Select Committee on Agriculture Minutes of Evidence

Memorandum submitted by the National Pig Association (M8)


  The National Pig Association (NPA) is the trade association representing UK pig producers and those companies and individuals supplying goods and services to pig producers. The association was formed in October 1999, following a merger of the pig representational interests of the NFU and the British Pig Association (BPA).

  The issues covered in this memorandum comprise:

    —  Pig Industry Restructuring Scheme;

    —  Classical Swine Fever; and

    —  Issues of Competitiveness.

1.  Pig Industry Restructuring Scheme

1.1  The need for restructuring

  This evidence does not rehearse in detail the experience of pig producers in this country since mid-1998, when market prices dropped below break-even. The NPA's predecessors, the NFU and the BPA, appeared before this committee in 1998, and made that case very well. Nevertheless, we wish to re-emphasise several key points:

    —  Cumulative trading losses by UK pig producers from mid-1998 to early 2000 amounted to £360 million (£20 million per month)

    —  Cumulative trading profits for 2000 will amount to no more than £35 million (£3 million/month).

    —  The next downturn in market prices could come as early as Quarter 3 of 2001.

    —  the capital value of pig production assets remains today at approximately £200 million against a 1997 level of £600 million, and a cost of reinstatement of £1.5 billion.

  The Meat and Livestock Commission (MLC) and the NPA produced a report on the Economic and Social Costs of the British Pig Industry Crisis in January 2000. The Executive Summary of the report is attached as Appendix 1. [Not printed.]

  The report identified that many of the factors causing the crisis were matters that led to an imbalance in supply and demand, which, in turn, led to a crash in market prices the world over. However, the report also identified that UK pig producers were subject to additional pressures that went beyond normal market forces, and which, therefore, prompted the industry to seek redress. These pressures included, among others:

    —  The unilateral UK ban on stalls and tethers, costing £17.5 million per year in extra running costs, quite apart from the one-off capital cost of conversion.

    —  The cost to pig producers of complying with UK regulation measures to control the public health risk of BSE in cattle, amounting to some £66 million per year.

    —  The cost of dealing with the strength of sterling, amounting to approximately £80 million per year.

  In January 2000, the Minister of Agriculture stressed at the Oxford Farming Conference that there would be no cash assistance for pig producers. By February 2000, the Prime Minister suggested that cash was not out of the question, but that it would have to be balanced by a commitment from producers to restructure their businesses to deal with modern competitive pressures.

  The NPA, together with colleagues from NFU and the MLC pursued this opportunity and promptly sat down with MAFF officials to see what could be done. And so the Pig Industry Restructuring Scheme (PIRS) was born, when the government was finally persuaded that the pig industry was in need of hard cash to help it overcome the competitive burdens made worse by government policy.

1.2  The NPA's collaboration

  From the inception of the NPA in October 1999, the NPA sought a collaborative approach with officials at MAFF, with a view to seeking out the best available solution to the problems of the industry. We are pleased to report that our efforts to work together were met with a ready acceptance, and it was this co-operation that has led to PIRS becoming a reality.

  Many of the NPA's suggestions were incorporated into the scheme, and MAFF officials were keen to listen to argument about what would and would not work. There were, of course, difficult hurdles to overcome, particularly in terms of making the scheme workable according to the relevant EU Commission guidelines on state aid of this sort, while still making it practicable on the ground. The acid test of whether these hurdles have successfully been overcome will be the level of uptake of the scheme over the next three months.

  If the scheme does not work, the NPA's questions will be:

    —  Was this really the best option open to the government in its pursuit of a way to channel desperately needed funds to pig producers?

    —  Is it really true that the restructuring route was the only one open to the government, or was it the route chosen in order to satisfy policy choices specific to this UK government?

    —  Could the government have tried harder to make the scheme more palatable to pig producers?

    —  Could the government have designed a scheme, which did not, as this one does, exclude those producers who are the most efficient and most progressive in the country?

1.3  Serious exclusions from the scheme

  The objective of the scheme is to enable pig producers either to leave the industry, or to restructure their businesses to be more viable. In other words, the scheme is designed to pursue the goal of greater efficiency. This objective is espoused by the NPA, by the government, according to its statements at various times, and by the EU Commission, in the preamble to its guidelines on aid to sectors in difficulty.

  The objective is broadly met. Those who do not see a viable future as primary pig producers can get financial help to manage their exit in an orderly fashion. Those producers who qualify as Small Agricultural Enterprises (SAE) can secure cash to help finance their restructuring plans.

