Examination of Witnesses (Questions 340
WEDNESDAY 1 NOVEMBER 2000
340. The value of sterlingyou are saying
that is the main reason why your incomes are fallingincludes
the price of diesel as a factor. You would say a rise in the value
of sterling is an important factor.
(Mr Gill) For our output prices the rise in the value
of sterling is a major determinant factor. There are many other
factors that I could go through in great detail, Chairman, if
you want, but I will not do that. Certainly, in terms of fuel,
the oil price is dollar determined and the dollar/pound value
exchange rate has been much more stable, although the slight weakening
in recent months has contributed to that price rise, obviously.
341. Can I just ask you: are there any farm
based operations which require you to use fully taxed diesel?
(Mr Gill) Yes. For example, the farm vehicle I have
runs on fully taxed diesel, even though a considerable proportion
of its use is off road. We cannot change an engine over all the
time. The only vehicles which use red diesel are tractors. There
was the exemption during the fuel crisis. It is very dangerous
to change from white to red diesel, if anybody tries it the dye
stays in the system for a long time and so you risk a very heavy
penalty. I do not believe there is any significant abuse of that
342. It is difficult to think of a time when
the fortunes of farming have been collectively more dark than
they are at the present moment. I think the agricultural sector
is something which might be described as approaching crisis level.
Within the politics of the possible it is, however, unlikely that
the Chancellor is going to make a dramatic reduction, indeed if
any reduction at all, on petrol duty. I just wonder to what extent
have the NFU, colleagues in the CLA and others, considered what
sort of package the Chancellor might be able to put together that
could, to a certain extent, be a ring fence for agriculture and
help the farming and rural community?
(Mr Gill) We have looked at a different package within
the remit of the Ministry of Agriculture, Fisheries and Food.
I am in dialogue at the moment on the issues of the currency value
as you may have seen reported in certain parts of the media today.
On the issue of fuel, it is very difficult to distinguish between
farmers and the road hauliers that we depend upon. It is a very
different business hauling for the farming community. They are
rural, they are off the beaten track, you do not get the ability,
as you do in mainstream haulage, of backloading, which is a way
of mitigating costs. It is specialist in handling grain and sugar
beet and other commodities, you need to know what you are doing.
It requires the proper vehicles for it. The drivers need to know
what they are doing in the loading. We find in terms of the lorries
coming on my farm, to offload grain and other products, they are
very often very small companies and rurally based and in many
cases those companies are offshoots of farming businesses but
they have diversified. What we seek to do is distinguish between
the problems of fuel that are bearing down on our industry, making
us uncompetitive, and particularly the impact of white diesel
or derv on our total costs and road fund tax for the heavy goods
343. You have identified an area of the freight
business which is almost agricultural specific.
(Mr Gill) Yes.
344. Do you think there is an argument there
for extending the red diesel fuel to people like that? At the
present moment the assumption is that you cease to be agricultural
when you move out of the field on to the road, if I can put it
that way. Given the notional perimeter of operation, do you think
it would be sensible or would you be sympathetic to arguing that
red diesel entitlement should extend to those activities which
are exclusively agricultural in character in terms of freight?
If these people can show that all they do is serve the agricultural
community, they are not doing little homers on the side, would
that be a way of addressing some of the costs?
(Mr Gill) In our Budget submission we made to the
Chancellor at the start of August, we made a clear case that there
was an argument that supported the need for a rebate of the type
that is available to passenger vehicle trade, the fare stage operators
of transport, personal transport for commercial businesses, of
which agriculture is a key element. I need to reiterate the point
that we understand the need to be aware of climate change, more
so than many, Chairman, with the vagaries of weather that we have
seen in the last few days. The person who runs my farm rang me
on Monday night to tell me he thought he had better start building
an ark to get all the livestock in it was so dire up north. As
I came down on Monday it was a sight that I had never seen with
the logistical problems that we have there. We cannot use railways,
it just does not lend itself to railways, we have to rely on road
transport, it is specialised transport. The sugar beet industry
as well, that is a specific example that I think you have had
referred to earlier today, that requires transport on a concentrated
period while the sugar beet factory operates on a seven day week,
24 hour a day processing, even through the Christmas period, it
does not stop. That is a period of time from October through to
February and then what do you do with transport the rest of the
time? It is very different from transport for other parts of industry
as such, and we feel there is a very strong case for addressing
this issue. One final point, Chairman. I do not think there is
an appreciation generally of how big a proportion in total that
food transport makes up. I did suggest on a radio broadcast a
year ago, a year last Easter, that a useful ploy for parents with
bored children in the back of their car would be to stop them
fighting and ask one to count lorries and the other to count how
many food lorries. If you do that you will be quite amazed how
much this is an effect on our cost of food to the consumer in
Britain compared with, say, France, particularly when you look
at the total figures. If you add up the cost of VAT plus an annual
fuel duty we are running in the UK at about £24,500/£24,600.
