Dairy industry

Milk Distribution System

Commerce and Employment Department laid a policy letter in September 2015 setting out its recommendations for a new milk distribution system. In effect it opened up the system to anyone and allowed shop retailers to transact directly with the Dairy. During the debate an amendment was laid that gave 2 options. The first proposed leaving things more or less as they are, the other sought to adopt the Department’s recommendations, but requiring the Department to look at possible compensation. My speech is below.

In the end, the latter option was supported and Commerce and Employment was instructed to come back to the States with their revised proposals.

Sir, now we have got a choice: keep things more or less as they are or pay the milkmen off.

The current model is nonsensical, and perpetuating it just retains an inherently inefficient model. The Dairy do not want it and this is all about the optimum distribution regime for the Dairy.

I said, when we debated the Fallaize amendment last year… it became abundantly clear to me when I was on the original Dairy Review Group that this was an industry suffocated by its past and never more so than in the distribution system. As a result of Members approving the amended report last year, the dairy industry has been able to start looking to the future – and a positive one at that – except that it has to retain the current distribution system. So I will oppose option 1 which makes no sense at all.

So can I support option 2?

 

Well, this does not say ‘pay compensation’ nor does it say from where that compensation should be paid. However, I do have concerns about what the potential impacts of paying compensation would be. The first is I will not support any compensation being paid for by the Dairy – that is something I fundamentally oppose. Should this amendment be passed, and C&E come back with that proposal, I will not support it.

Deputy Fallaize’s draft amendment did include the use of Dairy funds to pay compensation and I made it clear this would not be acceptable to me – and I therefore thank Deputy Fallaize for making the changes that he did, which then became incorporated into Deputy Le Lièvre’s amendment.

I have been in communication with the Guernsey Farms Association since before the debate and they had already voiced concerns that there would be calls for compensation, and that it would be to use Dairy funds. Dairy reserves are there to invest in the machinery and equipment to maintain the Dairy, to ensure we have a 24/7 supply of milk and the Dairy is a 24/7 operation. Equipment does not come cheap, especially for what is a micro-dairy operation in a time of mass-consolidation in the dairy industry in the UK, EU and beyond.

Relatively speaking, the cost of equipment is expensive and, as in any industry which has to comply with environmental health regulations, the requirements for more equipment – and more modern equipment – just increases.

I can say from my first-hand experience, having been on the Dairy Management Board, we have a fantastic Dairy. The management and workforce are doing a brilliant job converting a first-class raw material – thanks to the hard work of our farmers – into a first-class product that is loved by Islanders and, in the case of our butter, by those beyond our shores.

I am not prepared for our Dairy to have to stump up any cash for the retailers that will pump up the price of our milk and affect sales to the disadvantage of our farmers who, let us not forget – and it is so easy to do so – will have seen a massive £1 million reduction in subsidy in less than four years’ time. Why should they suffer again? After all, if it was not for our farmers the milk retailers would have nothing to sell.

The GFA – thanks in no small part to their Chairman – have approached the original report in a very professional manner. We should not abuse their professionalism or do anything more that could impact on their livelihoods.

My second reservation is the precedent that compensation might set. If we pay off these retailers, who else is going to come out of the woodwork and claim that because they have suffered a loss because of the States of Guernsey they should be compensated – businesses that took out leases on the Pollet because of passing trade from cruise liners but who now do not see that because they land at the Albert Pier, and the businesses losing money as a result of roadworks?

Whilst this amendment does not state that we should give the retailers compensation, I will not approve any subsequent report recommending compensation until I have assurances that this will not set a dangerous precedent. There is nothing in the report that gives me an assurance in relation to that and I will not support it.

Finally, I would just like to say that I think this is the time for the retailers to start working with C&E. I think the engagement has not been there in the past and now it is their opportunity. I agree with C&E’s recommendations as to the optimum distribution method and I am minded to support the alternative Proposition that was not fully considered in the policy letter – and I believe it should have been. But I would ask C&E to bear in mind my concerns as, unless they are addressed, I will not and cannot accept any recommendations for compensation that are subsequently tabled.

