Plenary, 06 Apr 2000

Meeting date: Thursday, April 6, 2000

Official Report 676KB pdf

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Dairy Industry

Scotland is a nation of 5 million people, and covers nearly half the UK landmass. It has some of the best agricultural land in Europe and, without doubt, some of the best and most efficient farmers in Europe. With those assets, one would expect that Scotland should, at the very least, be able to supply milk for its own needs, and should certainly be aiming for quality Scottish dairy products to lead in the European marketplace.

However, all is far from well in Scottish agriculture, notably in the once-prosperous dairy sector. Dairy farmers now face a situation in which the average cost of production of a litre of milk is more than the price that can be achieved in the marketplace. Clearly, the survival of many dairy farm businesses is now seriously under threat, especially when we consider that cull cows now fetch less than 50 per cent of the price that they did before BSE, and that male dairy calves are virtually unmarketable.

For the average dairy farmer in Scotland, net dairy farm income has collapsed to a mere £4,400 per annum. The average farm-gate price for milk has fallen to its lowest real-terms level since records began in 1970. In the past three years alone, it has plummeted by a third to just 16p per litre—the lowest price in Europe.

What has brought about what can be described only as a serious crisis in the Scottish dairy sector? What could have happened to Scotland's agricultural advantage to have given rise to those shocking statistics? The National Farmers Union is in no doubt. The farmers in Ayrshire, Lanarkshire and Dumfriesshire, whom I am privileged to represent, are in no doubt. The combined actions and the stewardship of the agriculture industry of successive Westminster Governments have taken their toll on Scottish farmers, and I want to examine the main areas of concern.

The biggest factor by far is the strength of sterling. Gordon Brown's exchange rate policy has damaged the competitiveness of other parts of the economy where international trade is important, such as manufacturing industry. That policy makes imports cheaper and exports dearer, to our detriment. By way of illustration, I noticed at the weekend that the dairy counter of my local supermarket is selling no fewer than 13 different brands of butter, only two of which are UK-produced.

In the dairy industry, those pressures are compounded by the intervention price system. To be technical, as the pound rises against the euro, the sterling value of the intervention milk price equivalent, which is set in euros, is pulled down. As the IMPE acts as a marker price for milk products, the farm-gate price for milk paid to the farmer also falls. In the four years since 1996, farm-gate prices have fallen more than 7p per litre, of which more than 4p is attributable to currency movements of that kind.

It is in that context that the minister's recent announcement on agrimonetary compensation should be viewed. Although I congratulate the minister on his successful efforts to secure compensation for dairy farmers for the damage caused by the increasing strength of sterling against the euro, the compensation is worth just 0.15p per litre. Only last weekend, the farm-gate price for milk fell again. One frustrated Ayrshire farmer was quoted in The Herald as saying:

"We may be getting £2m in compensation, but the cut in the milk price from April 1st will take away £12m".

I am sure that the minister will agree with the NFU that, although such payments are welcome, they are no panacea for the Scottish farming industry. I urge him to continue to make representations to HM Treasury ministers in London seeking an end to what is an extremely damaging exchange rate policy.

I will refer now to the structural problems that the industry faces, which can be dealt with directly by the Scottish Executive. The problems are not manufactured by the farmers but, as I have said before, are consequences of Government action, in particular the abolition of the milk marketing boards and the discouragement of vertically integrated co-operatives in a misplaced drive for competitiveness through deregulation. The abolition of the Scottish Milk Marketing Board in 1994 could have brought new challenges, advantages and prosperity. However, the decision to prohibit its successors—Scottish Milk, and Milk Marque in England and Wales—from processing and to restrict their activities to trading robbed many farmers of the opportunity to share in the profits that have been made as the farm-gate price for milk has been driven down by dairy companies, which have quickly learned to work the system to their advantage.

Of the 7p fall in farm-gate prices, 2p can be attributed to the effects of deregulation and intervention by the likes of the Monopolies and Mergers Commission. The farm-gate price for milk might have fallen by 30 per cent, but the supermarket price has fallen by only around 6 per cent. Someone somewhere is making a profit, but it is not the farmers. Until farmers have ownership of the supply chain—the processing, where the profit is made—they will continue to lose out to those who can buy milk directly at the farm gate, add value by processing, and then supply it directly to supermarkets. I am pleased that some progress has been made and that, ahead of developments south of the border, Scottish Milk is now able to process more than 10 per cent of its throughput.

