price, that will have to come from the manufacturing sector. Delay in implementing the green pound devaluation not only increases the stocks of imported butter but those butter stocks in themselves work against an increase in returns for the manufacturing milk being feasible.
A further devaluation of the green pound is necessary, and a pre-emptive strike on this matter, to stop the vicious downward movement, will be absolutely essential—especially since the position is now worse than it was at the time of our debate on 23rd January.
My hon. Friend the Member for Westmorland covered the question of the attractiveness of the United Kingdom market to liquid milk imported from the Continent. This is another factor that we must take into account. Its importance must not be under-estimated. The present order is helpful in this direction, but makes it all the more important to improve the returns from the manufacturing sector. This further reinforces the need for a green pound devaluation.
A United Kingdom market too attractive to supplies of heat-treated milk from the Continent could pose a horrific threat 608 to our United Kingdom market structure. Plentiful supplies of milk offered for sale in supermarkets, at a sufficiently attractive discount to overcome the distaste and inconvenience of carrying it home, could deal our distributive trade and doorstep delivery system a mighty blow.
§ Mr. Shepherd
The Government must steer the course necessary to protect the long-term interests of the consumer and the producer, and balance the returns to the producer with the needs of the consumer so that this sort of situation does not arise with the attractiveness of the market to imported milk. The difference between the premium level for liquid milk sales over manufacturing milk sales is most important. My hon. Friend the Member for Westmorland has asked the Minister whether he will give an indication of what he considers to be an acceptable difference, and I too, shall be very interested to know that, because it is crucial to this particular factor.
There can be no doubt that the sophisticated structure that we have developed over the years and that revolves around the Milk Marketing Boards is at the core of our high per capita consumption of liquid milk. It is worrying enough to hear from the Milk Marketing Boards that per capita consumption this year will be as low as in 1971–72. This once again indicates that the level of retail prices is as high, relative to incomes, as it can go. The growth in sales of instant milk powders does not help to allay fears for the future.
The Government must ensure three things. First, they must not allow the situation to develop in which liquid milk imports are an alternative and attractive proposition. Secondly, the Government must agree to do nothing that will in any way alter the operation of the Milk Marketing Boards. Thirdly, the Government must provide the basis for producers to be able to work and look forward to the future with confidence.
With regard to the second requirement, will the Minister give the House his assurance tonight that the Government will settle only for an agreement in the Council of Ministers that secures for all time—those last three words are very 609 important—the structure of our Milk Marketing Boards? I reinforce as strongly as I can the request of my hon. Friend the Member for Westmorland.
I should be interested to know what steps the Government are taking to demonstrate to our EEC partners how an extension of the powers of their producer co-operatives already in existence could benefit all sectors of the milk industry there and make a substantial contribution to the bringing into balance of production and consumption of milk in the EEC as a whole.
With regard to the third requirement, when will the Minister be bringing forward the next order—this one started on 1st April, with no end—indicating the prices for the winter months? That is the very important point that my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) raised.
As for the confidence factor, what consultations is the Ministry having with agriculture and with the dairy industry in all its ramifications about the need to develop a means of allowing forward planning in the industry? Is the price within the order to last a year, or what is the minimum duration for which the structure will run? These are very important questions to which the industry must have answers. We look to the Minister to give them to the House tonight.
§ 10.50 p.m.
§ Mr. Geraint Howells (Cardigan)
Before commenting on the order, I should again declare my interest in that I am a farmer, although I have never kept any dairy cattle. Who knows, perhaps one day I shall change my policy, but at present I have not been convinced.
On 23rd March the Minister said that the maximum wholesale prices would be reduced for the summer months to meet expected increases in distribution costs. He also said that the retail price of milk would be kept unchanged at 12½p per pint. This means that the higher costs of distributing milk are to be borne by the producers rather than the distributors themselves.
