STATES OF JERSEY
School milk: continued funding
Lodged au Greffe on 8th May 2008
by Deputy G.P. Southern of St. Helier
STATES GREFFE
PROPOSITION
THE STATES
are asked to decide whether they are of opinion -
to
express their support for the continued funding of school milk, and to request
the Chief Minister, after consultation with the Minister for Economic
Development, to bring forward for approval by the States provision for this
funding to be inscribed in the budget of the Economic Development Department in
the Annual Business Plan 2009 and ring fenced for this purpose until such time
as the new dairy and appropriate financial structures for the dairy industry
are in place.
DEPUTY G.P. SOUTHERN OF ST. HELIER
REPORT
School milk
– the politics
Members will be aware that the provision of school
milk has been under budgetary pressure for some years. It is one of the
“political footballs” that nobody wants to take responsibility for and over
time has been kicked from Education to Health and thence to Economic
Development in 2003. Protection of this funding was extended by the Assembly to
cover the years 2004 and 2005 largely to provide a measure of stability for the
dairy industry as it went through major reorganisation.
This came as a result of one of 3 key recommendations
in January 2003 to the Economic Development Committee of the time from
Dr. McQueen as part of his strategic review of the dairy industry.
Dr. McQueen predicted a certain level of recovery within the Dairy
Industry over the 2 year period 2003 to 2004, though it was unlikely that
this recovery would return the Dairy Industry to its previous level of
profitability.
The Committee agreed to the 3 key recommendations made
by Dr. McQueen, including that on the provision of school milk –
·
the guaranteed continuation of the present level of
the States support for School Milk and Welfare Milk programmes, at least until
the end of 2004.
Dr. McQueen argued that such a measure would help
to provide some stability in the transition period as the dairy and the
industry attempted to get itself on to a better economic and financial
position.
Following pressure in the States this was further
extended until the end of 2005.
The Economic Development Committee next considered the
ongoing funding of milk for schools into 2006, when they received an enquiry
about the issue from the Managing Director of Jersey Dairy in 2005. The
Managing Director of the Dairy was of the opinion that it would be advantageous
for the Committee to continue to fund the provision of milk for schools into
2006. Were the Committee to decide to end funding for this service earlier than
2006, the Dairy would need to find alternative resources such as private
sponsorship, and so was seeking clarification.
The Committee was fully supportive of the provision of
this service, and notwithstanding that it had not been provided with a budget
to continue it, the Committee decided
to fund school milk into 2006, but not beyond. Subsequently, the Finance and
Economics Committee agreed to leave funding for the provision of school milk in
the Economic Development Committee’s budget for 2006, but to remove it from
2007 onwards. Since then, the funding for school milk has been further extended
to cover 2007, but not beyond.
In the Annex to the Draft Annual Business Plan
2007 – 2011, the Minister for Economic Development’s decision is
recorded thus –
“School Milk
is included in the budget for a further year. The intention remains to withdraw
this funding pending the successful reorganisation of the Dairy industry”.
Last year I brought a proposition to the States to
further protect the funding of school milk for another 3 year period, as a
result of which the Minister for Treasury and Resources agreed to extend
funding for school milk for one year only, until the end of 2008.
The Minister for Economic Development currently
proposes to cease the funding of school milk in his draft 2009 Business Plan
and to transfer the £200,000 saved into direct marketing of the financial
services sector. At the time of writing, the details of exactly what form this
marketing will take is unknown, but it must be seen in the context of the
£1 million States funding already allocated to promotion of the Island’s
FSI through Jersey Finance.
School
Milk – the economics
The important factor to remember in assessing the
dairy industry is that recognised by Dr. McQueen, the Economic Development
Department’s own independent advisor, back in 2001, that –
“Support will be required pending the successful
reorganisation of the industry”
Much progress has been made over recent years in
returning the industry to viability. For example, the price paid for milk to
the producer in 2002 was 27.4 pence per litre. It was forecast to rise to
30.5 pence in 2003, but only achieved 29.5, the same price as was paid in
1990. The average distribution per litre for conventional milk in the year
ending March 2007 improved to 33.8 pence per litre, up from
33.0 pence per litre in the previous year.
Milk intake for the 12 month period ending March
2007 was 14.1 million litres, a very similar level to the previous year.
In previous times this has led to large volumes of milk going into low-value
skimmed milk production. Following the recent exit of 3 producers from the
industry in Jersey, the projected intake for the next year is
11.8 million, down from 13.3 million litres in the year just
ended. This projected intake is now much more closely matched to the
requirements of the local market.
In addition, the
past year has seen some of the most volatile times ever for dairy products.
World stocks effectively ran out last summer and this led to commodity prices
doubling over a 9 month period. Although world prices eased over the
winter, they are still running significantly higher than at the same time last
year. As a result of these factors, the dairy no longer has large excesses of
milk which it has to turn into unprofitable bulk butter and skimmed milk
products. The draft accounts for the year ending March 2008 suggest that the
dairy has reduced its net debt by just under £400k from the figure of £2,966k
shown in the 2007 accounts (see attached Appendix).
The dairy is still carrying a debt of
£2.5 million, however. The industry is doing its best to turn itself
around, but there is a long way to go. The final element that needs to be put
in place is the move to a new dairy, which will permit a significant reduction
in the board’s debt. Every informed observer of the Jersey dairy industry, with
the exception of those who make up the EDD, is of the opinion that the
continued funding of school milk is essential. The words of the Economic
Development Department’s advisor, Dr. McQueen, in his conclusions to
Chapter 3 of his report, remain as valid today as they did in 2003:
“School milk and Welfare milk account
for 11% of all liquid milk sales and although this share has been falling it is
sufficiently big to make these sales of real significance to the industry. Care
should be taken to ensure the schemes are maintained at least until dairy
farming is on a sounder financial footing.”