Greater vertical integration, which allows farmers more ownership of the processing and marketing operation, is vital. Measures to encourage purchasing co-operatives to develop milk processing operations can pass some of the profits on to farmers, rather than the current situation in which the money is made and kept in the hands of the biggest operators that buy, process and sell milk. Companies such as Wiseman and Express Dairies are currently enjoying monopoly profits.

It is the responsibility of this Parliament to act now to limit the damage that previous Governments have left in their wake. We must be imaginative. We must recognise the long-term benefits of restructuring to secure the future of the industry. Capital investment is needed to allow farmers to gain a share of the profits that are currently being secured through milk processing. But how can such capital be generated when the milk price is so low? In the view of the Scottish National party, the Scottish Enterprise and Highlands and Islands Enterprise networks should be tasked to encourage producer co-operatives and to provide funding for them to establish joint ventures with dairy companies and others in the private sector. The minister need look no further than the Galloway Creamery in Stranraer for a successful joint venture of that kind, which pre-dates the current crisis.

Is Adam Ingram saying that the Scottish Agricultural Organisation Society, which was set up by the Scottish Executive to encourage co-ops to be set up in Scotland—which he has argued for—should be mothballed and the powers handed to Scottish Enterprise and Highlands and Islands Enterprise?

No. I am saying that there ought to be a drive to support co-operatives, and to link that to the creation of joint ventures between co-operatives and dairy companies or others in the private sector to establish—

Is the member arguing that the SAOS's powers should be handed over?

We will talk about that later.

You are on your last minute.

Wherever possible, we should be encouraging new product development and innovative marketing, which has seen considerable growth in some segments of the dairy product market, most notably in yoghurt and specialised cheeses—markets almost exclusively supplied by imports.

Further intervention by the Competition Commission will be unhelpful if its only consideration is the lowering of milk prices. It should take a more responsible attitude and consider the long-term sustainability of the dairy sector.

The dairy industry wants encouragement and a helping hand from Parliament, so that our farmers can get through this crisis—we must not let them down.

I move,

That the Parliament recognises the serious crisis affecting Scotland's dairy industry; notes with concern that the farm gate price for milk has fallen by over 30% in the last three years, yet the retail milk price has remained virtually static, and calls upon the Scottish Executive to enter into a dialogue with the industry with a view to developing a strategy to ensure its long term future.

I welcome the opportunity to contribute to the debate. Since I became Minister for Rural Affairs, I have been aware of the problems in the dairy sector. One of my first public engagements was a visit to a dairy farm in Ayrshire. I was told that one or two colleagues and friends of the farmer would be there—250 turned up. He is a man who has many friends.

I have been impressed by the efforts and the commitment of those who are involved in the industry, but no one should doubt that I am also well aware of the deep-rooted problems that Adam Ingram has brought before us this morning. Acknowledging the difficulties is one thing, but finding ways and means of giving the support for which Adam Ingram calls is another. The EU dairy regime is not constructed in a way that makes direct assistance an option.

As Adam Ingram pointed out, the deregulation of the milk industry and the abolition of the milk marketing boards some years ago resulted in a structure that does not appear to permit vertical integration. It is a great pity that some of the statements that were made at the time represented the wrong interpretation of the changes.

However, faced with that situation, I have adopted a twin-pronged approach. First, I will try to find a way to provide cash assistance. I am grateful to Adam Ingram for acknowledging that I have stuck to my guns in insisting that agrimonetary aid that ought to have been paid has been paid to the dairy sector. Although we are paying that money in full, it is not a huge injection of funds. I hope, however, that it will help. It is the first time that agrimoney has been paid to the dairy sector. The last time that such help was available was in 1997 under the Conservative Government, but the money was not paid.

Agrimoney is not enough—which is why I supported the removal of the over-30-months scheme weight limit. I hope that that will provide extra support for the dairy sector. I trust that the EU—which we have approached—will be sympathetic to that.

Many farmers in the dairy sector also keep sheep and beef cattle. Most of those animals are in less-favoured areas and will, therefore, be eligible for support from the package that I announced the other day.

Secondly, we must recognise that short-term assistance—helpful as it might be—does not address the industry's wider needs. As part of that process, I will call today for a serious debate about the future path of the agriculture industry. I will say more about that later, but I should advise members that copies of a discussion document to accompany that debate are available in the Scottish Parliament information centre. This morning's debate is, however, on the dairy industry and I want to concentrate on that.

Several developments might help to stimulate the market. The industry voted 2:1 to extend the remit of the Milk Development Council to the sponsoring of generic advertising. I welcome that development and I assure members that I will continue to oppose any proposal by the EU to stop the school milk scheme. That scheme is crucial in embedding in people at an early age the value of milk and milk products.