That is what has been said. But if we in Britain had played our cards in the years gone by, I wonder whether there would be any need to discuss this order at all. It was a great pity that, under the 610 Treaty of Accession, we signed away the guaranteed price system that operated for the dairy farmers of Britain. When I meet my constituents, particularly the dairy farmers, I am asked two questions "What are you doing in the House of Commons to make sure that we retain the Milk Marketing Board?" and "Is it at all possible at this late stage to persuade our counterparts in Europe to reintroduce a guaranteed price system, which has worked so well in this country for the last 20 or 30 years?".
As I have said before, I give due praise to the Minister of Agriculture. He has the backing of all the political parties in the House. I hope that he will not budge an inch to his counterparts in Europe. I am quite willing for him to talk for another six months about the price review negotiations so long as he will retain the marketing and support systems of which we in Britain are so proud. Who knows, perhaps one day the Europeans—the dairy farmers, the producers and the consumers in Germany, France and other countries—will persuade their Ministers of Agriculture to adopt our marketing system.
I believe that over the past few years we have thrown away too many of our marketing and support systems. At last the present Minister of Agriculture is standing up to his counterparts in Europe. I congratulate him now, as I have before. This has nothing at all to do with the Lib-Lab agreement. It is a fact of life that the producers in this country are in favour of retaining the Milk Marketing Board, which has served us so well.
Many of us are concerned about the cost to the distributors in the trade. Many of us are worried about the producers' returns and their cost of production, which is going up year after year. We talk about consumption and confidence. If we want the industry to have confidence—an industry which can plan ahead—we must retain our system of marketing.
As I have said before—I hope that the Minister will comment on this in his reply—if producers are to make a reasonable standard of living from the land, we must persuade our consumers to eat what we produce. Unfortunately, the past few years have seen a steady decline in the consumption of milk, and I am wondering whether the Minister can say by what 611 percentage consumption has gone down in, say, the last two or three years.
I was very interested to read in the Financial Times today a report of a speech by Mr. Steve Roberts, the chairman of the Milk Marketing Board. He said that a small increase in the retail price of milk would damage consumption as much as last year's rises. He went on to say that a futher devaluation of the green pound was needed this year, on top of the 7½ per cent. already in the pipeline, to boost dairy support prices further. I should like to hear the Minister's opinion of that suggestion.
Finally, Mr. Roberts warned of the risks involved in the large increase in the retail price. He said that, apart from reducing sales, raising the prices could also attract imports of liquid milk from Ireland or continental Europe. If the Government of the day decided to increase the price of milk by a penny a pint, would the Irish and other dairy producers in Europe send their milk here and, if so, on what scale? Perhaps the Minister will comment.
In my view, we ought to say as little as possible tonight. This order will run for six months. The hon. Member for Hereford (Mr. Shepherd) asked when the next order would be put before us. However, if the Milk Marketing Board is not to be retained under the present system in Europe, there will be no need to table another order after six months. In my view, therefore, it is essential to hold on to the Milk Marketing Board—the support system that we have—before looking at another amendment which will be tabled in six months. I hope that the Minister wil be successful in his deliberations.
§ 10.58 p.m.
§ Mr. Nicholas Winterton (Macclesfield)
I shall be very brief and speak for about 60 seconds.
I want first to compliment my hon. Friends the Members for Westmorland (Mr. Jopling) and Hereford (Mr. Shepherd) on their very pertinent questions to the Minister. I hope that the right hon. Gentleman will deal with them, because they are of considerable interest to the industry and the consumer alike.
I wish to direct my remarks to the producers. I represent in this House the attractive constituency of Macclesfield, in 612 Cheshire, in which there are many dairy farmers. They are extremely concerned about this debate, which is being held at this very late hour, and it is sad that the House is so sparsely attended, because what may appear to be a trivial matter is of considerable importance. It is a pity that there are not sufficient hon. Members present to justify its importance.