Dairy Industry Review – 2

I was delighted, as a member of the Dairy Industry Review Board, that we were able to get our report into the industry approved by the States. This was the first time such a report had been successful in 15 years and we believe will give a brighter future for Guernsey’s farmers, Dairy and the consumer.

Sir,

This Report is not just about the Dairy Industry. It is indeed entitled Dairy Farming in Guernsey and the Future, but that future is not just about the production of milk and manufacturing of milk products. No, it is about the environment and heritage that makes Guernsey the unique Island it is and that we, as the States of Guernsey have a duty to protect. As such, this report is incredibly important for this Island.

And at the centre of all this is the Guernsey Cow. Thanks to our entrepreneurial ancestors to the experts of the present day, we have a pure breed that produces high quality milk revered the world over.  As part of the research  I undertook when working on this report I came across an American book entitled ‘The Guernsey Breed’ by a Mr Charles Hill written in 1917 and recorded in the Biodiversity Heritage Library in the USA. In the foreword written by a Mr WH Caldwell of the American Guernsey Cattle Club, he states, ‘The Island people in their manner of handling and caring for the breed and their tenacity shown in protecting its purity have contributed greatly to the development of the breed’.

He went on to say, ‘The future of the Guernsey is a bright one. The public is fast demanding a better class of Dairy products and is rapidly learning to make a distinction between the different grades of milk, cream and butter. The Guernsey and her grade stand without a peer in the economical production of products having the highest natural colour and finest flavour.

Indeed, today Islanders take great pride in their milk, cream, butter and ice cream as the results of the Island Analysis survey, included in the Appendix to the DIRG report has shown.

 

Sadly, since 1917 where the Guernsey cow was once a predominant breed, it is endangered, if not now classed as a rare breed. In fact this Island has 10% of the entire world population of registered pedigree Guernsey cattle. With world numbers having fallen 21,000 in the last 20 years.

However, it is because of this rarity, or more accurately, the dominance of just a small number of high production breeds of cattle, that we can protect our Dairy Industry, our natural heritage and our environment.

 

It is estimated by the Food and Agriculture Organisation of the United Nations that the number of domestic animal breeds are dying out at the rate of 6 per month, with 30% of the world’s breeds at risk of extinction. They are being replaced in both developed and developing countries by a few high production breeds which, increasingly, are coming to rely on commercial feeds, antibiotics and other inputs of industrial agriculture.

The world is beginning to wake up to this problem and whilst some of us here may think that only negative things come out of the EU, that organisation is very much aware of the issue having calculated that the loss of biodiversity  costs it EUR450 billion year after year. This culminated in May 2011, with the European Commission adopting a strategy to halt the loss of biodiversity and ecosystem services in the EU by 2020.

So, the need to preserve the Guernsey cow breed means that not only must we continue to ban the import of Dairy cattle, but also we must ensure that the threat of imported milk is lifted. This has been a cloud hanging over the industry for many years and resulted in uncertainty and concern that impacts investment and efficiency in the industry. It is therefore imperative that we get a new Ordinance in place as soon as possible to ensure we can effectively control importation.  I cannot say strongly enough how important that approval is given for that today.

With effective controls on importation, we can focus on moving the industry forward to a sustainable future. And that means change. The one thing I have realised as the review progressed, was, as I stated in the earlier debate, that this is an industry suffocated by its past and that the status quo is definitely not an option.

The industry needs to be more sustainable, which means the current subsidy must be reduced and with it, greater efficiencies achieved. And a key means of attaining this is through the farmers and Dairy working in partnership. The farmers on the one hand in providing an even supply of milk to the Dairy and for the Dairy to have a governance structure that enables it to act in a more commercial manner.    I would like to say at this point what an excellent job is  being done by the manager Andrew Tabel and his staff at the Dairy. As a member of the DMB I have seen first hand the challenges they have faced over the last couple of years, the SAP implementation being high on that list,  and I admire the professionalism with which they have dealt with them. The DMB believe these proposals will make a real difference.

