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.]

 



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