We want to examine the industry's long-term strategy—something that my department and I have been considering for some months. I am pleased to announce to the chamber that the Executive will fund a £50,000 industry-led study that will examine the difficulties and the opportunities faced by the dairy sector. The study will analyse the sector's problems, examine the market's requirements and draw up proposals for the future.

That is an example of good collaboration between the Scottish farming industry and the Executive. The proposal came from the food chain working group that we set up and which is chaired by the National Farmers Union of Scotland. The group comprises representatives of the Executive, major retailers, processors and primary producers. The group is tasked to examine all sectors of the industry as part of its work; it has identified the dairy sector as a priority.

The dairy study will be led by a group made up of representatives from all sectors, including the SAOS. Its role will be to examine co-operatives, as the SAOS already does. I have to say to Adam Ingram that it has made a valuable contribution, both within the Co-operative movement and in its linkages with other bodies. I hope that the study will produce useful information and additional help, in a vexed situation.

The Executive has been taking steps to assist our farmers, but we must work within the restrictions of the common agricultural policy.

Does Mr Finnie accept that the £50,000 survey that he has announced is too little, too late? The dairy industry has been in terminal decline for two years. He cited the fact that agrimoney compensation had not been paid under the Conservatives; at that time the price of milk was 26p a litre, so there was no need for it to be paid.

Mr Finnie's policies mean that we will soon have nothing but trees north of Carlisle. Another study will not make any difference.

I can say only that Mr Scott is disagreeing with the food chain working group that we set up, which includes representatives of the industry and of the National Farmers Union of Scotland. It seemed to me that my proper response to the NFUS and all the members of that group, who said that a study was required, was for me to facilitate it by approving £50,000 to take it forward. I am sorry that Mr Scott wishes to disagree with the industry representatives on that, although he is entitled to do so.

In respect of this being too little, too late, I have acknowledged—as Adam Ingram pointed out—that there are deep-seated and deep-rooted problems in the dairy industry. In the short time that I have been in this job, I believe that I have taken every possible step to deal with them.

Members will be aware of the general package of support; there is more to come and it must be balanced with a longer-term view. I will address that in more detail when I make my statement later today.

I move amendment S1M-738.1, to leave out from "recognises" to end and insert:

"supports the Executive in its determination to help the dairy industry and all other sectors of Scottish agriculture as part of its overall commitment given in the Partnership for Scotland agreement to promote rural development in Scotland."

I begin by drawing members' attention to my entry in the "Register of Interests of Members of the Scottish Parliament". They will find that I am a farmer. I should probably go a little further in this case and confess that I am a dairy farmer, which is not declared in the register but is widely known.

As I have spent my entire working life as a dairy farmer, I have been on the swings and round the roundabouts; unfortunately, in recent years, I have been going down the chute. The unfortunate circumstances in which dairy farmers have found themselves are one of the hard-luck stories of British agriculture. We have always had great sympathy for the problems facing the pig industry, but I—like many others—had always been aware that dairy farming was likely to be the next target for this unfortunate slide.

However, I feel that I must clear up one or two remarks that have been made in the debate. The suggestion that the deregulation of the milk industry might be the sole cause of the collapse in milk prices might be misleading, as in the four years after deregulation of the milk industry, we enjoyed the highest prices ever recorded for milk. During that period, we established the high value for milk, which is now taken as the yardstick to measure the lows that we have now reached.

I will now talk about those lows; a projected figure that has been quoted to me is 16.5p—Adam Ingram mentioned 16p, but I will not quibble about the figures—which is for the first time right there at world market prices. According to suggestions that have been made in the press today, those projections for milk in the year 2000-01 might be below world market prices.

If the European price is now below the world price, why do we need export restitutions to allow us to export products from the EU into world markets?

I am just reading a new section, which I will continue to read.

It is suggested that the US five-year average projection for prices will be up to a penny above the 16.5p price. It has also been projected that that figure may be up to 2p below the predicted US, world free trade operated, worldwide level. Those figures are new and perhaps controversial, but they suggest for the first time today that we might be about to enter a situation where we are operating below world market prices—something that was unthinkable only two or three years ago.

It is important for us to look positively at what can be achieved. The reason why the Conservatives have not sought to amend Adam Ingram's motion is that we find no fault with it. That is because we also believe that the steps that need to be taken to encourage the recovery of the dairy industry are set out in the motion and were expanded on by Adam Ingram in his remarks. We believe that co-operation is the way ahead.