In particular, the transition from the quota system to milk supply agreements will benefit both the farmers and the Dairy.

Quotas played a useful role in the past, in stemming over production when it reached 9.8m litres, but they have also had the effect of stifling growth and making it difficult for new entrants into the industry. They are inflexible and inhibit business development. Milk Supply Agreements will provide an element of control but flexibility at the same time, enabling a matching of total farm milk supply to the needs of the market.

It is true that the farmers did have some concerns about aspects of the report, the reduction of the subsidy, understandably the biggest. However, instead of stomping their feet and making loud noises about it the GFA were happy to speak openly to us and articulate the concerns that they had. Much credit needs to be given to the GFA and James Watts in particular, for the manner in which they have conducted themselves throughout the review and since the report was published. The proposals will mean change for them and with change comes uncertainty. As such, I thank them for the trust that they are placing in Commerce and Employment and for expressing their support in what we are trying to achieve.

This bodes well for the future as we work together with the farmers and the Dairy in developing a sustainable Dairy industry.

So, we have developed a new structure that results in more modern arrangements for the farmers and the Dairy.  I won’t talk about the distributors now, I have made clear how we got to where we did in the Fallaize amendment debate. What I will talk about however, is the one key stakeholder who has been generally forgotten in all this  – the consumer. We know there is incredible brand loyalty but are consumers getting value for money for their litre of milk?

It became abundantly clear to me during this review that they are not and in the current economic climate, this should not be allowed to continue. Fixed pricing is an outdated anachronistic mechanism that was brought in against the threat of imports. However, with the approval of this States to modernise this Ordinance, the reasoning for it goes away.

Consumers are paying over the odds for their milk and I will give a few examples just so there can be no doubt.

But before I do so I would like to thank the officers at the Hub for their assistance. This was a good test of SAP and I am pretty sure that the information they have provided would not have been so easily available, if at all previously and shows how it can assist us in making evidence based decisions.

The Hub was able to provide me with details of the cost of milk supplies to States of Guernsey premises. Excluding schools, the total cost of milk supplied for the first 8 months of this year was £111k, that is an annualised figure of £166k. And of that £112k is spent by HSSD. With the disitrbutors getting a margin of 23.46p, this means it costs £24k a year to have milk delivered to that Department’s premises. Now there would be an FTP saving! Interestingly it is also more than the cost of the water coolers that were taken out of the PEH.

And talking of the PEH, it costs over £13,000 to have milk delivered a mile up the road from the Dairy to the hospital – by 2 retailers to 2 different entrances! Madness. There’s a clear saving that the HSSD Board could, and I’m sure would, make, but currently has no means of doing so.

Concern has been expressed that if we end the fixed pricing on 1 January the prices will zoom up and there will be a clamour for imports. That’s not how it will be.  With the knowledge that a new Ordinance is coming in no one is going to benefit from importation and the likelihood is, with competition, there will be no price rise in the first place and with exclusivity in place until the end of 2015 the retailers will be protected.

We have a report here that gives a coherent and sustainable vision for the future of the Dairy Industry that deals effectively with what are its most important stakeholders– the farmers, the Dairy and the Consumer.

We must action it now. Action it to produce greater self-reliance and sustainability and, as far as possible in a changing and commercial world, more clarity for the industry, providing it with the most positive future it has had in decades.

I therefore urge all members to support the report [ as amended.]

 

Dairy Industry Review – 1

I was a member of the Dairy Industry Review Board that presented a report to the States in September 2014 setting out the future strategic direction of the industry. The history of reports in this area has been fraught and I was therefore delighted that we managed, for the first time in 15 years, to have a report passed by the States. The report was amended by Deputy Fallaize, which instructed C&E to come back to the States by July 2015 in relation to a distribution system that it thought worked best for the industry. The majority of the Board of C&E, including me, supported this amendment. My speech on the amendment is given below. See my later post on the speech I made in main debate.

