Select Committee on Agriculture Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



  20. You did not think the £66 million was sufficient, did you?
  (Mr Sheldon) No, we asked for something over £300 million.

  21. Leaving aside the bargaining, what do you think should have been the actual sum which would have done the trick, realising that there are such things as treasuries in this world?
  (Mr Sheldon) We believe we identified that in the two years from mid-1998 to the first third of this year there was something like a £300 million hole which was blown in the industry at least in part and largely because of the regulatory burdens that were imposed on us. That was the size of the hurt that had been inflicted on the industry, so that was the sum that we asked for, and we believed and we believe to this day, that it was entirely justified.

  22. The situation now is that the first year was going to have £26 million earmarked for funding, was it not, so that will start more than halfway through the year? On top of that, the producer levy funding which is due to come through because of the swine fever issue looks as though it may not come on stream until Easter. Are we going to have a series of farm crises or financial crises on farms in the first quarter of this coming year?
  (Mr Black) Chairman, it is not a case of "are we going to have?", they are already taking place.

  23. So what action could be taken to try to get some money to people perhaps more rapidly than originally envisaged, in order to try to stave off a serious cashflow problem for farmers?
  (Mr Black) In relation to the swine fever, we have been in discussion with the Minister about the possibility of trying to bridge some funds for this welfare disposal scheme. That at the moment is not something that he appears to be in a position to address. The best that we have been able to achieve with him in relation to swine fever is the possibility that consultation periods on the producer levy may be run concurrently both with the MLC and also with Members of this House.

  24. Leaving aside the producer levy and the swine fever issue, with regard to the scheme we have been talking about, would it be preferable or possible, or possible and preferable perhaps, to try to front-load this scheme? It is due to run over three years. Would you prefer to see a much greater proportion made available as soon as possible, even at the risk of there being much lesser sums later on? Have you had discussions in this sense?
  (Mr Godfrey) The restructuring scheme—the outgoers scheme—will be payable within three months. That is now open. Once the bids have been accepted and the least cost for 120,000 sows has been accepted, then that will be paid immediately. It is six months after we had hoped, but it will be paid immediately. As to the ongoers scheme, we are hoping that that will be launched, subject to Brussels approval, we understand, early in January. That is a two-year interest rate subsidy, and hopefully the Ministry has said that it may be possible to pay that in advance. Again, though, it is the delay. The problem we have is, of course, that the funds for the first £26 million were in the financial year to 31 March 2001. What we do not know is whether that money will still be available after 31 March 2001. Obviously we would very much like to see it be there.

Mr Drew

  25. Perhaps I can move us on to the swine fever outbreak. Clearly this has had a devastating impact on the industry. I think it would help me to begin with if you would just say where you see the disease is now and what the immediate repercussions have been.
  (Mr Black) Chairman, through you, to date we have had 16 actual outbreaks of classical swine fever. They have all been in East Anglia. The result of that was that there were seven large surveillance zones put in place throughout the duration of the disease, and it is the implications and impact of those surveillance zones which have stopped any movement of livestock, which has so devastated the whole of the East Anglian region. It is not the fact that we have just had 16 outbreaks, but it has been the fact that close to 1,000 units or 1,000 units plus have been held up at one stage or another with restrictions as they have tried to control the disease.

  26. Before we come on to the compensation that has been paid and whether that is enough, was the reaction of MAFF sufficient, was it too much, or have they got it about right in terms of the need to put these isolation zones in place?
  (Mr Black) In terms of the imposition of the zones, clearly they have, touch wood, worked in controlling the disease, but the issue has been more in terms of being able to ensure that for those people who have had stock held up that they have not been financially disadvantaged by that particular situation. Clearly those people who have stopped moving stock as a result of the disease have borne the cost of the disease protection mechanism for the whole of the country.

  27. I am sure we will be coming back to what really happened a bit later. Can we look at the process of compensation and your unhappiness with that. The Government has on a fairly regular basis increased the amount. What is your view on the way they have handled compensation?
  (Mr Black) From day one we have argued that there should have been full market price support for those people.

  28. Which would be what? What sum per pig?
  (Mr Black) The market price is obviously varying, but the situation that we are now in with a pence per kilo basis is something close to where we thought the compensation should have been from day one.

  29. The Government have got there but it has taken too long?
  (Mr Sheldon) It has got there in terms of the total amount payable but, of course, the Government has limited its contribution to 80 per cent of that or £50 as a maximum. If those thresholds were not there then the mechanism would work entirely to our satisfaction.