Will the member give way? He cannot be allowed to get away with it. He is arguing that co-operation is the way ahead for the dairy industry. It was his party in government that destroyed co-operation in the milk industry in 1994. The milk industry fought against the break-up of the milk marketing boards at that time, but his Government drove it through and destroyed the power of the farmers in the marketplace.

The dissolution of the milk marketing boards in 1994 need not have been the end of co-operation. The circumstances allowed the creation of a number of active co-operatives in Scotland. I was a member of one, the Aberdeen Milk Company. Unfortunately market conditions in more recent years discouraged the continuation of the co-operatives and led to the Aberdeen Milk Company being sold to one of its competitors. The dissolution of the milk marketing boards did not start the slide in milk prices.

More recently, it has become obvious that the balance has tilted too far in favour of the private processor and, in consequence, action was needed to redress that balance. That became obvious some years ago—some suggest, even before the most recent change of Government at Westminster. A decision could have been made sooner to redress that balance. Unfortunately, the Monopolies and Mergers Commission report appeared to take a rather different view.

Conclude now, please.

We must encourage co-operatives. They are an essential element—

Will the member give way?

No, he is over time.

I have to wind up.

As a member of a co-operative in the past, I believe that we must ensure that we strengthen them against the processor but not against the primary producer. Co-operatives should not be allowed to fine their producers for moving to rival purchasers nor to poach members from one another by offering financial inducements. If we go ahead into the brave new world of the dairy industry, we need to ensure that the co-operatives function on a clear and well-defined basis.

I welcome the news today that £50,000 has been put towards research. I hope that the money is used wisely so that we can progress to a situation where once again Scotland has one of world's leading dairy industries, underpinned by a well-deserved milk price that reflects the effort involved. I welcome—

That is enough—you are three minutes over time.

I welcome the fact that the SNP raised this subject; I support the motion.

I am afraid I will have to take time off that allowed for the closing Conservative speaker, because this is a very short debate.

Members will have to forgive me, as one who was raised in this city, for not knowing about the intricacies of farming. However, nobody can deny—certainly nobody who, like me, represents a dairy farming area—that over the past three years dairy farmers have been hard pressed.

As we have heard, milk prices have fallen from 25p in 1996 to 22p in 1997, to 19.3p in 1998 and to 18.3p in 1999—and there are dire predictions of further falls this year. As production costs range from 14p per litre to 22p per litre, it is not difficult to see that dairy farmers are operating very close to the edge. Farmers compare the prices that they are getting with the prices that dairy products command in the shops and, not surprisingly, ask questions. Scottish dairy products are highly regarded for their quality, yet the primary producers can barely break even.

Unfortunately, the price paid to farmers for milk is not within Government control—it is set by market forces. Over recent years, UK farmers have been affected by weakened international markets and the BSE crisis. It is unfortunate that some countries in the middle east still refuse to take UK dairy products, despite the fact that no link between those products and BSE has ever been established.

If the price that farmers are paid for milk has fallen, why has the retail price not fallen? Is it not the case that there may be profiteering by the supermarkets? If so, why has the Labour party not referred the supermarkets to the Office of Fair Trading or ordered an investigation into the conduct of the supermarkets in respect of pricing? Is it relevant that some supermarkets have given the Labour party financial support?

I find that a curious intervention. Of course I would be concerned if the supermarkets were profiteering and I believe that the issue has been referred to the Office of Fair Trading.

Another issue that I am sure Fergus Ewing will be interested in commenting on is the strength of sterling. It cannot be denied that that has contributed to the problems in the dairy industry. European Union support prices are set in euros and their value, which acts as a floor in the market, has fallen in the UK as the euro falls against the pound.

As the minister has demonstrated today, it is incorrect to give the impression that the Government, whether in Scotland or the UK, is unconcerned about the situation. That is why charges for cattle passports have been deferred and why the UK Government has agreed to pay £12 million in agrimoney compensation to Scottish farmers.

Given what the member has said about the strength of sterling, does she agree that the farming industry needs a European currency sooner rather than later, which would once and for all underpin the pricing of dairy and, indeed, all agricultural products?

That is something that we must take on board when we consider whether it is in Britain's interest to join the European single currency.

I must press on, or I will run out of time. I will take an intervention from Mr Scott later, as I have something to say in which I am sure he will be interested.