Sir, I would like to advise that, as a member of the Dairy Industry Review Group and C&E Board, that I believe that the re-presentation of propositions that this amendment provides represents a positive way forward for the States to consider the Dairy Industry Review.

Proposition 1 sets out our 10 point plan for the future, as described in detail in the DIRG report. There is merit in having what we consider to be a vital, practical and integrated plan set out in this way.  We are happy for it to be explicitly stated in the recommendations to give complete clarity, which is an important theme in this Review.

Of all the aspects of the review it is, and not for the first time, the matter of distribution and retailing that is where contention lies.  Proposition 2, by seeking to direct the Department to take a second and longer look at that topic away from the general review should ensure that the most important and urgent elements of the report, such as the modernisation of the Milk Ordinance, the partnership between the farmers and the Dairy and the freeing up of the retail price of milk, can be delivered without delay.  And we can at last begin on our journey towards the modernisation of the dairy Industry.

Here I’d just like to respond to a question asked by Deputy Laurie Queripel regarding extending the fixed retail price. I can advise that the Board can see no merit or reason for doing so as the milk distributors have exclusivity of licences and zones until the end of 2015, so they will have the same protection as now.

I have found undertaking the review of the Dairy Industry fascinating on a number of levels;

Firstly, in learning about the history of the Guernsey breed,

Secondly, in finding how milk gets from the cow to the carton,

And thirdly, realising the importance of Dairy farming in preserving Guernsey’s natural environment and its biodiversity.

I will speak on these during main debate, as it is these areas that are crucial in understanding the future of the Guernsey Dairy Industry.

And I’d just like members to note the word I used there –  Future. This review is entitled ‘Dairy Farming in Guernsey and the Future’.

I want to emphasise that point as the other aspect of this review that I have found fascinating and which I will speak on now, is how it has become abundantly clear to me that this industry has been so suffocated by its past.

And nowhere more so than in the Distribution system. The means of getting milk from the Dairy to the shop or doorstep. It should be so straightforward but it has had a difficult history to say the least.

I have spent countless  hours researching how we have ended up with the current system of distribution. I’ve read countless reports and articles, spoken to many people and interrogated the Director of Client Services over many hours to get a picture of how we got here and what “here” actually is. I would actually like to thank the Director for the time he has afforded me over this.

It was evident, from all the research I did and from the meetings with the GMRA, that because of this history going back decades, it might not be possible to resolve matters in just a few months . As someone who likes to come up with solutions that all parties can accept, and who came into the review with a genuinely open mind, I found this aspect very disappointing.

The Board came up with a compromise way forward for the distribution system, which we make clear in paragraphs 271 and 272 of the report,  isn’t the optimum system for the industry as a whole.

Personally, I do not think that it makes any sense to prevent the shops from picking up their own milk and dealing direct with the Dairy. I have calculated that it costs one of the major supermarkets over £75,000 a year to have milk delivered to its stores. That makes no sense at all.

 

We’ve also got the situation where we have one distributor that delivers to one entrance of the PEH and another that delivers to the other entrance. Again it makes no sense at all to me and suggests that there are costs in this system that need not be there.

BUT a compromise was made.

I will not go through what I think the optimum system of distribution is now, or how we get to it, that is for another day if, and I hope when, this amendment is passed, but we do not have it now.

I thank Deputy Fallaize for this amendment which gives us a way to maintain much needed momentum in bringing about change where full agreement exists while having a little longer to work with stakeholders in the one area where there is disagreement.

The last thing we can afford to end up with is another missed opportunity to make positive changes and have a report that gathers dust amongst the many others over the last 10 years, at Raymond Falla House.

Finally, I reiterate what I said before, in my view, this is an industry which in some aspects is suffocated by its past but in others is ready for new challenges and developments.  As a States we really have a duty in 2014, for the good of all those involved, to help it to move on and enable the Dairy Industry to look to the future and a positive one at that.

If we don’t make a decision today to support all the propositions laid out in this amendment  and put it off yet again, just letting history repeat itself, we are seriously in danger of losing what we are trying to protect.

I therefore support this helpful amendment and urge all members to do likewise.



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