I start by apologising for the absence of my hon. Friend the Under-Secretary of State for Environment, Food and Rural Affairs, who is engaged on duties connected with his biodiversity responsibilities. He usually speaks on these matters in the House.

I congratulate the hon. Member for Ceredigion (Mark Williams) on securing this debate on an important topic. I agree with him that while it is important to accept that the industry faces serious challenges, it is also important not to talk the sector down. He acknowledged that many of the recent developments have been positive. We must encourage new blood into the industry, as well as innovation and ideas. I believe, as one or two hon. Members here have acknowledged, that our natural advantages in dairy production should mean that our dairy industry has a good future. I hope that we can all agree on that, although we may differ in our opinion of how to arrive at that good future.

I must say to the hon. Gentleman, however, that the pressure on farm gate prices will remain; it is simply a fact of life. Dairy production exists in a competitive market, and there will always be pressure on costs. However, the acknowledgement of the increased cost pressures borne by dairy farmers, and the resultant action by a number of retailers to increase prices paid for liquid milk, is welcome. It follows discussions that Lord Rooker and I have held regularly with the chief executives of the major retailing companies.

The Government believe that it is in the supermarkets’ long-term interest to ensure sustainable arrangements for dealing with their suppliers. Several Members have acknowledged that those retailers have recently put in place initiatives to encourage closer working relationships with identified suppliers, some of which attract a price premium. There have also been positive developments in the contractual arrangements between processors and producers, which should help to develop greater transparency and trust. They are to be encouraged.

It is also important to recognise that a considerable proportion of milk and milk products are sold through middle-ground retailers, catering establishments or as food ingredients. The four largest grocery retailers account for less than one quarter of volume sales of raw milk processed in the UK. I know, because I heard it from the farmers in my own region at the Devon show last week, that the south-west has a particular grievance. One of our main recipients of milk is the farmers’ own co-operative, Milk Link, which, according to the table that I was given before the debate, pays the lowest price of any taker of milk. It is important to put the debate about retailers in that context.

Mr. Paice: Will the Minister give way?

Mr. Bradshaw: I shall give way, but I must warn Members that my policy is to be courteous to the hon. Member for Ceredigion, who secured the debate. I want to answer the points that he raised, so I shall limit the amount of times that I give way.

Mr. Paice: I totally appreciate that point, and I am grateful to the Minister. He quotes Milk Link’s price, so I just want to put on record that the co-operatives also plan to pay a dividend on top of the milk price. Milk Link has just paid a 7 per cent. dividend, which needs to be added to the price.

Mr. Bradshaw: I join the hon. Gentleman in welcoming that situation.

It is also important that we politicians and the industry focus not only on price, but on profitability. Several Members have acknowledged that there remains a worrying disparity in the cost of production of the most and least efficient dairy farmers. In 2003, there was on average a 12p per litre differential between the most and least efficient dairy farmers. We encourage all producers to examine carefully their production costs and to seek ways in which to minimise them. The rest of the supply chain also has its part to play in cutting costs, maximising efficiency, innovating and adding value.

There has been considerable investment in processing capacity, and as a result, we have some of the world’s best processing plants. However, there are some less efficient plants, too, just as there are efficient and inefficient producers. That is why the Department has funded a study through the dairy supply chain forum to benchmark processor efficiency internationally. The Milk Development Council is also conducting a benchmarking study on producer efficiency. We have invested more than £1.3 million through the agricultural development scheme to help the dairy sector address efficiency issues.

Profit margins are a concern, however, in particular the apparent increasing margins on liquid milk sold through the retail sector. Although that is a Europe-wide phenomenon, the Competition Commission, in the emerging findings from its inquiry into the groceries market, has noted that supermarkets are retaining an increasing share of the retail price for milk. The commission will look further into that issue, both in the milk sector and in other primary produce sectors. The Government welcome that development, and we will of course respond to any recommendations.

