GUERNSEY’S farmers have come out solidly behind the Commerce and Employment Department’s planned root and branch review of the dairy industry.

They are right to do so. The world has moved on apace since the last major reforms a decade ago and that was only a partial process. It focused on the production side, with distribution left largely unchanged.

The last C+E board tried to remedy that by proposing some sweeping reforms to the way milk and other dairy products were sold. Alas those unilateral proposals were so radical and instantly damaging to the island’s milkmen that, rightly, they sank without trace. The reaction from most States members was to keep everything exactly as they always had been in perpetuity. While understandable, that policy is ultimately unsustainable and is unfair on both milk producers and consumers.

Let’s look back at those two reviews, starting with the introduction of quotas. I have to declare an involvement as the president of Agriculture at the time, although the real spadework was done under my predecessor, Colin Best.

The problem then was spiralling overproduction. Ten million litres of liquid milk was being delivered to the Dairy when the requirement was less than eight. As a result, massive quantities of milk went into loss-making cheese production for export. This in turn lowered the milk prices paid to farmers, who reacted by boosting their production to maintain incomes. We had a classic vicious circle.

The multi-faceted solution was to impose quotas and lower consumer prices but maintain farm incomes through environmental payments from general revenue. This had several benefits. Most importantly it maintained a viable dairy industry and with it our traditional countryside. The lower milk price also reduced the threat of milk importation when the law preventing this was known to be vulnerable to challenge.

It certainly had its problems, too, not least a slight ‘over-correction’ in production which led to the embarrassment of importing some milk from Jersey. On balance it was a very successful package but times have changed and a review is certainly due. Is overproduction still a potential problem or is underproduction now the real threat? Is there still a need for quotas? Can general revenue still afford the current level of subsidy? All of these questions will hopefully be addressed.

The review will also have to grapple with the political hot potato of distribution. The milkmen have a very valid case. The value of their rounds was created by a system devised and implemented by the States over many decades. The proposal to remove their monopolies at a stroke was far too harsh and would have left them with assets worth far less than they’d paid for them. In the long run that might be desirable, but the implementation must be phased with an opportunity to extract value from their rounds first. Either that or they must be compensated for their loss.

The simple truth is that the purchase of milk rounds has to be financed out of the margin on sales. The higher the value of rounds the more that margin has to be.

It can only come from two sources – higher consumer prices and/or lower producer payments. It’s not the milkmen’s fault as their costs are pretty inelastic – their labour, their van and their fuel. However, as the cost of milk has consistently gone down in real terms over the decades [you may not believe that but it’s true] so the percentage of that sale price going to fund distribution has increased. No wonder the primary producer – the farmer – is concerned.

This situation was always unsustainable in the long term but with the steady decline in the percentage of milk sold through doorstep deliveries, the case for reform is almost irresistible. Those States members who believe everything can be kept exactly how it is indefinitely are indulging in wishful thinking. The real trick will be to move to a more commercially viable model without totally shafting a tranche of hard-working, self-employed islanders.

The key will be to make it a process rather than a big bang. For a start, the dairy must be free to supply by-products direct to wholesale customers. To prevent that when those same large customers can buy rival cheeses, butter and cream from whatever source they want will simply lead to a loss of market share.

All of these issues are controversial, but that doesn’t mean they should be shied away from. I wish the review team well.