  However, pig production businesses which do not qualify as SAE (ie those with more than 10 employees) will have to reduce their businesses by 16 per cent in order to qualify for the restructuring aid. MAFF's own estimation is that this limitation risks excluding as much as 25 per cent of the national herd from receiving aid. If the objective of the scheme is to enhance efficiency, where is the sense in that? Precisely those producers who have succeeded in growing their businesses to date, through greater efficiency, are effectively excluded from receiving aid. It is not as if they do not need aid. Even the most efficient producer in the country has had an enormous hole blown in his balance sheet since mid 1998.

  The scheme, therefore, is designed to subsidise the small and less efficient, at the expense of the large and more efficient. This is unfair, illogical and discriminatory.

  The NPA's questions are:

    —  Has the government explored every avenue to avoid this state of affairs?

    —  What alternative methods of making aid available to these excluded producers is the government exploring?

1.4  The impact of time

  Our report on the crisis was published nearly a year ago. The concept of the PIRS was born 10 months ago. The scheme is only now being launched, and producers will receive the first cash in April 2001 at the earliest. Recipients of aid under the Ongoers part of the scheme will have to wait until 2003 before they receive all the cash available to them under the scheme.

  Meanwhile, producers have been desperately treading water. They have known about the scheme since early 2000, and they have been calling for the cash as a matter of urgency. Their businesses have continued to be starved of cash, at least in part because of government policy. Not unreasonably, in those circumstances, many have concluded that the government has no intention of channelling cash to them as a matter of urgency, if at all.

  The NPA's own contacts with Commission officials over the last year have contained the same refrain: they have been content to react promptly to any proposal put forward by the UK government, and they have had sympathy to the need for urgency. The most recent letters in this vein between Franz Fischler and John Godfrey, the chairman of the NPA, are attached as Appendix 2. [Not printed.]

  The NPA's questions are:

    —  Has the Government done everything in its power to expedite the approval of the PIRS by the EU Commission?

    —  Could the authors of the scheme have done more, at an earlier date, to make the scheme acceptable to Commission officials?

1.5  Reassurance sought

  The funding of the scheme has been published as follows:

    —  2000-01—£26 million.

    —  2001-02—£20 million.

    —  2002-03—£20 million.

    —  Total—£66 million.

  In the light of the losses sustained by the UK pig industry, especially when the contribution to those losses by the unilateral action of the UK government is considered, the NPA considers that sum insufficient. At the time of the announcement, the NPA's view was to support the scheme, and to accept the funding proposed, on the grounds that it was, to paraphrase one of the MAFF officials, "the only game in town".

  This remains the NPA's position. If there were to be any movement from this level or timescale of funding, either to reduce the total available, or to extend the timescale, the NPA would argue that this would be unacceptable and unfair treatment of the pig industry.

  In particular, as we approach the end of the first of these three years, the first year's money has not been made available to producers. The £26 million must be carried over into the following years, or replaced like for like by new money in those two years.

  The NPA seeks reassurance, therefore, that the £66 million is ring-fenced for the restructuring of the UK pig industry, and that all sums will be paid out by March 2003.

2.  Classical Swine Fever

2.1  The cause of the outbreak of Classical Swine Fever

  The State Veterinary Service concluded that the most likely cause of August's outbreak of Classical Swine Fever (CSF) was discarded, imported, contaminated pigmeat coming into chance contact with a pig. The NPA accepts this as a reasonable conclusion.

  There are a number of precautions that a pig producer can take to reduce the likelihood of this happening:

    —  locate the farm away from roads and footpaths;

    —  locate the farm away from landfill sites;

    —  erect fences or walls; and

    —  place notices warning of the risk of transmitting disease to pigs.

  All of these are known about, all are already practised to one extent or another. Clearly, the first two are difficult to achieve with existing units. The work of the group chaired by MAFF's Neil Thornton will examine the opportunities of encouraging and enabling producers to modify their operations to reduce risk.

  However, all these measures are local measures, designed to provide protection from something which is in the immediate environment. While they are important, they are not, alone, a satisfactory solution to the risk of infection. The only satisfactory solution is complete and sustained eradication, backed by all necessary measures to prevent reinfection.

  The government and the industry invested significant resources in the 1960s to eradicate the disease. This policy can, even today, be said to have worked, given that this is only the second outbreak since eradication. The 1986 outbreak was controlled very promptly, largely because it occurred in a region of relatively low pig density. The 2000 outbreak is being controlled, not without difficulty, at least in part because of its location in a part of the country that is home to a significant proportion of the UK pig industry. In addition, the growth of extensive pig production, which has been marked in East Anglia, and which is desirable in many ways, especially as a way of satisfying demands for particular standards of animal welfare, has unfortunately exacerbated the difficulty of limiting the spread of the disease.

