Select Committee on Agriculture Minutes of Evidence


Examination of Witness (Questions 80 - 99)

MONDAY 11 DECEMBER 2000

RT HON JOYCE QUIN

  80. I understand that you have answered why the Government changed its mind. When did it change its mind? Was it in the first few days or did it take weeks? Some would argue that it is still not right.
  (Ms Quin) Through the whole of August, after the first outbreak was notified, there were discussions between the Minister, officials and the industry in order to look at what was happening as a result of swine fever. I do not see it as the Government changing its mind, it is responding to the evolution of the situation. I think that is a perfectly reasonable thing to do. At first it was not known what the scale of the outbreak was going to be, how many premises were going to be affected by this, or what kind of problems would arise on the premises that were either infected or which were in the surveillance zone. It was really as a result of that and the representations that pig producers made that the welfare scheme was brought forward. There had not been a precedent for this in the past, so it was a new scheme which was brought in in these particular circumstances. We felt that it was a valid way of helping those producers who were caught up by the outbreak of the disease because of the restrictions placed on their premises and who otherwise would not have had any compensation, in contrast to those who actually had infected premises where they would have compensation under the normal compensation rules.

  81. Did the Government ever consider full compensation? If not, was that because of the role of the EU or is there some other reason?
  (Ms Quin) I think it is both based on precedents and the way that compensation has been given in the past in the case of animal disease, and also looking at some of the experiences on the continent in terms of trying to negotiate schemes with the Commission. Certainly in localised outbreaks in the Netherlands compensation has not been paid to those caught up in the restricted zones. Obviously in terms of the national outbreak of swine fever, if I can put it that way, in the Netherlands, the very large outbreak, that was different, where the whole of the Dutch market was disrupted. In those circumstances different Community rules come into force which allow access to compensation. In the United Kingdom case the whole of the market was not disrupted, it was a localised outbreak—tragic for the people in that area, I am not trying to underplay that at all—and, therefore, one could not argue that the whole of the United Kingdom market was disrupted. At that time the pig price, happily, had risen over its previous very low levels and overall the market was looking better than it had for some time.

  82. I just want to get clear in my mind the degree to which the Government and its financial controls make this decision, as against going to the EU and saying, "Look, we will put so much in, we can even get the industry to put so much in, but we need you, given your previous record of helping countries that have had serious outbreaks". Where are those three elements? How do they tie together? Where does the Government decide how you get those in some relationships?
  (Ms Quin) It is difficult to answer that. There are a number of factors that are put before ministers in terms of deciding how to proceed. There is the way that Governments traditionally approached issues of compensation when there have been animal diseases. There are precedents in terms of European payments. I have already drawn the distinction between the localised outbreak in the Netherlands and the national outbreak and explained the difference between them. It is really a balance of those factors.

Chairman

  83. And the industry itself?
  (Ms Quin) Of course. It is balance of those factors in deciding how to proceed. We did feel that while it was unusual to have a welfare disposal scheme of this kind, this was, at least, a way of affording some help to producers and in a way which, because it was a welfare payment, did not necessitate taking the State Aid route, which, given the precedents of localised outbreaks elsewhere, would not have been likely to lead to positive results.

Mr Jack

  84. If you would be kind enough to go back, you raised a point, which I would just like technical clarification on. As far as the two outgoers schemes are concerned, you said that there is a State Aid rule in response to Mr Drew's line of enquiry about the 16 per cent. Is that number 16 written into the rules somewhere? Is 16 the number?
  (Ms Quin) I understand that it is, yes. I have been advised that that is the State Aid rule that we were applying.

  85. Why 16? What is magic about 16 per cent being the number that you have to hit that magically puts the pig industry right? Did anybody ever ask whether 16 was right?
  (Ms Quin) I asked that myself.

  86. What was the answer you received?
  (Ms Quin) I would say that the answer was vague, in that this seems to have been around for some considerable time and presumably was the basis of an original European compromise. That is the figure given in the State Aid legislation. I think I am right, I will certainly inform the Committee if I am not right, that that was the answer I was given.

