Select Committee on Agriculture Minutes of Evidence


Examination of Witnesses (Questions 1 - 19)

MONDAY 11 DECEMBER 2000

MR JAMES BLACK, MR JOHN GODFREY, MR STEWART HOUSTON AND MR MIKE SHELDON

Chairman

  1. Gentlemen, welcome to the Committee. I am sorry to keep you waiting, but the Prime Minister was reporting on the Nice Summit, and I felt that colleagues and myself ought at least to have the opportunity of hearing what were the initial exchanges in that. We are constantly being told that the Chamber of the House of Commons is no longer a forum, but it ought to be, and if we do not turn up we are clearly helping it to cease to be. Thank you for coming. We want to deal with two basic subjects: first of all, the proposed restructuring programme, and secondly, your thoughts on the swine fever epidemic. We would like to do it quite briskly, so I would ask my colleagues to be brisk, and I would ask you to be brisk, if you do not mind, in answering. Perhaps when you answer your question for the first time you would identify who you are for the record, to save us doing a preliminary gallop round the course.
  (Mr Black) You do not want us to introduce ourselves initially?

  2. No, not at this stage. When you answer questions, just say who you are, and we will pick that up then. Perhaps I may begin by simply asking you for your appreciation of the actual economic situation of the pig industry at the moment. Before the swine fever epidemic, things looked like they were improving a little bit, and there is some indication that things might be improving now. I would like your appreciation of where you think you are.
  (Mr Black) Chairman, I am James Black. I am Chairman of the National Pig Association, as of last Thursday. Prior to that I was Vice Chairman. The position has been that prices have started to recover. That has been something that had been happening over the last six to eight months, but clearly the onset of swine fever within East Anglia set the industry in that part of the country back significantly. Whilst we continue to talk about the effects just being limited to East Anglia, it is worth remembering that it has in actual fact affected the industry over a much wider area than just the East Anglian impact.

  3. Thank you very much. With regard to the restructuring scheme, 17 per cent of people are supposed to go out.
  (Mr Black) No, 16 per cent.

  4. Yes, 16 per cent. Given that it is backdated, is it your understanding that that particular target, in a sense, has already been achieved, and that the requirements of this scheme in terms of outgoers could be met without further farmers leaving the industry?
  (Mr Black) That would be our contention. Yes, that would be our contention.

  5. You said in your evidence that you were reasonably satisfied, I think, with the scheme once it was finally sorted out. You commented particularly on the fact that many of your own suggestions had been incorporated into the scheme. Let me ask you, what are the things that you might have liked to have seen that are no longer there?
  (Mr Black) Chairman, Mike Sheldon, our Chief Executive, has had the biggest part in the negotiations on putting this scheme together, so perhaps I could ask him to field that.
  (Mr Sheldon) Chairman, we have indeed worked hand in hand with officials from MAFF putting the scheme together. That has been every step of the way, and it has been largely a function not of our specific request being incorporated, but a number of different ideas being tested along the way and exploration being carried out together as to whether they comply with the guidelines. So we are satisfied that the scheme is as good as it can be and incorporates as many positive features as it can, according to the guidelines as they are. However, if we were to have a clean piece of paper and describe a scheme in isolation of the guidelines on state aid, then certainly, it would have been significantly different to what it is.

Mr Jack

  6. In the context of the guidelines, were there things that you would have liked to have seen in the scheme, that still are not there?

  7. (Mr Sheldon) With the outgoers part of the scheme, one item that we did not agree with was that the guidelines say that those who take aid under the outgoers section should commit to stay out of pig production "for at least five years" is the phrase used in the guidelines. The scheme itself says ten years. That was written, we are told, because of advice to MAFF officials from their counterparts in the Commission that the Commission would accept a ten-year minimum, and we accepted that view as relayed to us by the officials from MAFF. Certainly it would have been much more advantageous if the scheme had been written with the minimum period.