I am very pleased that the Minister for Rural Affairs—supported by the Rural Affairs Committee—has made such a strong case for the payment of agrimoney, and I congratulate him on his success. There has also been remission of the dairy hygiene charges and an extension of the weight limit for cattle sold under the over-30-months scheme, which will be worth around £3 million—provided that the European Commission agrees to it. I should say in passing that the petition relating to that was the one petition from the National Farmers Union of Scotland that the Rural Affairs Committee did not support. However, it has been successful elsewhere. The new measures are part of a £39 million package of support to Scottish farmers that was announced after the Downing Street summit on 30 March.

As we have heard, aid on its own will not solve the underlying problems that the dairy farming industry, along with many other sectors of British agriculture, faces. That has been widely recognised. The only way in which we can tackle those problems is by the Executive and the industry working together to examine problems and identify solutions. That is why funding is being made available to provide business advice, grants for marketing, processing and training, and a new web-based advice service.

Farmers throughout Scotland and the UK have expressed a desire to add value to their products by producing and selling foods more locally. As members know, I hate to be parochial, but I am particularly pleased that the Executive has set up a pilot project with organisations and producers in Dumfries and Galloway to examine ways of developing viable markets for locally produced goods. That has been welcomed recently in the local press. The president of the National Farmers Union of Scotland, Jim Walker, said:

"This is something that could produce very significant results in the future."

He also said:

"If we are going to survive we have got to do something different that reflects the different cost structure and quality of the food we produce".

The Government must recognise, as it has done, the problems that are faced in this beleaguered industry and the need for short-term assistance. I do not subscribe to the view that, because Tory Governments allowed other important manufacturing industries, such as mining, shipbuilding and steelworking, to die, a Labour Government should do the same to farming. Two wrongs, or four wrongs, never make a right. However, I believe, as does the NFU, that subsidies are not a valid long-term solution. We must work together to find solutions that stabilise the industry and help farmers to diversify—although, looking round the chamber, I see that several farmers have already found other forms of diversification—and to promote our quality Scottish products.

This is a very short debate, so I can take only two speeches from the floor before the four party spokesmen wind up. Richard Lochhead and Mike Rumbles will each have three minutes.

I, too, welcome this debate, as I am a member for North-East Scotland, which is being hit particularly badly by the crisis.

Today The Press and Journal charts the downturn in the dairy sector in the north-east of Scotland. Referring to the sale at Thainstone, it says:

"The North-east lost another four dairy herds yesterday as the crisis in the milk sector bites at farm level."

It continues:

"the Thainstone sale is just the tip of the iceberg. A Kincardineshire herd is tomorrow to be sold in Carlisle and another two Aberdeenshire producers are expected to leave within the month."

In the north-east of Scotland, dairy farmers are giving up their businesses after 30 years, or even longer—farms have perhaps been in their families for a century—so their decision is painful. The number of dairy farms in the north-east has halved in the past 20 years, and is still declining rapidly. One farmer says that for every penny reduction in the farm-gate price of milk, his business loses £13,000. We have heard that, four years ago, the net income of dairy farmers was £30,000, but according to the Executive's figures it has fallen to £4,000.

Some farmers can concentrate on arable or beef when the dairy sector is in trouble, but smaller farmers are experiencing extremely difficult times. For many, their dairy herds are their only capital asset—but they have lost value because of the BSE crisis. Now, the produce on which they relied is also declining in value. The Executive should be doing its utmost to identify the areas of Scotland that have small farms and need priority assistance.

Many farming families are under severe pressure and need assistance and independent advice. Does Richard Lochhead accept the idea, which I have been pushing, that a farming task force should be established to address the problems that currently face the farming industry?

That is not a bad idea. I read about it in the press. A few months ago, I wrote to the Minister for Rural Affairs to ask that response teams be set up for rural crises in Scotland, as happens when there are urban crises. That is one element of the strategy that we should have to help rural economies.

In the north-east, the situation is already bad because of what happened to the pig industry. The last thing we want is for the dairy sector to go down the same road and to encounter the same dither and delay from the Scottish Executive. The dairy farming sector is fragile in the north-east—it is slightly stronger in the south-west—and hanging on by its fingertips. There is a danger of knock-on effects: processors, particularly in Aberdeen and Laurencekirk, are threatened with closure; farm workers will have to go on the dole; ancillary services are threatened. This is another threat to the essential building blocks of the rural economy in the north-east.

The Minister for Rural Affairs should tell us what he is doing. Is he speaking to the Chancellor of the Exchequer about the impact on the dairy sector of the strength of the pound? What is he doing to promote innovative products? Will he stop waiting for the green light from Downing Street and act to help our dairy sector? This illustrates the argument for independence. We need to go directly to Brussels and use our own resources to help the dairy sector, rather than go down to Downing Street with the begging bowl. Let us start fighting for agriculture.