  87. On this 16 per cent, again for technicalities, is it calculated in terms of value, turnover, pigs or what?
  (Ms Quin) It is 16 per cent in capacity.

  88. In capacity?
  (Ms Quin) We are talking about pig breeding capacity.

  89. Just to be clear, somebody set that in concrete at some point in past history that for a restructuring scheme to be okay from the State Aid's point of view 16 per cent reduction maximum in pig breeding capacity was as far as you could do. I would be very interested to know how this magic number 16 did come about because my next line of questioning is, did anybody in MAFF question whether that was right for the industry at this particular time, and if they did think it was right, why?
  (Ms Quin) Both at official level and indeed ministerial level there has been a great deal of discussion about the details of this particular scheme, including the restructuring requirement. However, I think I am right in saying that actually in terms of the outgoers part of the scheme this did not feature very largely, simply because we are talking about quite a bit of capacity that has already gone from the system, which would fit quite well into those State Aid rules. The difficulty, as I understand it, really only became apparent in terms of the ongoers element and in terms of the Commission requirement, that if you are giving State Aid there has to be a restructuring of large units, otherwise they do not accept that it is a genuine restructuring. The minimum is 16. It is not that you just have to hit 16. If you do not show any restructuring at all they are not convinced that it has passed the State Aid test of restructuring.

  90. For my education, why £66 million, how did that number arise?
  (Ms Quin) First of all, the £66 million was part of the overall action plan for farming, which was a £200 million package, and we wanted to give the pig industry a reasonable proportion of that, given the difficulties that they had been in and the very real public concern there was about the future of the pig industry in our country. I am not saying that the £66 million was set in stone in the way that the Commission figures that you have quoted are, because they are our figures, in terms of what we felt would represent a reasonable contribution to bringing forward changes in the industry and helping the industry over the next few years. This £66 million, however, is the total amount over three years, so it is not £66 million a year.

  91. You just said it was a reasonable contribution towards a bigger number. I am also interested to know how the numbers were calculated. What was the bigger number? What was the total number to fix the industry, of which you then thought £66 million ought to be our contribution? What was the bigger number?
  (Ms Quin) I do not think it was thought of in quite the formulaic way in which you are asking the question. The whole package was £200 million and, as I said before, we wanted the pig industry to have a scheme of a reasonable size.

  92. I do not want to prolong this line of enquiry. I, for one, would be very interested to know how it was considered that £66 million was a reasonable sum out of £200 million. We heard evidence earlier pointing to something like a £300 million black hole in the accounts of the British pig industry, and it has gone through an unprecedented period of difficulty, which you will be extremely familiar with. I am not saying for one moment the £66 million is not an inconsiderable sum of public money, but people in the pig industry who look at the degree of help which has been provided might be interested to know how it was arrived at and, perhaps, you might be able to let us know a bit more about that? I want to move on to the question of timing, because there is a feeling in the industry that it all took a very long time. It was on 30th March the Prime Minister launched the Government's action plan for farming, according to paragraph four of your evidence to the Committee. Would I be right in thinking that a certain amount of informal discussion would have gone on between your officials and the Commission to establish that you were not crossing difficult lines by putting such a scheme into the public domain?
  (Ms Quin) Firstly, can I just pick up on the point of the £300 million which you mentioned as the figure which had been given as an estimate for the industry's losses. I assume that that figure includes the estimate of the industry in terms of what they felt were the extra charges imposed by the BSE controls which fell on the pig industry, even though BSE had not been present in pigs. Am I right?

  93. Yes, I think so. I am getting some nods in the right direction from the industry.
  (Ms Quin) The £66 million was a scheme to take the development of the industry forward. It was not calculated as a compensation for charges falling on the industry from the BSE measures. It was not meant to tackle that at all. If you remember, that was something that was the subject of approaches by the Government to the European Commission, but money to compensate for that was ruled out as an illegal operating aid. Therefore, that should not be confused with the £66 million, which is new money for the pig industry for a new scheme.