  30. So the argument now is over those thresholds and you are continuing to talk to MAFF about moving the scheme to full cost of recovery?
  (Mr Houston) No. We have arrived at the compensation package now which is being implemented and MAFF are paying up to a maximum of £50. The balance is being paid by a producer levy over which we are currently in a consultation process with the industry.
  (Mr Sheldon) The advance that we seek from MAFF is finding ways of liberating the cash that will eventually be forthcoming from the producer payment. Those producer levies at best will start to be collected from April and it will take approximately two years to gather enough to pay the £4 million or so owing from the producer contribution. Our discussions with MAFF are centred on how can we find £4 million at the earliest possible opportunity.
  (Mr Black) Chairman, the point is we are talking about a disease that is here because some control of imports has clearly failed and that is why we are in the situation that we currently find ourselves. That failure to control the imports has not been a failure on the part of the industry; there has been a failure on the part of import controls and, therefore, we feel that the whole of the cost of this should not be being picked up by the industry.

  31. MAFF has accepted this in terms of the—
  (Mr Black) No.

  32. We must move on. Clearly one of MAFF's arguments, if not the whole basis of their argument, was that pig producers insure against such occurrences.
  (Mr Black) It has never been possible to insure against the consequences of consequential loss as a result of being caught up in surveillance areas.

  33. So this was not seen to be an acceptable business risk?
  (Mr Black) No.

  34. Would people who have had outbreaks in the past find it difficult to get insurance or is this something that most pig producers would have as a backstop?
  (Mr Godfrey) It is possible to get insurance if you have an outbreak of classical swine fever, and that is the 16 outbreaks, so it would be possible to get insurance and consequential loss insurance. What is not possible is the fact that there were restriction zones where people were not allowed to move pigs. There is not an insurance policy to insure against that risk and those are the producers that have suffered greatly.

  35. To what extent, the figures?
  (Mr Godfrey) The figures are absolutely horrific. You are probably talking in terms of £40 to £50 a pig. It is very difficult to quantify the actual sums but there will be producers that will not survive the outbreaks of classical swine fever.

  36. Even if it is front-ended by government?
  (Mr Godfrey) That would help considerably but there will still be some producers who will not survive, yes.
  (Mr Black) We had a meeting with the Minister where we were discussing the front-ending of some cash and there was a representative of Barclay's Bank at that meeting who reported that their borrowings to pig farmers in East Anglia had gone up by £8 million since the start of swine fever in East Anglia.

  37. Just to pull this together. You seem to be expressing satisfaction now with where you have got to in terms of the support from the Government, although you want it paid more quickly, and with the levy which you also want the Government to pay in advance, although the expectation is that you will collect that from your members. Is the disposal scheme now as it should be? Have we got to a stage, even if you are not singing from the roof tops understandably, where you see the scheme operating as it could and should do?
  (Mr Black) In terms of paying the financial level that it is paying to the farmers but not in terms of the contribution to that. We believe that it should be fully funded by government, not by the industry.

  38. Can I just be clear; why did you agree then? Was there a gun against your head or was it just that you had to settle because people were losing their businesses?
  (Mr Houston) Because we had got to the stage where the Government was going to move no further than £35 per pig. We approached them, with, "If we can contribute, will you share that contribution with us?" which raised them from £35 to £50. The industry contribution is going to be in excess of £4 million. If things had moved more swiftly and producers had understood where the scheme was going to go, that contribution could have been minimised because the producers would have been able to put the lighter pigs into the scheme.

Mr Jack

  39. I would just like to follow on from that. What arguments did Ministers put to you to justify their belief that your industry could afford to pay their contribution if they were, if you like, to leverage in their money? The picture you have painted is of an industry defying financial gravity, it has got a £300 million hole in it and borrowings in certain parts of the country are rocketing, and yet the Government sits there and says, "You can afford to pay, guys." What was the line of argument the Government put to you to justify that point of view?
  (Mr Godfrey) The Government did not work in that way. What the Government said to us to start with when we first met them was that hey were not going to pay a penny. Then they said they would fund a disposal scheme but not pay compensation at all to farmers. Then they come up with £15 and eventually they got to £35. Once we got there they stuck at that and said the Treasury was not prepared to pay any more money. It was only that we levered some more money out of them by saying we would try and persuade the industry to go to a voluntary levy to pay some compensation to producers in East Anglia that the Government went from £35 to £50.
  (Mr Houston) This was because we recognised the extent of the problem in East Anglia and that urgent help was needed to that region.

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