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David Lidington: Fair deal for the British dairy industry

Speaking at the National Dairy Event 2003 in Stoneleigh Park, Warwickshire. David Lidington, Shadow Secretary of State for the Environment, Food and Rural Affairs said;

"The Dairy Industry is going through a period of drastic and painful change.

The rules of the market place are changing in three significant ways. First, we are seeing the gradual opening up of world trade and the dismantling of production subsidies.

Despite the failure of the WTO talks in Cancun, the world looks almost certain to continue moving, albeit hesitantly and erratically, towards the further liberalisation of international markets.

The enlargement of the European Union from 15 to 25 members will lead to an increase of about one fifth in total EU milk production and more vigorous competition for British producers in some of our traditional export markets.

Together, enlargement and the push towards global free trade are bringing change to the Common Agricultural Policy. The need to limit the overall CAP budget and the growing political pressure from churches and charities to help developing countries will, in my view, lead to export subsidies being reduced or phased out all together.

Second, the structure of the food industry is changing. Retailing is already dominated by a handful of big players and I hope that the sale of Safeway does not lead to a further reduction in the number of national supermarket chains. Meanwhile, both catering and food processing are following the pattern already set by the retail industry. Both sectors are consolidating, giving us a market with fewer big players and fewer food factories.

Third, customers' demands and shopping habits are changing. I welcome the rise of farmers' markets and internet sales of food but the figure that leaps out of the Curry Report is that more than 95 per cent of us do our main shopping at a supermarket. Customers value the convenience, price and variety that the big retailers offer and I see little prospect of that changing.

More people live on their own, in most couples both partners work. Fewer people are willing to make time to prepare fresh food. The demand for ready-to-eat meals is rising.

If we look at dairying, figures from the Institute of Grocery Distribution show that demand for traditional dairy products - full fat milk and cheddar cheese - is static or declining. The growth in demand is for value added products, for skimmed milk, yoghurt and fromage frais.

There is a market for speciality products - I want to be the first in the queue for cheese like Llanboidy or Stinking Bishop. And there is a demand for novelty foods. When I read about the prospect of Tandoori flavoured cheddar, I want to run a mile. But it does actually offer the possibility of a new market for British dairy producers.

What should politicians do to help dairy farmers to meet these various challenges?

I want to see British farmers make profits. The job of government should be to help make it possible for them to do so.

That doesn't mean that politicians should be taking business decisions. Governments have a dire record of picking winners in business. Not even the brightest and best in Whitehall or Brussels is likely to be able to tell you which cheese or ice cream is about to become the customers favourite. Farmers, not civil servants, let alone politicians, have the enterprise and ingenuity to produce the food that customers will want to buy. That is why I believe that the future lies in a world where farmers are free to respond to the signals from their customers rather than those from government. The duty of government is to help create the economic conditions in which farm businesses can prosper.

I believe that government should be fighting to get a fair deal for British agriculture in the EU and the WTO, that we should make changes to the home market to give domestic producers a better chance and that we should be helping farmers to cut their costs by a different approach to regulation and determined action against disease.

We are meeting just a couple of days after the collapse of the Cancun negotiations and before the Trade Secretary has made any statement to Parliament about the reasons for that failure. So it is difficult to speak with any certainty about what is likely to happen next, though I can truthfully claim to have expressed doubts ever since the Luxembourg Agreement that the partial and incomplete decoupling regime agreed then by the EU would be sufficient to secure progress at the WTO.

There are two things in particular that I regard as important in further WTO talks. The first is that the burden of making concessions to help the poorest countries in the world should be shared fairly amongst all the developed nations. For once, American rhetoric about free trade needs to be matched by American practice. Second, we have to find a way in which to write animal welfare into the rules governing international trade so that our producers do not suffer on account of the welfare standards that we as a society impose upon them.

When it comes to the Mid Term Review, I support the principle that the link between farm support and production should be broken. But I am worried that the concessions made to France and others in terms of both the timing and the scale of decoupling may lead to market distortions and the fact that "degressivity" has now been renamed "financial discipline" cannot conceal the fact that British farmers are going to be expected to pay a disproportionately large share of the costs of CAP reform.

However, the priority now must be for the Government to announce clear decisions on how it plans to implement what was agreed at Luxembourg. Whatever its flaws, that is the deal to which the Government has signed up and it is vital that farmers are told how they will stand under the new support arrangements.

If decoupling is to come in as early as 2005, farmers need to take decisions by the end of this year in order to plan their businesses. Uncertainty over the precise implications of the Mid Term Review is causing turbulence in the quota market (already in some turmoil following the Thomsen case) and in the market for land. People need to know what the new rules mean for them.

The Government also needs to come clean about cost compliance. One of the big attractions of decoupling is that it will sweep away a lot of form filling and red tape. That will be of little account if we simply substitute a host of new rules in the name of the environment. Nor is it clear how the standards required of farmers under cross compliance will relate to those that will have to be met to get into the "broad and shallow" environmental payments scheme.