Dairy farmers do not work a standard seven and a half-hour or eight-hour day and a five-day or five and a half-day week. Anyone who deals with livestock knows that the job entails 24 hours a day and seven days a week. Therefore, the questions which have been posed to the Minister are genuine matters of concern.
I take up first the matters raised by the hon. Member for Newham, South (Mr. Spearing). It may be thought surprising that an hon. Member who represents a very urban constituency should take so much interest in what is basically an agricultural matter. The hon. Member does not have any cows in his constituency, unless they are on their way to Smithfield or some abattoir. However, he has many constituents who drink many thousands of pints—not litres—of milk.
Like the hon. Member for Cardigan (Mr. Howells), I meet my NFU regularly every two or three months. There are two questions that farmers and dairy producers have asked me. Shall we be able to have our milk marketing structure, as we have it today, on a permanent basis, not just until 1982? The industry needs the confidence to enable it to make the necessary investment to guaranteee a good supply of liquid milk to consumers.
Producers also ask me whether the supply of liquid milk from our own dairy farmers will be put in jeopardy by the import of liquid milk from the Continent. If it is, it is inevitable that this milk will be supplied to the supermarkets, and in a matter of only six months the supermarkets could destroy the door-step deliveries that we have in this country.
It is not just a question of whether we can maintain the Milk Marketing Board, important as that it. It is a question, ultimately, when we concede the health and hygiene regulations that are being forced upon us—some of which are good and some not so good—of whether our milk will be put in jeopardy by the importation of liquid milk from the Continent.
613 I hope that we can resist this and I hope that the Minister will give very plain answers, because farmers, producers and my constituents are gravely concerned about the future. Dairy producers work hard and they are prepared to make an investment. It is important that the Minister of State, who has shown considerable sympathy for the dairy industry, should provide the answers to ensure that the industry can continue its doorstep deliveries, and that producers and consumers can get as good a deal as they have in the past.
§ 11.3 p.m.
§ Sir Anthony Meyer (Flint, West)
I shall try to be as brief as my hon. Friend the Member for Macclesfield (Mr. Winterton). I echo the compliments that have been paid to the dairy industry. I am constantly amazed by the skill with which dairy producers navigate their way through extremely tricky waters.
I speak with modesty on this issue. Although I represent a great number of milk producers, my only real qualification to speak is that I much enjoy drinking the stuff. But much as I enjoy drinking British milk, I find almost all Continental milk quite undrinkable. I hope that in saying that I have established my jingoistic credentials.
I felt certain that someone tonight would say that the EEC was out to stamp out doorstep deliveries. But nobody said that. The hon. Member for Newham, South (Mr. Spearing), who is a most redoubtable opponent of the EEC, is always invariably fair, and he did not misrepresent the situation. Therefore, perhaps I am here speaking under false pretences.
My hon. Friend the Member for Westmorland (Mr. Jopling) clearly exposed the subtle mechanism by which doorstep deliveries might be endangered. This is due, not so much to the operations of the common agricultural policy, but to the growth of the supermarket habit and the increasing apperance of that detestable concoction, long-life milk, which some people actually manage to drink.
It is an accepted truth on both sides of the House and in every party that the Milk Marketing Board is the most perfect organisation that has yet appeared on earth. It is very close to the Almighty. That being so, I would not for one moment venture any criticism. Indeed, I 614 have no possible criticism to offer. How-every, when my hon. Friend the Member for Hereford (Mr. Shepherd) talked about guaranteeing its continuance in its existing form for all time, the tiniest flicker of doubt began to burn in my mind.
I acknowledge that my farmers are mad keen that the board should continue in its present form, and I shall fight for its continuance. However, I am not certain that there is an indissoluble connection—I know that there is a valuable connection—between doorstep deliveries and the continuance of the board in its present form. I am convinced that in pursuing its milk pricing policies the Government must be ever vigilant to ensure that differential prices are so adjusted as to continue to make it worth while for the milk to appear regularly upon our doorsteps.