  Both outbreaks since eradication have been attributed to a similar cause: accidental contact with contaminated, imported meat. The NPA's contention is that it would be more cost-effective, and fairer to UK pig producers, if the importation of contaminated meat were prevented. The NPA requests consideration of these measures:

    —  banning the import of pigmeat products from countries that have a regular and frequent incidence of CSF;

    —  obliging the importers of pigmeat products to warrant the absence of contamination with CSF;

    —  publicising the consequences of the casual importing of pigmeat by individual travellers; and

    —  increasing the penalties for the illegal importing of pigmeat products.

  If the government chooses not to take any of these actions, the NPA contends that it therefore retains a responsibility for the continued exposure of producers to the risk of infection with CSF. That responsibility should manifest itself in providing all the necessary funds to deal with any future outbreak, including all the cost incurred by the imposition of statutory movement restrictions.

2.2  Producers' response to "business risk"

  As the impact of movement restrictions began to unfold during late August, producers reacted with consternation to the assertion by the Minister of Agriculture that the threat to their livelihoods posed by the action of government was a normal business risk.

  The NPA's contention is that the cost of complying with movement restrictions is not a normal business risk on two counts:

    —  an action taken by the government, which prevents a citizen from enjoying the free and unimpeded use of his assets, is an unreasonable imposition on that citizen, in which case the government should compensate the loss caused by its action;

    —  the risk of business interruption caused by movement restrictions is not covered under any available business interruption insurance; and

    —  restrictions imposed on a business overnight should be the responsibility of the imposer.

  In support of its argument, the NPA would also cite the UK government's comments to the EU Commission regarding the aid paid to pig producers following fire at the Ballymoney processing plant:

    ". . . the United Kingdom authorities . . . do not accept that the sudden total inability of a producer to sell a product in his usual market at any price, owing to circumstances unrelated to the market situation, and without any changes in levels of consumer demand, coupled with the almost total inability to transport this product for sale at any price in other markets, due to restrictions on animal movements, can be considered to fall within the normal parameters of entrepreneurial risk."

2.3  The need for government action

  Given that the absence of cover for this risk was universal, and given the rapidly building animal welfare problem of overstocked pig farms, the government rapidly changed its position, and introduced the Pig Welfare (Disposal) Scheme. Under this scheme, producers whose farms become overstocked with pigs, as a result of being unable to move them off farm while the movement restrictions are in place, are able to have pigs removed from their farms, rendered and disposed of outside the food chain. Pigs entered into the scheme receive a payment through the Intervention Board.

  Through the months of September and October, the government listened to the representations of the NPA, and progressively modified the scheme, making it more workable, and more likely to achieve the desired aim.

  We are grateful to the government for listening to producers and meeting at least part of their requests.

2.4  Industry solidarity

  There was virtual unanimity amongst pig producers throughout the UK that the government should pay for the consequences of its actions, and this belief remains unshaken.

  However, there is also a profound sense amongst producers of being comrades-in-arms. We regard ourselves as a community, we believe we are stronger working together, and we do not wish to see ill-fortune befall our fellows. Therefore, there was a clear emotional response to the plight of producers caught up in the movement restrictions: producers wanted to help each other.

  This response was not just emotional. Producers know that their industry depends on the existence of a viable infrastructure: feed manufacturers, abattoirs, builders, equipment suppliers, vets and all manner of allied industries. If a large chunk of production capacity were to be put out of business by swine fever, those allied industries would suffer, and remaining producers would suffer in turn.

  The NPA offers this as the reason behind producers' willingness to support the idea of an industry-funded top-up to the government's payments under the Welfare Disposal Scheme. Producers believe fundamentally that the government should pay the whole cost. In the absence of the government's willingness to accept this responsibility, producers believe it is in their interests to keep as many of their fellows in business as possible.

2.5  The Pig Industry Development Scheme for Disease Risk Management

  The NPA supports the scheme, launched by the MLC, 24 November, for its 56 day consultation period.

  The support is not without qualification. The NPA recognises that the scheme is the best available method to deliver funds to the producers caught up in swine fever restrictions, recognises the need for the scheme to be written more widely than its initial task would otherwise require, but is wary about the role of the scheme after swine fever.

  Throughout the compilation of the scheme document, the NPA was concerned about: the scope of the scheme, its duration, its potential for an inexhaustible demand for funds, and its effectiveness. It was also concerned about the potential disproportion between the funds at the scheme's disposal, and the cost of the functions illustrated in the scheme document. Finally it was concerned that the scheme would be used as an excuse for the government to offload its current responsibilities; and to avoid argument as to its responsibilities in the future.