Several Members cited the Irish and Danish models. Let me say something about the support given to the Irish cheese market. The advice that we have received is that there is not unanimous support for the model that has been adopted in Ireland. There is concern about the system propping up inefficiencies in the Irish dairy sector, which is fragmented. Its processing industry is not as efficient as it could be, and we believe that the future of the UK cheese sector is best served by adding value, creating branded products and innovating, something that I am pleased to say is happening. It is also pleasing to note that Britain produces more varieties of cheese than France does.

I share Members’ concerns about the advertising decision last year by Ofcom, which was made on the advice of the Food Standards Agency. It is important to acknowledge the reasons for the decision. Although I understand that only 20 per cent. of advertisingfor cheese products takes place during children’s programming, 90 per cent. of that advertising was for highly processed varieties such as Cheestrings and Dippers products.

I welcome the FSA’s commitment to look again at the nutritional profile model and to review it now that it has been in place for a year. I understand the dairy industry’s concerns and I agree that cheese is a valuable part of a nutritious and balanced diet.

My hon. Friend the Member for Bishop Auckland (Helen Goodman) raised concerns about regulation. I have been responsible for many regulations in statutory instrument debates, and we have a debate on cattle identification this afternoon on a measure that will reduce the number of regulations from five to one. The Animal Welfare Act 2006 reduced from 21 to one the number of regulations. When one tots up the number of new regulations, it is also important that one takes into account the number of regulations that the Government have got rid of.

A number of hon. Members, including the hon. Member for South-East Cambridgeshire (Mr. Paice), raised the issue of bovine TB. Aside from badger culling, he raised several issues, and I can assure him that the Government are doing everything in our power to further the vaccine test, and field trials are under way. I met the academics who are attempting to develop the polymerase chain reaction test and I shall write to him about the matter. The hon. Member for Leominster (Bill Wiggin) was at that meeting, but I shall happily send the hon. Member for South-East Cambridgeshire the details of it. My understanding is that while there is potential, the test is not yet at a stage at which our scientists will advise that it can be put into field trials.

It was interesting that the issue of badger culling was raised, but I am not sure what the Liberal Democrat policy on the matter is. I am also not sure what the Conservative policy is. As the hon. Gentleman acknowledged, we have only one more month—hopefully—to go before Professor John Bourne’s independent science group produces its final report on the badger culling trials.

It would be odd for the Government to make a major policy announcement in advance a report for which we have only three or four weeks to wait. I assure the hon. Gentleman that we intend to make a decision on the issue soon after the report is published. I say to him what I also said to the dairy farmers that I met at the Devon show last week: it is important that the industry intensively engages in some of the practical and organisational challenges that would result in any decision to include wildlife controls as part of our bovine TB policy.

A number of Members talked about regulation. I do not intend to repeat what the hon. Gentleman said—he gave a good riposte to those who argue for the introduction of regulation. The hon. and learned Member for Torridge and West Devon (Mr. Cox) recalled that the Conservative Government under Prime Minister Thatcher agreed to the single market, which she trumpeted as one of her greatest achievements. I do not know whether the hon. and learned Gentleman suggested that we should go back and undo it, but as the hon. Gentleman pointed out to him—perhaps privately—the single market is of huge benefit to our industry and even to our farmers.

The difficulty with the Danish model is that Denmark has land borders with Germany and easy border arrangements with Scandinavian countries, so it operates in a completely different market. We have a GB market for liquid milk—we are a net exporter of liquid milk. The competition authorities in this country take a different view from those in Denmark. Arla was set up before the current competition rules applied. The Government encourage and help farmers to set up co-operatives, but we cannot condone or encourage the setting up of cartels. I hope that all hon. Members will accept that no Government should do that.

We have had a good, positive debate. I am sorry if I have not responded to all Members’ concerns, but I shall write to them if that is the case.
I also wished to raise the nitrates problem. Tomorrow, as part of the energy White Paper, there will be a positive announcement on anaerobic digestion, for which Members may wish to prepare themselves. There is huge potential for a win-win situation for the environment and for renewable energy.