Scrutiny
Report
The most recent review of the dairy industry, the
Economic Affairs Scrutiny Report S.R.4/2007, conducted in conjunction with the
Chief Minister’s Department, contains the following sections on the topics of school
and welfare milk:
Milk has traditionally been provided free or at
discount rates to sections of the population that are deemed to need it. This
has provided Jersey Dairy with an additional source of revenue.
Welfare milk
Until 2005,
residents of Jersey were entitled to subsidised milk if it was deemed to be of
particular benefit to them. Subsidies were previously received by pregnant
women, children under 5, and people over 70, (or 65 in some cases). This was
administered by making cheaper milk available from roundsmen who delivered door
to door.
Welfare milk
was sold directly to the claimants by Jersey Dairy, which was reimbursed the
difference by the Social Security
Department. Once the milk delivery scheme was terminated, the funds were
distributed to the recipients by cheque. It is intended that the welfare milk
payments will be subsumed into the low income support payments once that system
is in place.
Although the number of beneficiaries and the sum
required to support this benefit have been reducing over time, over
7,500 households will be affected by the withdrawal of the scheme.
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2001 £’000 |
2002 £’000 |
2003 £’000 |
2004 £’000 |
2005 £’000 |
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Milk at Reduced Rate |
467 |
408 |
380 |
334 |
361 |
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Milk at Reduced Rate beneficiaries |
9,792 |
8,948 |
8,353 |
7,837 |
7,578 |
On the subject of school milk, the Scrutiny Report has the following to
say:
School milk
School milk
is currently available provided free of charge, with the cost of the milk paid
to Jersey Dairy by the Economic
Development Department. The Economic
Development Minister has stated that the funding for school milk will be in
place for 2007, but will not continue into the future.
The Sub-Panel
has polled schools and found that the majority appreciate milk provision, that
most children drink the milk, and that there is little wastage in the system.
Most schools would like to see the service continue indefinitely and feel that
it represents a positive use of public money.
Although the
dietary benefits of additional milk for the under 10s has been challenged by a
UK report, the social aspects and the increased propensity of children who
receive this milk to drink it in the future are considered benefits.
The cost of the provision of school milk is around
£180,000 annually.
Rural Economy Strategy
In examining the wider
aspects of government support, both direct and indirect, for the dairy
industry, the Scrutiny Panel had the following to say:
The Rural
Economy Strategy is considered worthy of further detailed consideration. While
it has only been operating for one year it introduces significant new concepts
to the industry, as well as setting up a framework to reduce direct payment to
farmers by approximately 25% between 2007 and 2010. The rationale for this
reduction is that –
5.5.1 The dairy industry has identified efficiency
gains that will flow from, for instance, the relocation of the dairy. It is
proposed that current levels of direct aid are maintained until 2007 during
this initial transition phase. Thereafter the overall level of financial aid
(including support service payments) will be reduced.
The
government strategy is therefore based on the relocation of the dairy, and the
Sub-Panel hopes that consideration will be given to the industry if the
relocation is delayed.
This is illustrated in the graph below, taken from the
Rural Economy Strategy. It shows a reduction in direct support to the industry
of around £200,000 over the 3 year period 2007 to 2010.
According to the Rural Economy Strategy, there will be
a phased reduction in support for the dairy sector amounting to around £120,000
over the years 2007 to 2010, largely through reducing the rate at which the
quality milk payment is paid.
Doorstep
deliveries
The decision of the dairy first to introduce charges
for delivery and then to cease deliveries altogether in 2004/5, has led to the
setting-up of a new enterprise by ex-roundsmen to take over this service. This
company, Sunshine Deliveries, now delivers to homes and offices in many parts
of the Island, and the contract to deliver school milk for the Dairy forms a
significant part of the company’s revenue.
This proposal deliberately covers the period until the
new dairy is constructed and the financial situation of the JMMB or its
successor is resolved, in line with the recommendation of the McQueen report.
When this has occurred, it will be for the States to decide whether it wishes
to reconsider its position with regard to the funding of school milk on grounds
other than economic.
Financial
and manpower statement
Continued support for school milk will cost some
£190,000 annually. There will be no additional manpower demand.
APPENDIX
JMMB Results
at a glance
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|
12 months ended 31st March 2007
£’000 |
12 months ended 31st March 2006
£’000 |
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Turnover |
9,747 |
9,887 |
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|
Surplus after interest and before distributions & exceptional items |
4,662 |
4,563 |
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|
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Net loss before exceptional items |
(204) |
(192) |
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Net loss after distributions |
(314) |
(494) |
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Net debt |
(2,966) |
(2,607) |
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Milk intake in litres ‘000s |
14,144 |
14,109 |
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Number of registered producers at year end |
33 |
33 |
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Number of dairy employees at year end |
67 |
75 |
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Pence per litre |
Pence per litre |
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Revenue |
68.9 |
70.1 |
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Operating costs – as adjusted* |
(34.5) |
(36.3) |
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Surplus after interest and before distributions |
32.2 |
30.2 |
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Surplus after interest and before distributions & exceptional items |
33.0 |
32.3 |
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Distribution – for conventional milk |
(33.8) |
(33.0) |
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Note: Pence per litre figures are based on total milk intake from producers * Excludes exceptional items |
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