  8. In terms of the long-term viability, then, of the pig industry with less people, as the Chairman has indicated, it sounds as if we are already there, but in terms of the size that it is, or that it might reach, are you satisfied that that represents a basis for future viability?
  (Mr Sheldon) Chairman, if the 16 per cent target is largely or wholly met from those who have already gone out of pig production, then we do believe that the rump of pig producers who are left today—approximately 600,000 sows across the UK—does represent a viable size.

  9. The reason I asked that is that in your evidence, in paragraph 1.3, you say "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." That does not quite line up with what you have just told us, that you are really quite happy with the scheme as currently constituted.
  (Mr Sheldon) The portion with which we are reasonably comfortable is the outgoers scheme, the first part of the scheme. The portion which we consider discriminatory in that respect, in respect of favouring the small over the large, is the ongoers scheme which has not yet been launched. We would make that distinction between the two parts of the scheme. We are comfortable with the bit that has been launched last week. We are less comfortable with the ongoers part which should be launched next month.

  10. Did you tell MAFF about this line of inquiry? If so, what kind of response did you get from them?
  (Mr Sheldon) We relayed to MAFF immediately our dissatisfaction with that part of the ongoers scheme. This was a late addition to the scheme. When the ongoers scheme was being talked about even as recently as a month ago, it was likely that any producer could apply for aid under the ongoers scheme, without having to reduce his business at all. The stipulation that the producers who do not qualify as small agricultural enterprises will have to contribute a 16 per cent reduction in their own businesses was a new and late addition and one with which we were immediately unhappy. We relayed that unhappiness to our colleagues immediately.

  11. Can you give me a little feel about this question as to the business of ten employees and more? You again make mention of this in your evidence, I think. How could these businesses have been included without those particular enterprises receiving an unduly large proportion of the available money?
  (Mr Sheldon) I am sorry, could you repeat the question, please?

  12. Yes. It would be quite useful to have your comment in the first instance about the exclusion, for the restructuring element of the business, of those businesses which have more than ten employees.
  (Mr Sheldon) We think it is extremely unhelpful that this has been introduced as a stipulation. MAFF's own estimate is that 25 per cent of the herd will fall outside the small agricultural enterprise limit. We do not have a particular estimate in mind ourselves, but we do think it would be at least 25 per cent and probably more. The particular companies which would be affected are those where there are networks of contracts between farmers who own the site and the contractor who owns the pigs. With those companies there are going to be a large number who will find it very difficult to comply with the requirements of the scheme now.

  13. I would like to conclude this area of questioning by asking you about the critical mass, the size of the industry. I was struck by some evidence which was sent to us by the Royal Agricultural College who produced a table showing the cost of production per kilo deadweight. There is the UK at about £1.08 and there is Brazil at 45p. I wonder, if, in terms of the long-term viability, we are in a global world, even with restructuring and less people in the industry, what is the future against a background of relative costs of production like that? I chose two extreme examples just to make the point.
  (Mr Godfrey) Perhaps I can answer that. I am John Godfrey, immediate past Chairman of the National Pig Association. I think there are certain things that you have to realise; that the difference in cost of production between Brazil or countries outside the EU and countries inside the EU is that the countries outside the EU, of course, have access to a lot cheaper food, they do not have to buy feed that has gone through the Common Agricultural Policy mechanism, which means that their feed will be much cheaper. As feed is something like 70 per cent of the cost of production, of course, that makes a considerable difference. We also have the advantage in the UK of producing pigs for our major retailers. Most of our major retailers at this stage, when they can find supplies, are actually buying British pork. They like to buy British pork because they can guarantee the supply, they can guarantee the quality and they can guarantee the traceability. The problem we have is that we are now producing much less pork and even less bacon, and we are finding that the trade gap is increasing quite considerably, even on a weekly basis, now.