  These doubts remain, even as the NPA works to make a success of the consultation and of the implementation of the scheme.

  The NPA poses these questions:

    —  Will the Government confirm that it has no intention of offloading its current obligations onto the scheme?

    —  Will it also confirm that it recognises that its obligations in the management of disease, together with all and any financial consequences, run further than its strict legal obligations?

    —  Will it confirm that it agrees that the scheme will become, at best, one of the weapons in the national armoury with which to fight disease, and will never become the sole site of recourse for pig producers?

2.6  Lessons to be learned

  The NPA seeks confirmation that there will be a thorough government review of the handling of the swine fever crisis, that the NPA will be invited to take part in that review, and that the conclusions of the review will be published.

  At this stage, the NPA would not wish to prejudge such review, other than to make these general points:

    —  Speed is of the essence in responding to disease outbreaks such as these, and we are not satisfied that the response was as rapid as it might have been.

    —  An aggressive response is also required from the very first weeks of the outbreak, the NPA was calling for the 3km kill-out zones (subsequently implemented) to be put in place around the sites of confirmed cases. In this we cited Dutch experience and advice. The request was denied on the grounds that such aggression was not necessary, a level of confidence that has proven to be misplaced. The result was increased losses for pig producers, and increased cost to the government.

    —  The MAFF communication programme was, at first, slow. If a small trade association, with meagre resources, can be efficient and effective in the use of its website from day one, then it does not seem unreasonable to expect MAFF's resources to deliver an even better service. This did not happen.

2.7  Fears for the future

  The NPA fears:

    —  That UK pig producers are unreasonably exposed to a repeat outbreak of a disease such as Classical Swine Fever, due to government inaction on effective control of the import of contaminated meat.

    —  That the government will wash its hands of the consequent problems, in the event of such an outbreak.

3.  Issues of competitiveness

3.1  Animal welfare regulation

  The NPA understands the role of regulation in the maintenance of high standards of farm animal welfare. We support the continuing influence and development of whole chain assurance programmes, such as Assured British Pigs, and its umbrella organisation, Assured Food Standards.

  We support the principle of regulatory change being based on good science rather than anthropomorphism.

  We consider that it is folly to implement unilateral change in welfare regulation, in the hope of leading the market. Given the limitations imposed by food labelling law, the unilateral imposition of change and its consequent costs simply and inevitably result in the export of production to locations with lower standards. This results in a loss of control by the consumer, and a loss of influence by UK consumer groups and the government, resulting, in turn, in a reduction in farm animal welfare standards

  We strenuously oppose unilateral change in animal welfare regulation.

  The NPA seeks reassurance from the government:

    —  that it agrees with our argument, and that it has no intention of introducing any such unilateral change;

    —  that it will not implement a unilateral ban of the farrowing crate;

    —  that it will press for a Europe-wide ban of the sow stall, in line with current UK legislation;

    —  that, in the event of new European legislation, it will comply with its previously-given undertaking not to "gold plate" any resulting changes; and

    —  that it will seek to limit the imports of meat from third countries, where there is no warrant that all EU specifications have been met.

3.2  Environmental regulation

  The NPA's views on environmental regulation echo its views on animal welfare regulation.

3.2.1  IPPC

  The timetable for implementing the IPPC permit and inspection programme for pig farms has been relaxed, in order to give producers more time to prepare themselves for compliance. The NPA welcomes this.

  However, the NPA remains implacably opposed to the way the Environment Agency has interpreted the requirements, and how the Agency proposes to charge for operating the programme.

  This is an example of "gold-plating" at its worst. One glance at how the directive is being implemented in other member states betrays this. The NPA has grown hoarse seeking to persuade the Agency of the folly of its approach, but to little avail. Some progress has been made, but we remain bitter at the Agency's intransigence.

  The Agency's interpretation of the requirements of the directive has an inappropriate balance between practicality and benefit. For example, the regulations require that, when farmyard manure has been spread on arable land, it be incorporated within 24 hours. The benefit of compliance is reduced odour from manure lying on the surface. However, the cost, of guaranteeing that labour and implements, whether owned or contracted, be available without fail to comply with the 24-hour limit, is disproportionate to the benefit. Further, the 24-hour limit poses an unreasonable burden of weather forecasting on those wishing to spread farmyard manure.

  The charging structure, even after hard-won modifications, is disproportionate. The level of charging is more appropriate to chemical plants or large factories, and is completely unaffordable to a pig farmer. The Environment Agency staff blandly insist that they have a duty to recover their costs. Indeed they do, but they also have a duty to offer value for money.