I was reassured to hear the hon. Member for Newham, South telling us that as he went round canvassing this evening—I hope fruitlessly—he knocked against a great many empty milk bottles, despite the machinations of the Common Market.
§ 11.7 p.m.
§ The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. F. S. Bishop)
This has been a useful debate. I hope that in the limited time available I shall be able to respond to some of the points that have been made by hon. Members on both sides of the House.
As the hon. Member for Westmorland (Mr. Jopling) said, the debate has enabled us to look beyond the immediate content of the order and to consider more general aspects of the new pricing arrangements for liquid milk, which came into operation at the beginning of the year following the end of the transitional period. As my hon. Friend the Member for Newham. South (Mr. Spearing) has said, it is a change that has come about because of our membership of the Common Market. Therefore, we have had to make new arrangements.
I imagine that it will not be disputed that the new arrangements represent a radical departure from our old system of guaranteed payments operated through the former milk fund. In particular, what the price producers receive now depends not on the guarantee but on the average returns made by the Milk Marketing 615 Boards, taking on the one hand the manufacturing market, which is underpinned by the EEC intervention system, and on the other the liquid market operating within the context of the order. To that extent we are working on a new basis, which is bound to contain less certainty than the old system. That cannot be avoided.
Given the importance of milk in the household budget, few housewives would dispute the case for the Government continuing, as successive Governments have done, to fix a maximum retail price. Against that background, both sides of the industry were anxious to see Government involvement in the wholesale stage as well.
The main issues raised tonight relate not so much to the need or otherwise for the order, or even to the prices that it sets, but to the general impact that the new pricing system has upon the industry. That has been made clear by hon. Members who have spoken. It also has a bearing on the position of producers.
Perhaps I may at this stage deal with some of the points made by hon. Members. One important point made by the hon. Member for Westmorland—I am grateful to him for his prior notice of this matter—concerned the Milk Marketing Boards. I recognise, as we all do, the interest that there is in the House on this issue and the universal support of hon. Members for the maintenance of the boards. The Council of Ministers will have before it next week a proposal which differs significantly from that put forward by the Commission just before Christmas. What we now have is a considerable improvement which meets our needs on aspects such as voting procedures, producers retailers and so on, which originally caused us some difficulty. However, as my right hon. Friend the Minister of Agriculture made clear in a Written Answer to my hon. Friend the Member for Kingston upon Hull, West (Mr. Johnson) on Friday, it envisages a further decision by the Council on future Community arrangements in four years. Several hon. Members refered to uncertainty about the future.
The hon. Member for Westmorland asked for an assurance about the Government's intentions towards the Milk 616 Marketing Boards. We intend to secure from the Council of Ministers a regulation which removes the threat to the boards' essential powers which stem from Community law as it stands at present by means of safeguards which cannot be withdrawn against the wishes of the United Kingdom Government at some future date.
I remind the House of the comments made by my right hon. Friend the Prime Minister in answer to questions on 27th April:I think that my hon. Friend and the House may take it as absolutely certain that we do not propose to be dictated to about the future of milk deliveries or the future of the Milk Marketing Board."—[Official Report, 27th April 1978; Vol. 948, c. 1638]I think that our position is clear. That is where we stand on the issue.
Perhaps I may now deal with some of the other points made by hon. Members.
§ Mr. Bishop
I have not much time to give way, because hon. Members have put a number of questions to me to which they would no doubt like replies.
§ Mr. Wiggin
Perhaps the Minister will give way on the question of the future of the board. The right hon. Gentleman has made what I consider to be an important statement about the Government's position on the future of the board and about which he has rightly been asked for assurances. Is there any way in which he could possibly reveal the Government's prerequisites or points that they intend to make to the Commission, because that is what the country and the farmers are concerned about?
§ Mr. Bishop
The hon. Gentleman will recall the many debates that we have had on this matter. We have made clear our position on the details of the proposals put forward by the Commission and our reaction to them. I do not think that this is the time to go into them. However, I have made an important statement to the House on how strongly we feel about this matter and the stand that we propose to take.