I would like, first, to commend Adam Ingram for bringing this issue to the attention of Parliament. Richard Lochhead started off well, so I listened carefully to what he said. It is a pity that his speech went straight downhill thereafter.

Richard Lochhead identified the fact that, at Thainstone market yesterday, we lost another four dairy herds. I believe that another herd, from Kincardineshire in my constituency, is to be sold tomorrow. The Co-operative Wholesale Society is quitting its milk production in Laurencekirk and two more Aberdeenshire producers are to leave the industry within the next month.

This is a crisis by any measure. It costs 19p to produce a litre of milk, farmers are paid 16p a litre by purchasers and supermarkets are selling at 34p a litre. Those facts speak for themselves. I am not surprised that the Office of Fair Trading is investigating this issue. Fergus Ewing might like to make a note of that.

While I welcome today's debate, I am disappointed that Adam Ingram's motion seriously misses the point. He calls on the Scottish Executive to enter into a dialogue with the industry, with a view to developing a strategy for its long-term future. Surely he recognises that that is precisely what Ross Finnie has been doing since he was appointed.

I wish to address my main points to the amendment.

Will the member give way?

I cannot—I have only another two minutes.

It is clear that the Executive is determined to help the dairy industry and all other Scottish agricultural sectors. I am convinced that Ross Finnie has shown a clear determination to tackle head-on the long-term problems associated with all sectors. As Ross has intimated, at 4.15 pm today he is to make a statement in the chamber on the forward strategy for Scottish agriculture—a document we all received this morning.

It is only right at this point to outline some of Ross's landmark achievements for Scottish farmers: increasing hill livestock compensatory allowance for sheep and beef producers; funding abattoir and passport charges for the next three years; introducing an independent arbitration service for farmers who are in dispute over the tremendous amount of form-filling associated with European Union rules; and, most recently, obtaining a £39 million package of aid for Scottish farmers—some 20 per cent of the whole UK package available. Ross Finnie: fighting for Scottish farmers and, more important, delivering for Scottish farmers.

Will the member give way?

I will not.

The aid package is not as much as we would have liked. We must remember that aid to our farming industry is available through the European Union and that therefore Westminster has a real role here. It has been a real disappointment that our Prime Minister has not had farming high enough on his list of priorities and has not produced enough agrimoney compensation, and that the Westminster Government has refused to reconsider the difference between farm-gate and retail prices. As far as I am concerned, Adam Ingram's motion hits the wrong target. Competition policy is a reserved matter and direct action to help our dairy industry needs to be taken at that level of government.

In conclusion—

Close now, please.

Great minds think alike.

I return to the amendment in Ross Finnie's name. I have no hesitation whatsoever in commending the amendment to the chamber and I am convinced that the Scottish Executive is—under the direction of Ross Finnie—committed to helping all sectors of the Scottish agriculture industry. I only wish that the Westminster Government was so committed.

I urge all members to support the amendment.

There is no dispute, in the speeches we have heard today, about the serious fall in the farm-gate price of milk over the past three years; nor is there any doubt about the impact of that on milk producers across Scotland, from the north-east to the south-west.

Like my colleagues, I welcome the measures that were announced last week, which go a small way towards tackling some of the difficulties. They are designed to support Scottish dairy products in the market. We must not forget, however, that the market is distorted and that there is a limit to what public subsidy can do.

Agriculture in general is a distorted market because of its dependence on public subsidy and its dependence on and vulnerability to European currency transactions. That is why it is easy to go down the road, along which Adam Ingram started when he opened the debate, of saying that all the woes of agriculture in general, and of dairy farming in particular, can be laid at the door of Government policy. I am glad that Mr Ingram did not confine himself to that approach and that he went beyond it to identify some of the other difficulties and to recognise the role of the market itself.

Will the member accept that the strength of the pound is a major factor in the detrimental impact on the dairy sector in Scotland and that that is a policy that is decided by the Government at Westminster?

I recognise that the strength of the pound is part of the problem, but I look forward to hearing from the SNP its policy preference for a weak pound and the consequences of that for the Scottish economy. It is also worth pointing out that the same currency weaknesses apply in relations between Northern Ireland and the rest of the European Union, yet the farm-gate price in Northern Ireland is 2p higher.

Is the member aware of the tragic circumstances faced by the farmers of Islay, where the creamery has closed? They have no means of selling their milk other than by transporting it off the island. Is he also aware that Islay cheese is famous throughout the world—

—not only for being delicious, but for its Viagra-like qualities?