  In particular, the NPA contends that this challenge remains unanswered by the Environment Agency: while acknowledging the principle that the polluter pays, why should non-polluters pay for the establishment of the infrastructure required to monitor the polluters?

  The Environment Agency must observe the rules of better regulation. In particular, there has to be a healthy relationship between the level of charging and the ability to pay, and between the cost and the value of the environmental benefit.

  The NPA contends that neither of these tests has been passed by the Environment Agency.

3.2.2  Climate Change Levy

  The NPA recognises the role the pig industry needs to play in the global effort to reduce the risk of climate change.

  Discussions with government regarding the implementation of a scheme to rebate any Climate Change Levy to producers who comply with targets to reduce energy use are current.

  Given our unsatisfactory experience in dealing with government agencies regarding IPPC, we seek reassurance from the government that any scheme will need to pass all the tests of better regulation.

3.2.3  Better Regulation Task Force—Environmental Regulations and Farmers Sub-Group

  The NPA welcomes many of the conclusions and recommendations of the report recently produced by this group, under the chairmanship of Lord Haskins.

  In particular:

  "Recommendation 7: animal welfare:

    —  MAFF should re-examine ways of compensating farmers, especially small farmers, for additional costs imposed by certain UK animal welfare regulations; and

    —  the UK government should resist unilateral demands for further animal welfare regulations and lobby to raise standards in other EU Member States to those currently practised in the UK."

  "Recommendation 11: Integrated Pollution Prevention and Control:

    —  Ensure that enforcement is appropriate and proportionate; and

    —  that on-farm inspection charges do not exceed those elsewhere in the European Union."

  The NPA would also like to draw the Committee's attention to one of the principles of good regulation identified in the report:

    "Where regulation disproportionately affects small businesses, the state should consider support options for those who are disadvantaged, including direct compensation."

3.3  Food safety regulation

  The NPA's views on food safety regulation echo its views on animal welfare and environmental regulation.

  The NPA contends that new food safety regulation must always be based on good science, and must pass the test of a satisfactory balance between cost and benefit.

  We also urge that, if the cost of delivering pigmeat to consumers is inflated by costs associated with solving a food safety issue unconnected with pigmeat, as was the case with BSE regulations, for example, the pig industry must not be expected to bear those costs unaided.

  We also urge that, if food safety regulation is brought to bear on UK pig products, all importers of pigmeat be required to warrant that they have complied with an equivalent level of control.

3.4  Food labelling

  The NPA believes that, under existing food labelling legislation, both UK and EU, and under existing WTO rules, it is not possible satisfactorily to market superior standards of animal welfare, environmental protection or food safety. In particular, the WTO rules, that preclude differential labelling on the grounds of different Production or Processing Methods (PPM), mean that any producer, who is obliged to accept a regulatory burden from which his importing competitor is exempt, is at an insuperable disadvantage.

  The RSPCA, in their report, "Conflict or Concord, Animal Welfare and the World Trade organisation", state:

  "Mandatory labelling is far more likely to be effective than voluntary schemes, as long as the standards promoted are meaningful and the scheme is transparent. This may not produce an absolute shift in consumer demand however. Other factors—including price, availability, familiarity, reliability and performance—may lead consumers to continue buying a product even if they disagree with aspects of its production, ingredients or consumption. Paradoxically, a significant proportion of consumers may be willing to support regulatory measures to outlaw production processes or ameliorate consumption consequences without actually modifying their own purchasing choices for the same products. For this reason legislative [labelling] solutions are seen as the most desirable aim."

  The NPA requests assurance that the government will either secure a compulsory labelling mechanism that is able to demonstrate differentiated PPM, positively or negatively, or will commit to avoid all unilateral regulation in any of the areas of animal welfare, environmental or food safety regulation.

3.5  Aid to EU pig producers following the spread of BSE

  It seems likely that many European pig producers will soon be facing similar consequences of BSE control measures to those faced by UK producers since 1996. In particular, it seems almost certain that the temporary ban on Mammalian Meat and Bone Meal (MBM) will become permanent in all member states.

  In that case, the NPA requests one of two courses of action from the government:

    —  either, it must ensure that no state aid is paid to pig producers in other member states as a result of such regulatory change, either directly or indirectly; or

    —  it must ensure that UK pig producers are entitled to similar aid.

  In general, the NPA urges the government to keep a close watch on how the BSE crisis is managed in other member states, to ensure that no competitive disadvantage of any kind accrues to UK pig producers.

30 November 2000

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