First of all, I acknowledge that there is a serious problem with dairy in the UK. Part of that is down to your structures. A significant look could be taken at how co-operatives and private companies behave in the market place, because there are insufficient structures to bring farmers together and allow them to co-operate in a way that I am used to seeing in other jurisdictions. Of course, that is a medium to long-term strategy that will not satisfy the farmer either today or tomorrow.
In the medium term, there will be continuous volatility, not because of the abolition of milk quotas but because of recent global market trends, particularly in the far east and Russia, which have contributed to the problems. There are also food chain issues to look at. I very much welcome the fact that the Groceries Code Adjudicator is part of the UK’s legislative processes, and the European Commission is watching the adjudicator closely to see what we can learn and whether we need to lay down EU common rules and a framework for other member states. The UK and Spain are leading the way in trying to ensure that producers are not squeezed between retailers and processors, but their actions probably need a bit more time to work their way through.
I am optimistic about milk prices in the latter part of this year and going forward, because I see more opportunities opening up in the far eastern market. When you consider that there are already 150 million people in middle-class income brackets in China and that that number is going to grow every year for the next 20 years, you can see that the growing possibilities for western products are enormous—provided, of course, that we can get the right prices, which I think we can.
We are competing a lot better with New Zealand in that part of the world. The fact that New Zealand—and, indeed, California—has had a drought will give EU farmers a little bit of an advantage later on. I also suspect that the Chinese will open their powder markets again in the near future, because their stocks are low and they are in a position to start buying again.
You have articulated the worrying trend in global market auctions over the next six months, and it is something that I would prefer not to see. However, I have tools such as export refunds and private storage aid that I can use to intervene. When we opened private storage aid for cheese last September, it did not work out great, because a lot of people who were not directly affected by the Russian market jumped in and gobbled up an awful lot of the money that was available for the scheme. That said, we have learned from that. If we have to provide such aid in future, we will take a more targeted approach.
The Baltic states and the UK seem to be suffering the most with milk prices. However, I am not going to give any commitment to intervene immediately, because I want to wait and see whether the current volatility will wash through. I hope that farmers can hang on a little longer to see what arises after 7 August, when the Russians have to decide what they are going to do about the ban and whether they are going to add to it or—as we hope—subtract from it. We will then have an opportunity to review the supports.