  14. Because we are still facing a lot of imports to the United Kingdom, in a way the line of argument which says "Cut UK capacity" could be said to be simply opening up a further opportunity for imported supplies. Would you like to comment on that?
  (Mr Godfrey) Yes. I think it is totally illogical to cut production, but we were assured that the Government wanted to give some aid to the British pig industry, that this was the only scheme they could find that would give aid, and they believed that the 16 per cent or the 120,000 sows that had to be cut would come from existing people who had cut or who had already gone out, rather than from producers who are in business at the moment.

  15. So what is left, in your view, will be sufficiently viable, in terms of size of the industry and efficiency, to fight imported meat on even terms?
  (Mr Godfrey) Yes, I think that is right, we will be able to compete for certain segments in the market. We will not be able to compete for all segments in the market, but we will be able to compete for certain segments in the market.
  (Mr Black) I think it is also pertinent to add that that will also be the case so long as we do not discriminate in the way in which this aid is paid out. If we exclude larger, more efficient units by the way in which the ongoers part of this scheme has been set up, then we have a big problem with that in terms of the way in which that will assist the future for the industry. It is important that as every part of this industry has suffered as a result of the price problems over the last two years, and therefore they will need to be able to receive the same aid.

  16. The Chairman has very kindly allowed me to have one supplementary about one of the things you said. One of the things that concerns me is that talking to my own pig producers in the Fylde, I get the distinct impression when they come to dealing with what I call the wholesale meat trade that there is still a dog eat dog attitude, that the price rules supreme, that if the wholesalers can buy from a producer at a couple of pence a kilo less, they will go with that. There does not seem to be much support, is the message I am getting back, from some people in the wholesale meat business for the producers who are doing a good job. You are telling us that the industry will be more competitive after all the mechanisms are put in place. Do you think you are going to get the right support from the meat trade as well as the supermarkets, in the light of the efforts you are making to survive?
  (Mr Houston) Chairman, I am Stewart Houston. In addressing that question and emphasising some of the points from your previous questions, it has been the intention of the pig industry to differentiate the British product, and we are using our marketing levy to do so. We already have a differentiation in price between ourselves and the European market of some 15 to 20 per cent. For that reason, we think we can push forward with our better standards. That relates also to your quotation of 40-something pence per kilo production costs in Brazil. If the Brazilians were producing to our welfare and feed inclusion standards and the assurance scheme that James alluded to, then their costs of production would be higher. Certainly I agree that they would not be as high as ours, but we need to balance the two.

  17. The question I asked was are you going to get support for all the endeavours you are making to survive, be efficient and produce in exactly the way you say, from a wholesale trade that still seems to be obsessed by the odd penny either way?
  (Mr Houston) My answer was intended to address that, in that the wholesale trade is paying a premium now, albeit there is an argument between producers as to who pays an odd penny or two more. In the round, we are 15 to 20 pence better than we would be if we were not differentiating the product.
  (Mr Sheldon) Chairman, if I may add to that, the future very much depends in that regard on whether we can identify our product at the point of sale to the consumer. If we can safely and consistently identify our product, then we believe that there is sufficient depth of feeling amongst consumers who choose our product quality that they will continue to do so. If we are able to identify the product, whether it is through labelling legislation or the practice amongst retailers, then it will be sought out by consumers. If it is sought out by consumers, then our wholesalers will continue to support our product, but only in those circumstances. If we are prevented from labelling our product correctly, then there is a danger that consumers will simply be forced to resort to the lowest common denominator of production standards.

Chairman

  18. When the Government announced this aid scheme, it said that it was going to seek an aid scheme in March of this year. When did you think that the scheme might actually be available to pig producers?
  (Mr Black) By June.

  19. What has been the cost to the industry of the additional six months? It is not actually available yet, of course.
  (Mr Sheldon) If the total value of the scheme was £66 million, then a six-month delay would have cost at least £3 million to the industry in terms of absence of cash over the period.


 
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