The hon. Member for Westmorland asked about import restrictions and the liquid milk premium. This is an important point. I recognise the anxiety that is 617 felt in many areas on this matter. At present our public and animal health restrictions have the effect of keeping out liquid milk imports. That will remain the situation unless and until there are harmonised regulations throughout the Community on the quality and marketing of milk. There are proposals on the table in Brussels, but these give rise to a number of difficulties both for us and for other member States. Of course, they are some way from adoption. The hon. Gentleman also made other points with which I shall deal later in my remarks.
My hon. Friend the Member for Newham, South asked whether producer prices had been reduced before in the summer. I remind him that our system is new in that the Government did not previously set maximum wholesale prices. That they should now do so was the wish of both sides of the industry. It is not a new departure for producers to receive lower prices in summer than in winter. Indeed, this has been, and I imagine will remain, an integral part of the board's pricing policies and reflects inter alia the varying costs of production between summer and winter.
I turn to the question of distributors. Given the particular economics of the doorstep delivery service, and the critical part that this plays in maintaining the high level of liquid consumption in this country, we thought it right to reassure the trade that we would set maximum wholesale and retail prices in such a way as to cover their costs and provide an adequate target rate of profit. I do not think that anyone could reasonably quarrel with such an aim, and I do not myself see it as a threat to milk producers. Indeed, I believe that it is very much in their interest to have a successful and flourishing dairy trade because without it their own incomes—which depend heavily upon the more remunerative liquid market—would clearly suffer. I think that that has been accepted.
Hon. Members have asked about producers. There seem to be two principal areas of concern. First, there is the general point that, instead of setting prices separately each spring and autumn for the following summer and winter periods, we should aim to fix prices for a full year ahead. Secondly—and flowing from this—there is the more specific point about the basis on which the maximum price 618 will be set for the coming winter, and in particular the fear which a number of hon. Members have expressed that adjustments in the distributive margins in the autumn might lead to a further reduction then in the maximum wholesale price.
We have, of course, discussed the first of these points at some length with the boards and the unions. I recognise that if the maximum wholesale price was to be set for 12 months at a time this might make it easier for the boards to set a seasonal scale of prices. That point has been made tonight. Despite this, we for our part have tended to the view that, by looking at summer and winter periods separately, we can make a more accurate and sensitive assessment for the industry's real needs at any given time—I am sure that that is important—and that on balance producers are likely to fare better under this arrangement than they would otherwise. We shall be sensitive to the changing situation.
Because of the unpredictability of the weather and other circumstances, hon. Members ask whether we are aware of the serious difficulties facing a particular sector of the industry and what we propose to do about it. If one fixes a price too far ahead, one cannot be sensitive to these factors and make adjustments. That remains our view, but obviously, with the new system having been in operation barely four months, we are of course open to further persuasion on this, and indeed on other points which may emerge as we gain further experience.
In the meantime, we face the immediate issue of what the winter prices should be—or at least what basic principles we should adopt in determining it. I hope that the House will accept that I cannot give any categoric assurance at this stage. After all, we do not yet know what the EEC common prices for 1978–79 will be. This clearly will influence manufacturing returns, which we must remember are an important element in overall producer returns. I am glad to see the hon. Member for Hereford (Mr. Shepherd) shaking his head. I notice that he is not nodding off, even at this time of night after his lively contribution. This is entirely separate from the liquid prices covered by this order.
Secondly, we cannot at this stage say with sufficient accuracy what the course of 619 distributors' costs will be during the winter, or for that matter what would be an appropriate target rate of profit for the dairy trade after 1st October. I do not think that anyone could give the figures tonight.