Order. We do not have time for commercials.

I am indeed aware of that. I am also aware that Mr McGrigor has probably stolen Mr Stone's best line on the subject.

The abolition of the milk marketing boards, as the minister said, undermined the market position of the milk producers. Mr Johnstone made the case that that was no big deal and said that, in fact, the price of milk went up immediately after abolition. The point is that the milk marketing boards helped the industry to protect itself against both rises and falls in price and to maintain a stability that we no longer have.

In view of the 1994 shambles, which Mr Lyon touched on and which was at the hands of the Conservative party, and the Conservatives' ludicrous position on a single European currency as spearheaded by Mr Wee Willie Hague, does Lewis Macdonald agree that Jamie McGrigor is shedding crocodile tears?

You must wind up now.

I do not want to dwell for my last few seconds on the European currency, but I concur with Jamie Stone's comments on the crocodile tears.

It is worth mentioning the internal distortions in the market. I acknowledge what the minister said about involving the whole industry in examining the way forward, but it is impossible to live in Aberdeen, as I do, and not be aware of how the processing stage in the supply chain has come under the control of one or two very large companies and of the market distortions that that produces. I hope that an examination of monopoly at that stage in the supply chain will be part of the consideration when the market is studied and the future strategy for agriculture is outlined.

I remember your earlier strictures, Presiding Officer.

In declaring my interest, I point out that from my perspective as a hill sheep farmer, my view of my dairy colleagues was traditionally one of innate jealousy. My annual contact with them was always at the end of March, when it came to paying for the wintering. For those who do not know, that is a system whereby my young female sheep stock spent the winter vastly improving the fertility of a dairy farm—through the natural fertilisation techniques that all farm animals possess—in return for the host dairy farmer charging me an unforgivably large sum of money for the privilege.

The dairy farmer always seemed to be in a win-win situation. That that is no longer the case cannot be denied. We have heard the figures this morning; they have been put eloquently by members from all parts of the chamber. We have read about the consequences and we have seen the pictures of calves being shot, milk being spread on fields and so on. Labour has been shed—not the Government sadly, but labour on farms. Off-farm work has been taken on and most forms of diversification have been undertaken as the squeeze has hit over the past few years.

Will the member give way?

With two minutes? I do not have time. I am sorry.

Shame.

The member will have to speak to the Presiding Officer—and to Alex Johnstone.

The industry has reached unsustainability. Only this week, a creamery in Kirkcudbright has laid off 19 workers as it cuts production of ultra-heat-treated milk because of importation of UHT milk from France. The influence, Mr Stone, of a weak euro cannot be denied; that is why agrimoney compensation exists.

It would be easy to say that the dairy farmer could just give up farming. Of course he could, but in all probability he would turn to sheep and beef production. My concern, and something that the Executive has to be very careful about, is that that should not lead to a seismic shift in beef production—away from our hills and uplands—as it is taken up by dairy farmers. Such a shift has already begun. It would seriously affect the balance of Scottish agriculture, which the Executive must pursue with vigour.

Balance will not be easy to achieve; in essence, sorting out the medium and long-term future for the dairy industry occupies the first step on the ladder and holds the key. For that reason, and that reason alone, I support Adam Ingram's motion, which encourages direct contact with the dairy industry.

This has been a useful, although perhaps too short, debate on an important aspect of agriculture. I hope that we will soon have a longer debate.

I think that Alex Fergusson has missed the point about deregulation. Although it is possible to talk about the evidence of prices immediately following deregulation, deregulation has led to a fundamental structural weakness in the industry. I think I share with Adam Ingram the view that we all misread what was being said by the MMC at that time. Because no one was suggesting that Scotland was a market in its own right in that context, vertical integration could have been pursued.

Some American statistics were mentioned, which I think we all found rather confusing. Members should be careful about saying that things were going well when agrimoney was not paid in 1997. I seem to recall that the price was 18.8p a litre and on a severe downward trend. That is a statistic that members might want to revisit.

The director general of fair trading conducted an inquiry into the profitability of the four main supermarkets and concluded that there was a level of profitability that required further investigation. Accordingly, he referred the whole supermarket sector to the Competition Commission. A report will be submitted to the Secretary of State for Trade and Industry some time later this year. The points that members raised were fair and the issue is being addressed.