A comparable figure for France is £10,800 or for Germany
a comparable figure is £11,700. That is a massive difference
in overhead that we have to bear.
345. Can I just ask how practical it would be
to give some kind of tax rebate to certain users? I think you
have already said about the difficulty of your own vehicles, of
changing from red to white diesel and back again. In my own constituency
we have lots of rigid milk tankers going around which cannot be
used for anything else. On the other hand, there are many milk
tankers that are now drawn by tractor units. The tractor unit
can pull anything so it would be possible to identify that tractor
unit as specifically an agricultural vehicle.
(Mr Gill) I think that is a fair challenge, Chairman.
When we first looked at this I wondered how we might do it but
when I became aware that it works for fare stage operated buses,
and it does work I am told satisfactorily, then I do not think
it is beyond the wit of man to address this issue. Perhaps a better
way would be to use the white diesel as per normal because chopping
and changing between white and red would be impractical and look
for some rebate, a rebate as is operated elsewhere to the operator
of the commercial vehicle.
346. The other question, maybe you have answered
it. You said in your latest submission, the one which covered
red diesel that "... there is evidence to suggest that many
oil companies in the UK are operating a differential fuel pricing
regime against commercial users of fuel ...". Is that the
factor that you have alluded to already?
(Mr Gill) That is exactly the factor I have alluded
to already, the two points of pump price that we see as we have
driven around the country for white diesel and the fact there
was a significant change in red diesel against that static price
in white diesel at the pumps.
347. You are not suggesting that the Government
can do anything necessarily about the basic price of red diesel,
but are you suggesting that there maybe something to investigate
under the competition laws, for example?
(Mr Gill) I am making the point that something peculiar
happened in the market place that really did cause enormous concern
for farmers who bore the brunt of it and the timing was such for
the arable farmer at our bulk use time of the year when we are
348. Have you asked the DTI to investigate that?
(Mr Gill) I wrote to all the fuel companies, as I
said, and I thought the best thing to do was to see what they
had to say. Once we have had that reply then we will reconsider
what we need to do next.
349. This is the kind of thing that in any conclusions
and recommendations we make we may draw the attention of the Office
of Fair Trading to. If there is an abuse then they are the people
in the first instance who would be able to look at it. It may
well be, if my colleagues decide, we might well nod in that direction
in a report.
(Mr Gill) If we can supply you with any statistical
series I am only too willing to do so, Chairman.
Chairman: That would be helpful.
350. This morning, Mr Handley from the Farmers
for Fuel gave us quite a lot of evidence about the number of foreign
trucks that he observed visiting his farm. Are you able to give
us any figures for the number of your members who use foreign
based hauliers to transport their goods?
(Mr Gill) Because of the rural based element of the
farming industry, if you take the bulk commodity element, this
is cereals and sugar beet, that would be essentially done by locally
based hauliers. What we have found though is some of those hauliers,
to avoid punitive levels of duty, have changed the registration
base of their vehicles. I have known one that has changed it to
Ireland, others that have changed to Holland to abuse the tax.
They also have other businesses which mean they have vehicle bases
in that country that facilitate that and I am sure that it is
all perfectly legal. On the other side of the industry that we
have not touched on so far, Chairman, there is an involvement
and that is on the livestock sector, and particularly the export
of live animals. What we have seen is a significant move away
from those involved in live export, and the only animal of significant
export at the moment is live sheepthere are live pigs but
they are minimal in numberwhere there is involvement of
foreign companies coming in to Britain to pick up their stock
to haul them in to some staging post across the channel somewhere,
perhaps Belgium or Holland or Northern France, before they go
on to their final destination.
351. Have you got any figures for the growth
of that trend?
(Mr Gill) I have no specific figures today. We could
try and elucidate them but I can tell you that one of the major
live exporters of sheep, who was responsible for about 25 per
cent of the market until less than a year ago, pulled out of the
market completely. Talking to the company responsible for the
ferry last week, that gap has been filled almost totally by a
352. What happened to that hauliers' vehicles?
(Mr Gill) They were sold on. They were sold on to
other people in the business. They can be used internally but
for export they are indeed very specialist vehicles and very expensive
ones. He took the decision that he was going to concentrate on
UK slaughter and exporting of carcass meat because of the costs
of running the fuel and other problems.
353. We had a lot of evidence this morning from
Mr Handley. To what extent do you and your members support the
views of Mr Handley?