We have all recognised that this is by no means the only factor in the question. Such an approach would imply taking an immediate decision about the retail price to apply between now and next spring. As a number of comments tonight have shown, that is a complicated issue touching on a number of sensitive areas such as the level of liquid milk premium and the response by consumers to price charges. Consumer resistance to these changes is an important factor. We must take account of the Government's counter-inflation policy which is proceeding quite well at the moment, and we want to make sure it stays that way. These factors must be taken into account.
We shall, in determining the maximum wholesale price for the winter, pay particular attention to the needs of producers to obtain adequate returns. My right hon. Friend went out of his way to stress that in his announcement of 23rd March. He made it clear that we would also place special emphasis on the higher production costs of the winter. In other words, we do not intend that farmers' returns should be squeezed, or, to repeat a phrase used by the hon. Member for Westmorland, that they should be the residual legatees under the new system.
The hon. Members for Westmorland and Hereford asked when the next change would be. I was asked whether we should aim for a ½p increase in the summer. My right hon. Friend's statement in March made it clear that the present retail price of 12½p, which came into operation only on 1st January, will remain unchanged. I do not envisage any change this summer, and a period of stability will be in the interests of consumers and liquid sales. In turn, that is important to both elements of the industry.
My hon. Friend the Member for Newham, South asked about the level of the milk premium. Of course, the premium has fallen because of the fall in the maximum wholesale price as a result of this order. The approaching 7½ per cent. devaluation of the green pound will help in that direction. I do not suggest that 620 there is a correct level for the premium but the liquid and manufacturing markets should not get too far out of line. That is a further reason for caution over increasing the retail price and for securing the flexibility and other factors to which I referred.
I was asked about producers' prospects. The hon. Member for Westmorland and others asked about the dairy herd and future production. I believe that the industry is in good heart, and that dairy farmers have no cause for concern during the coming months. The fact that dairy inseminations are running well in excess of last year's figure is a clear indication of some confidence. Production is exceeding even last year's record levels. Although feed costs may well increase from their present low levels during the summer, this should be offset by increased revenue from calf sales. In short, even allowing for the lower wholesale price, I expect profitability to be as good as it has been for some considerable time.
Reference has been made to variations in the order. There is the variation in the wholesale price for liquid milk in various parts of the United Kingdom. The reason for the variation between London and the rest of England and Wales relates to the need to take into account the higher distribution costs in the London area. Broadly speaking, the average price for England and Wales as a whole, including London, is the same as for Scotland.
The order does not affect the maximum retail price for liquid milk, which remains unaltered at 12½p, nor does it have any bearing on the return the board receives from milk used for manufacture.
I have already referred to the general situation. Although hon. Members have said that if there were a longer-term arrangement the board and the producers would know where they were, I wish to stress that with continued sensitivity to the changes we shall be able to take account of factors which are not now apparent.
To sum up, I believe that we are at the beginning of a new pricing arrangement which replaces a familiar guarantee system and which involves a greater measure of uncertainty than before. This is bound to create difficulties. We are moving from the well-tried situation that 621 applied during the transitional period to the present position, where we have to come into line.
We have been very much involved in consultations with the industry, with the Milk Marketing Boards, the NFUs and other bodies to obtain their views. I can well understand why the industry has certain misgivings about how things will turn out, and that is the effect of change, but we have no wish to be dogmatic in our approach.
I assure the industry that if difficulties arise we shall be willing to discuss them. Equally, I hope that the industry will be willing to give the new arrangements a fair run. The industry has no cause for concern. The reduction in wholesale price is consistent with what we have always foreseen as the need for separate summer and winter prices to reflect, inter alia, the seasonal costs of production. Similarly, I have made it clear that in the autumn producers can expect the higher costs of winter production to feature prominently in the reckoning.
Against that background, and with the assurances I have given, I emphasise that we remain willing to meet the industry at any time to discuss its problems. I have valued this opportunity to hear hon. Members on both sides of the House who have stayed here to express the views and misgivings of farmers. I hope that on behalf of the Government I have been able to give some assurances and a guarantee of our willingness to keep in touch with the industry on this important subject.
§ Question put and negatived.