Select Committee on Trade and Industry Minutes of Evidence

Memorandum submitted by the National Farmers' Union

  The NFU submitted its main body of evidence on 24 October in the form of a Joint Memorandum signed by the National Farmers' Union and the Freight Transport Association.[1] The following constitutes additional information pertaining more specifically to the farming sector as opposed to the more general supply chain issues raised in our other body of evidence.

  The Joint Memorandum dealt with the high cost of "white" diesel used by general road vehicles mainly used for the commercial carriage of goods.

  The farming industry also utilises a special fuel that is dyed and chemically marketed, it is generally known as "red" diesel because of its unique colouring. During the fuel crisis there were many stories in the general media and quotes about red diesel usage in farming that were both misleading and inaccurate.

  Red diesel is an important industrial fuel used in many business sectors. The following are key facts relating to the cost and use of that fuel:

    —  Duty is levied on red diesel, it is simply at a lower rate of 3.13 pence per litre.

    —  Red diesel is used by farmers to power many types of stationary farm machinery such as grain dryers, conveyors and generators. Tractors, combines and self propelled sprayers also use red diesel.

    —  Road use of tractors, combines, self-propelled sprayers etc using rebated fuel is minimal, hence the appropriate duty rate applied, and there is little evidence of abuse of the system. The penalties for misuse are more than adequate to discourage misuse. Customs and Excise have the powers to fine, levy back duty and impound vehicles.

    —  Red diesel cannot be used in lorries or 4WD vehicles to transport livestock or produce to market.

    —  Farming is not the only industry to use red diesel. For example, it is widely used in the construction industry with limited on road use, it is also widely used by local authorities for gritting/snow ploughing, fresh/frozen produce suppliers in the refrigeration equipment of their trucks, train operating companies in their locomotives.

    —  Other fuels for industry also have low duty rates or are duty free. For example lubricating oil and aviation turbine fuel are NIL rated for duty purposes.

  The cost of red diesel has more than doubled over the last 15 months. In the current climate there is no opportunity to pass this cost on through the supply chain.

  The NFU has some 60,000 full farming members. Over the last three months we have received a vast amount of fuel pricing information from farmers. There is evidence to suggest that many oil companies in the UK are operating a differential pricing regime against commercial users of fuel, whether they are farmers or indeed any other type of commercial user.

  At the beginning of September the NFU's President, Ben Gill, wrote to the Chief Executives of the key UK motor fuel suppliers expressing deep concern at these pricing practices.

  It is the NFU's view that industry is being disproportionately hit by spiralling fuel costs. The last few weeks have seen retail prices at the pump rising slowly whilst industrial users are facing almost daily increases in bulk purchase prices.

  It is imperative that account be taken of the fact that:

    —  Raising bulk prices is a further blow to an already beleaguered industry.

    —  The competitiveness of UK agriculture relies on fairness in pricing of input costs. Fuel is a key input and its price must be contained.

  When the spot price of crude rises the bulk price of fuel increases almost simultaneously. This is inequitable given the amount of crude already available in the supply chain at the point of the spot price increase. Most farmers regard this, quite frankly, as profiteering. It is putting unbearable pressure on many of our members' businesses and it must cease.

31 October 2000

1   See page 67. Back

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