I would say to Richard Lochhead that of course we must get whatever support we can. Even if Scotland were an independent country in the European Union, it would still be constrained in what it could do financially. I am sorry about that, but it is a fact. It is not easy to produce money and then introduce it to the agricultural sectors. Even if those sectors are not well supported, they still come within the regulations and it is difficult for us to find money.

Will the member give way?

No, I am sorry. I have only a minute or so left. I must conclude on the point that I am making.

I have always recognised that there are serious short-term difficulties. I hope that members will accept that the Executive seriously intends to deal with many issues: trying to get part of the package that is directed to the dairy sector; full payment of the agrimoney; the OTMS; the other regulations; the benefits that some will get from the less favoured areas support—

No, I am concluding my speech.

I hope that members will also accept that, in looking for a longer-term solution, the work that was initiated by the food chain working group has to be taken forward. The Executive was entirely right to allocate £50,000 to ensure that that would happen.

The Executive is addressing those issues. I commend the amendment in my name to the chamber.

I was talking to the minister just before this debate began. He said that on this, the last day before the recess, we are debating agriculture this morning and listening to a statement on agriculture this afternoon. I hope that that gives the lie to those in the country who say that the Parliament is not concerned with the needs of rural Scotland.

I would like to declare my own special interest— unlike Elaine Murray, I do not mind at all being parochial. Galloway, and especially Wigtownshire, may on occasion be slightly more damp than I would like, but that dampness means that it can grow some great grass, which is obviously excellent for the dairy industry.

We have heard a lot about the problems of the dairy industry—I do not think that I need to rehearse them. The need to stimulate demand through marketing has been referred to. We need to do that not only for industrial reasons, but for health reasons. It is ironic that it is still far too easy for children to get crisps and sweet drinks at school, but very difficult for them to get milk, which is obviously far better for their health as well as far better for the dairy industry.

We have not touched on the problems that some specialist cheese producers believe they face. They feel that they are being overly burdened by regulations by the Government. A UK select committee referred to that earlier this year.

One thing that emerges from the discussion is that there is no clear consensus on the way ahead. Soon after I was elected as an MP, I had a meeting with the NFU in Glenluce in Wigtownshire, which was attended by 15 dairy farmers. After listening to them batting around the issues I asked what they wanted me to do. They gave me some 15 answers, if not 16. That reflects some of the problems of the industry. Even the House of Commons Agriculture Committee concluded:

"There is no obvious way out of this dilemma."

Some people see the quota scheme as one of the problems. Again, there is no consensus on what should be done. The Agriculture Committee argued for the abolition of the scheme, although that needs agreement at a European level. We need to end the nonsense that means that farmers would not encourage their children to go into the dairy industry, but would be ready to encourage them to become quota brokers, because that is currently the way to make money in the industry. That must be changed.

There has not been a shortage of suggestions. It has been suggested that we encourage vertical integration and investigate where the profits are being made in the supply chain. It has been suggested that we increase dairy marketing, although that is hardly a new idea. Adam Ingram suggested that we get Scottish Enterprise involved. Perhaps we need to improve the mechanism through which the industry gets funding. John Duncan, the chairman of Scottish Milk, has said that

"outside the fresh liquid sector, practically no significant investment in new plant or infrastructure has happened in the last 10 years."

That may be part of the problem.

We need a strategy to draw all those suggestions together. We can come up with short-term financial palliatives—we would welcome any contributions the Government would care to make—but we need a long-term strategy. Before I heard the minister's comment, I was going to say—reluctantly, because I am against setting up yet another review group or committee—that there was a case for getting all sectors of industry and Government together to come up with some clear points for action.

The minister put a tag of £50,000 on the group that he is setting up. I am not quite sure what that money will be spent on. I wonder whether the group will go far enough or be sufficiently comprehensive. We need a guarantee that the group will examine all the possible strategies and report quickly and that Government will implement its recommendations where it has the power to do so.

No industry should be immune to economic forces and no industry is owed a living by Parliament or the taxpayer, but agriculture, and particularly the dairy industry, is far too important to rural Scotland to let the current restructuring happen by default or accident. We must manage our way out of the crisis. Government has an important part to play in that process.

Finally, I want to comment on Adam Ingram's motion. I cannot understand what the Government and the minister see in it to argue about. As far as I can tell, it is the same as what the minister said in some of his speech. I hope that he will have the grace to withdraw the amendment and support the motion. Apart from the fact that the amendment is slightly more complimentary to the Executive than the motion, the motion is something around which we can all unite. On this occasion, I hope to persuade the Executive to withdraw its amendment.

That concludes the debate. The votes will take place at decision time at 5 o'clock.