  94. One would accept that the industry would see this as the first net injection of money into their industry after a period of unprecedented difficulty. Let me turn to the question of timing. There is concern about the time it took to get the scheme up and running. How much preliminary discussion did you indulge in with the Commission to ensure that when the Prime Minister announced this it did not immediately engender a letter from Commissioner Fischler saying, "You cannot do this"?
  (Ms Quin) From my memory it was explored in general terms with Commissioner Fischler. The Commission then required the details to be worked out and sent to the Commission. Can I say on the delay, in some ways dealing with the Commission on these kinds of issues is a frustrating experience, without any doubt. In terms of getting State Aid sanctions there are always a lot of procedural hoops to jump through. There is a system whereby if the Commission raises objections or questions then another two-month process starts, by which the Commission is then obliged to give some further decisions. It is a rather drawn-out process. It may be little consolation to pig producers, but actually given that I understand that the average State Aid application seems to take about 18 months in the European Commission this scheme has been quicker than a lot but, nonetheless, it has still been too slow for my liking.

  95. Alternatives. We have discussed, in general terms, the restructuring scheme as it is now published. Did you look at any alternatives? Do you think that the scheme as presently constituted was really the best way to address the problems of the industry? Did you consider any other alternatives and, if so, which?
  (Ms Quin) We originally had discussions with the Commission about offsetting the BSE costs, which would have been obviously of great help to the industry, so that approach had been tried and failed. In terms of this scheme we did try and work it out with the industry as much as possible. I accept that the industry would have liked something that cost more, but at the same time, in terms of the details, we did try and work with them and also share with them information from the Commission in terms of reaction to the original proposals so that the industry felt that it was being consulted and informed, and also that its suggestions were being taken on board.

  96. Let me hold you on that point. In the National Pig Association's evidence to the Committee, paragraph 1.2, one of the questions that they pose, if you like, perhaps, to be asked at this juncture, is, "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?"
  (Ms Quin) That, presumably, refers to this difficulty over the 16 per cent. We have certainly discussed this point very hard with the Commission, but we have not found a way around it. In order to avoid protracting discussions any further we would rather go ahead with the scheme as we have it. I hope that the 95 per cent of producers who can benefit from it will derive some benefit from it.

  97. Which producers do you think have the best chance of continuing with the pig industry in this country as efficient and effective producers?
  (Ms Quin) That question is not easily answered by saying one size or another. It is very much a question of the commercial way in which pig producers operate, whether large or small. Some small producers have sometimes identified a particular market, sometimes a niche market, sometimes a particular local market which they successfully supply to and where there are prospects for growth, irrespective of whether they get Government support or not. In addition there are some successful large-scale producers who also have become very efficient over recent years and who are in a good position to continue whether or not they get State support in that continuation. Let me also say, the large-scale producers are eligible to apply for some of the Government's new schemes under the Rural Development Regulation. I want to emphasise that point, we have deliberately tried to introduce those schemes as a way of helping people who fall foul of the European system in other ways; even though they may not have access to the pig industry restructuring schemes there are other schemes which they can look at for the future. It does not mean that we are simply ignoring them and the very valuable contribution that they can make to the future of the pig industry.

  98. I just want to ask three short questions on the question of the £66 million. Will you guarantee that all sums will have been paid out by March 2003?
  (Ms Quin) I hope they will. For me to give you a guarantee here and now would, perhaps, not be right. For example, we know in terms of the current year that because these negotiations with the European Commission have taken some time and because, obviously, there is the tendering period that has to be gone through, and so on, we are running very close in terms of the current financial year. As the ex-ministers here will know, discussions in those circumstances, where there is under-spend, always take place between departments, and particularly with the Treasury, and I cannot say what the outcome of those will be at the moment. I can say the agricultural ministers are very committed to the £66 million being spent on pig industry matters. Whether it is all spent by the date in question or not I cannot give an absolute guarantee, but I would certainly like to think that if it is not all spent the vast majority of it will be.

  99. Can the scheme go on beyond 2003, if necessary?
  (Ms Quin) That is certainly a possibility.


 
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