(Mr Gill) I am sorry, I do not know what views he
articulated this morning, Chairman. What I can say is my members
are concerned about all their costs. They are concerned that farmers
are not unfairly discriminated against in the fuel markets along
the basis of the views I have articulated and they wish to have
some remedy to this. After all, from 1993 to 1997, if I remember
correctly, the fuel escalator was in place and fuel duty rose
by five per cent in real terms. In 1998 and 1999 it rose by six
per cent in real terms. That has compounded that differential
in operating costs between Britain's operators and our European
counterparts with whom we have to compete.
354. Can I just ask about rail. Is rail a realistic
operation as an alternative?
(Mr Gill) I wish that it were, Chairman, because we,
as I said earlier, are only too aware of the need to reduce carbon
dioxide emissions and to look at the effects of climate change.
The last time I remember being involved with agricultural products
on the railways was when I was about seven, and that was a long
time ago, Chairman. I would prefer not to divulge how long ago
but it was a long time ago, and that was loading sugar beet on
to a railway spur line which Dr Beeching axed.
355. One of the things Mr Handley did say was
that a lot of his members were NFU members but also he was getting
a significant number of people leaving the NFU to join his particular
organisation. Is he correct on that?
(Mr Gill) All I can say, Chairman, is we have just
come to the end of our year, yesterday, 31 October, and our membership
is up year on year. That is for the public record if you want
to examine the records.
356. Notwithstanding the fact that you have
already said, Mr Gill, specialist vehicles on farms are not interchangeable
for other activities, but we did have some evidence from the road
haulage industry that they operate an internet backload site,
is that something which is feasible and something you would look
at? Clearly, if it could be done, even perhaps to a relatively
small degree, it could help and assist on the transportation costs
into and out of the farming community.
(Mr Gill) Indeed, we are all the time looking at that.
It may be possible in certain circumstances. Take the sugar beet
industry, I am a sugar beet grower, I am fortunate I am relatively
close to the factory, I am 13 miles from the factory. Backloading
is not an option there, obviously, you are back and forth. Indeed,
for any haulier going in with sugar beet, with soil in the lorry,
it is a problem, and you want to concentrate on sugar beet. The
industry has moved on a lot in recent years. Through the Farm
Assurance Schemes that we have put in place, we have tried to
ensure customer confidence through clear standards. Lorry hygiene
is a key element in that. You do not want to be putting soil based
crops in a lorry and then wheat or barley. The same applies, you
would not want to be putting other non agricultural products in
to backload. It is not an open market in the main. There may be
odd cases where you can do that and hauliers that I know try and
do that wherever possible but it is not as open as with a flat
deck lorry where you can do anything on it of that nature.
357. Before you go, could you maybe give us
a ballpark figure of what proportion of your costs are accounted
for by fuel, your own costs in the farming industry? Does Mr Bratt
have any figures?
(Mr Gill) While he thinks, Chairman, can I put a caveat
in immediately. There are direct fuel costs and then, of course,
there are indirect, such as products that we buy based on fuel,
nitrogen fertiliser is based on fuel, pesticides are based on
fuel, and there are many other factors which come in. I just give
those two examples. I do not know whether you would like to put
a figure on it or we can try and give you one if you want.
(Mr Bratt) It is exceptionally difficult, Chairman,
and it does depend from sector to sector within the farming community.
We can certainly go away and pull some figures out. To use Mr
Gill's example of certain inputs being affected by fuel cost increases,
an example you could use is fertiliser this year has been severely
affected by the cost of fuel. We have done an estimate and fertiliser
prices generally have gone up by 40 per cent since March 1999.
A major factor in that is the cost of fuel. We have looked at
individual imports and certainly we can submit some information
on other areas as well.
358. Is it not the case that for a long time
when the price of a barrel of oil was very cheap the feed stock
for the chemical processing industry was equally cheap?
(Mr Gill) Yes.
359. There is a volatility about this market
which I suppose you guys have to live with really in the sense
that the international oil price determines what the price of
your fertiliser is, but by the same token there is the tax element
on other things and because the tax is not levied on the feed
stock, as I understand it, it will come down the chain into the
chemical plant. It will not be quite the same impact.
(Mr Gill) I think that is quite right, Chairman. I
think there are lessons to be learnt here. It has been suggested
to me, and I am not an expert in this field by any means, but
one of the problems we have with the supply of fuel as opposed
to oil is not so much the numbers of millions of barrels of oil
available in the world market but the availability of the refining
capacity to produce the product that we use. That is possibly
a facet of an extended period of low oil prices which has led
to under investment. That is a parallel that I hope people will
look at with the sustained lack of profitability in the agricultural
industry with farmers for successive years living off their depreciation
which by its own definition cannot go on forever. Losing 22,000
jobs in our industry as we did in the last full year, for which
we have official government statistics, that is June 1999, I cannot
see the figures for the year 2000 will be any smaller and I suspect
they will be even greater. That is a human tragedy that I think
we ought to avoid and try and find the base cause of.