Select Committee on Environment, Food and Rural Affairs Appendices to the Minutes of Evidence


APPENDIX 2

Memorandum submitted by the Dairy Industry Federation (A3)

THE DAIRY INDUSTRY FEDERATION

  1.  The DIF is the trade association which represents the milk processing industry in England and Wales. DIF members account for 90 per cent of the milk processed in England and Wales.

THE DAIRY PROCESSING INDUSTRY

  2.  The dairy processing industry is a major economic sector. The industry employs 40,000 people. The annual value of industry sales is estimated at £6 billion.

  3.  The industry's main concern with respect to the future of UK agriculture is securing a continued supply of a sufficient quantity of milk, of the right quality, at a competitive price.

  4.  The industry would welcome a reform of the CAP that, through the abolition of quotas and the provision of adequate compensation to producers, allows the industry to realise its productive potential and to continue to access the growth in the world market.

  5.  The industry needs certainty. In order for the processing industry to determine its future investment plans it needs a clear appreciation of the future strategic direction of EU policy towards the CAP. The industry needs to know whether the CAP will develop to allow access to world markets or whether it will adopt a defensive stance that focusing on protecting the EU internal market to the exclusion of all else.

The prospects for production subsidies and quotas against the backdrop of world trade liberalisation and the mid-term review of the Agenda 2000 reform of the CAP

THE DAIRY SECTOR CAP

  6.  The dairy sector CAP uses market management instruments to maintain milk prices at an artificially high level. This is achieved through constraints on production (quotas), maintenance of minimum prices (through intervention purchasing), protection from imports (import levies) and maintenance of demand (consumption subsidies and export subsidies).

  7.  The overall effect of the CAP is that EU raw milk prices are higher than those prevailing in the world market. EU exporters would not be competitive on the world market without export refunds.

  8.  If the dairy sector CAP was discontinued prices to producers would fall.

  9.  The dairy sector CAP is unreformed. Under the Agenda 2000 package changes will only be implemented from 2005.

CHALLENGES TO THE DAIRY SECTOR CAP

  10.  It is widely assumed that the WTO negotiations and the enlargement of the EU will make the continuation of the dairy sector CAP untenable in its current form.

WTO

  11.  The agreed objectives of the WTO negotiations are for reductions in export subsidies, increases in market access and reduction in domestic support. This is directly incompatible with the elements of the dairy sector CAP set out above.

  12.  In particular further restrictions on export subsidies would make it very difficult for EU exporters to export to the world market.

ENLARGEMENT

  13.  To maintain the uniformity of the CAP over the EU, new entrants will seek to obtain the full benefit of the compensation payments scheduled under Agenda 2000 even though they may not have been subject to the fall in prices envisaged by the Agenda 2000 reform process. This may be incompatible with agreed EU budgetary constraints.

  14.  Quotas are essential to maintaining the balance of supply and demand within the EU. It may not be feasible to introduce quotas in some enlargement states.

REFORM OF THE CAP

  15.  The DIF believes that the reform of the CAP envisaged by Agenda 2000 is neither sufficient in scope nor timely enough to cope with the effect of enlargement and the prospective outcome of the WTO negotiations.

  16.  The DIF would support a reform of the dairy sector CAP that:

    —  Ultimately led to the abolition of quotas. Quotas restrict the ability of the industry to grow and realise its full potential.

    —  Properly compensated producers for the lower prices that will result from CAP reform. This is essential if producers are to respond to the new environment created by the reform process.

    —  Ensured the industry would be able to access the continued growth in the world market. The EU's international obligations to reduce export refund expenditure means that dairy exporters will not choose to invest in the EU as a base for exploiting the world market.

How better stewardship of agricultural land can be promoted

  17.  However defined "better stewardship of agricultural land" can only be achieved if the farming sector is profitable.

  18.  Government objectives must explicitly recognise the need to promote an internationally competitive and profitable farming industry.

  19.  Achievement of this objective would also require an internationally competitive and profitable processing industry to process the raw material from the farming sector. This objective must also be explicitly recognised by the government.

The opportunities and difficulties faced by agriculture as a result of possible reductions in production subsidies

OPPORTUNITIES

  20.  CAP reform presents an opportunity for the creation of an economically more efficient industry through the abolition of quotas. This will be of benefit to producers, processors, employees, shareholders, consumers, the government and other stakeholders.

DIFFICULTIES

  21.  The reduction in price support entailed by CAP reform will primarily affect producers. The magnitude and speed of adjustment will determine how challenging the environment will be for producers.

  22.  Producers will respond to lower prices through a restructuring process that will entail producers leaving the industry with the remainder seeking to grow larger. The need for this process must be recognised and supported by the government.

  23.  The compensation payments agreed under Agenda 2000 will assist producers to restructure their business. The UK must ensure that dairy producers benefit in full from the compensation available. The DIF is opposed to any form of modulation, degressivity or re-nationalisation of the CAP that reduces the compensation payable to producers or results in them being discriminated against compared to other EU producers.

SECOND PILLAR OF THE CAP

  24.  The industry has addressed issues of animal welfare and food safety through the National Dairy Farm Assured Scheme.

  25.  The reform of the CAP has resulted in calls for the redirection of the CAP towards a range of objectives such as environmental and social concerns.

  26.  A profitable and efficient dairy farming sector is the best means of achieving these objectives. Dairy producers must maintain their competitiveness. If the burden of CAP legislation to achieve these non-commercial objectives goes so far as to compromise the competitiveness of farmers, then they should be compensated by the CAP.

Dairy Industry Federation

12 December 2001



 
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