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An edited version of The Minister of State, Department for Environment, Food and Rural Affairs (Mr David Heath) contribution to the debate:  

The dairy sector is enormously important to the United Kingdom. It is the largest agricultural sector, and we should remember that it is worth £3.7 billion annually. It is iconic in our countryside, and is identifiably British. We have some very advanced and efficient processing plants, particularly for fresh drinking milk, and in the past year there has been a lot of wider investment in processing, which shows real promise and confidence in the future. Yet, let us not get away from the fact that in the past two months we have seen rallies and protests. There is genuine worry about the inequity between farm-gate prices and production costs. A significant proportion of farmers may struggle to make ends meet this year, particularly in the context of the price changes, but also because of the rising input costs and the monsoon conditions that many of us have had to survive this summer.

I have consistently said that we must have arrangements in the dairy sector that are fair to the farmers, to processors, to retailers and to consumers. Those are not incompatible objectives; they are all on a par. To be fair to at least one processor and retailer, the Co-operative has been mentioned several times. No, it did not do terribly well over the summer, but it has today (13 September) announced that it is increasing milk prices to 30p a litre from 1 October. That is good news indeed.

Promoting the dairy industry

We import a quarter of our total dairy needs. We have a £1.2 billion trade deficit. There is a growing demand for food at the global level, and an opportunity to fulfill some of it. Milk quotas will be gone from 2015, but we are not restricted by them now. We have room to expand already, while other member states are held back until 2015 and they desperately want quotas removed now. We have a chance to get in first—otherwise we might lose out. He said that what is crucial to the future of the dairy industry is promoting the industry around the world, promoting exports and import substitution, and increasing the efficiency and competitiveness of our industry. They are all opportunities for the British dairy industry.

We need to look at the vast range of production costs on dairy farms and see if we can learn from best practice, helping farmers to recognise the difference that efficiency and profitability can make, and the improvements that can be achieved on the farm. There are things that dairy farmers can do on their own. For instance, I encourage them to sign up for Dairy Pro. Dairy Pro is the industry’s first integrated continual professional development scheme, which provides training and development to improve both standards of business performance and recruitment and retention within the industry.

There are things that dairy farmers can do together such as the EU dairy package, which increases the already significant potential for collaboration through producer organisations. The timetable has not yet been agreed by the European Council and European Parliament, but we do not expect any problems. We expect to be able to start consulting in October, and we hope the legislation will bring the package into effect in spring 2013. I hope dairy farmers recognise the wider benefits that producer organisations may offer. Such organisations are not only about negotiating prices. A well organised producer organisation can make a significant difference to the success of its members by sharing best practice, increasing efficiency and competitiveness and opening up new markets.

The Voluntary Code of Conduct

The biggest single factor, and many Members have talked about this, is the voluntary code of conduct. This is the dairy industry’s first code of practice on contracts and it is a significant step from the beginning of the chain. I congratulate the industry, and I congratulate my predecessor on bringing the industry together. The agreement on the code’s detail is potentially momentous and provides all parties with greater clarity on contractual terms and conditions, particularly on farm-gate prices. I hope the code will start to open trusting relationships between the parties, because they need each other. We cannot have war within a mutually dependent industry.

I have been asked many times what happens if the code does not work. That is the wrong question; I want to ask what happens when the code does work, because I am strongly optimistic that this is the best way forward for securing a sustainable arrangement. Under the EU dairy package, we have the option of legislating on contracts. I make it clear that I will seriously consider making contracts compulsory if the code fails to deliver the necessary changes. I have already announced that we will be consulting so that, if such changes are necessary, we can make swift progress. Having said that, it is vital that the industry gives the code its full support and the time needed to take effect.

I confirm that additional funds are being made available to dairy farmers. We are opening the skills and knowledge transfer framework specifically to provide workshop events for dairy farmers from late autumn this year. That should help dairy farmers identify and access emerging market opportunities such as exports; strengthen their position in the supply chain through more effective co-operation and collaboration; develop new products and add value; and establish benchmarking.

The £5 million rural economy grant scheme for high-quality projects in the dairy industry should continue that focus and add, in the new year, the development of a capital investment programme to target infrastructure projects. That is a significant advance in Government support to the industry, which should reap dividends.

For a full transcript of the debate click here.

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