One further point about Europe - with the end of OTMS, it is vital that DEFRA makes it a priority to campaign for the lifting of the date based export scheme to ease the pressure on the home market. I was dismayed to read that Health Ministers are stalling over whether to implement the recommendation from the Food Standards Agency that to allow Over 30 Month beef back into the food chain. That kind of hesitation will only give ammunition to those on the Continent who want to maintain export restrictions.

When it comes to the domestic market, I know that the chief concern amongst dairy farmers is that the farm gate price of milk often does not even cover the cost of production, let alone give you a decent return.

Those worries have undoubtedly been made worse by the collapse of United Milk. I think that it is in everyone's interest that the receivers are able to sell United Milk as a going concern and I hope that the business remains in the hands of farmers themselves. A takeover by one of the other cooperatives would of course raise issues of market share and it is vital that the OFT recognises the need of the industry and does not block a merger on competition grounds. The last thing that we need is a "Son of Milk Marque" judgement.

We will need to look at the implications of last week's ruling from the ECJ but I am already persuaded that we need to overhaul the competition rules as they affect farmers' cooperatives. If British farmers want to follow the path of the profitable cooperatives that we see in New Zealand or on the continent, they should be free to do so. If politicians tell farmers that we expect you to compete in a European and global market place, then our competition rules should be framed to take account of that fact rather than looking solely at domestic market share.

We also need stricter rules on labelling. A British shopper should be able to tell instantly whether the food she is buying came from British producers or not. I acknowledge that there are practical issues to be worked out over processed foods that contain ingredients from a number of different countries. But the current situation, where food can be grown abroad, processed here and still labelled as "UK" is unfair to our farmers and amounts to fraud on consumers.

At a time when dairying is going through a traumatic recession, government should be making every conceivable effort to reduce the costs that it imposes on farmers. Too often that is not the case. Regulations are agreed and imposed without adequate thought being given to the practical, including the financial, implications. We all know the examples: nitrate vulnerable zones, fallen stock, not to mention the sheer incompetence of the Rural Payments Agency. Even after the Government had conceded the principle of a ban on the burial of fallen stock, it could have used exemptions and derogations to allow time for an alternative system of disposal to be put in place. Ministers agreed to delay the implementation of the Animal By-products Regulation for waste food from retailers. It should have done the same. Other countries were more ingenious. The Spaniards even secured a derogation to allow carcasses to be left on the hills as a conservation measure to preserve vultures!

We could all draw up our list of regulations that we would like to see repealed or amended. But more important still I believe is to bring about a change in the whole culture of regulation in this country. We need much earlier consultation with industry, much more effective scrutiny by Parliament (especially of secondary legislation), an end to the gold plating of Brussels' Directives. We need sunset clauses embodied in new rules so that they lapse automatically after a given period unless renewed. That way, we give everyone the chance to assess how the rules have worked out in practice and to make changes.

We need to end the duplication of forms and inspections that waste hours of time that would be better used running your business and winning customers. Government should adopt a risk-based approach to regulation. It is not necessary to monitor and inspect every enterprise every single year. Different agencies should make use of the same body of information and not insist on sending out their own special list of questions and tick boxes. A single set of data for each farm business, filed on line, could surely be interrogated by the different regulatory bodies and remove the need for much of the paperwork.

The other issue raised with me at every meeting I have had with dairy farmers has been Bovine Tuberculosis. This is now developing into as great a threat as Foot and Mouth Disease. The latest figures show that 4,200 herds were under restriction during the first half of this year. More than 15,000 beasts have been slaughtered. In 2002 the cost of TB to taxpayers was between 80 and 90 million pounds and while that figure included compensation payments it did not cover the costs borne by farmers through the disruption of their businesses. This year, those costs will be much higher.

There are still more than 3,000 herd tests overdue. It must be a top priority to eliminate that backlog altogether and to ensure that reactors are quickly removed from the farm.

Restocking after Foot and Mouth was almost certainly responsible for bringing Bovine TB into Cumbria. I think we will need firm rules on testing both before and after movement to avoid such a thing happening again.

We have to revisit the issue of culling. Yes, the way in which disease is transmitted between wildlife and cattle is complex and still not wholly understood. But the Irish evidence is clear. Culling, in combination with other disease control measures, can bring about a big reduction in the incidence of TB. There are now disturbing reports that TB is found, not just in the badger population, but amongst deer on Exmoor and in the New Forest.

On both economic and animal welfare grounds, this situation should not be allowed to continue. Where there is clear scientific evidence that local wildlife has become infected with TB, the government should be prepared to authorise culling of the diseased populations.

The long term answer has to come through developing effective vaccines. This needs to move to the top of DEFRA's research agenda and when the Irish Government is carrying out field trials on a BCG vaccine for wildlife we should be saying to Dublin that we would like to take part in that experiment.

The Dairy Industry is going through a time of great difficulty and challenge. No politician could come to this event and say truthfully that he, or for that matter any government of any political colour, had all the answers. But I believe there are initiatives that Ministers could and should take to show dairy farmers that their government is on their side and will fight to get them a fair deal in a rapidly changing world."

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