Examination of Witnesses (Questions 840-859)
JONATHAN PEEL, SIMON HARRIS, RUTH RAWLING, ERICA TOWN AND NEIL MAKIN
WEDNESDAY 1 MAY 2002
840. Would you like to comment on some evidence we had earlier in this particular inquiry which was as follows? About five years ago, between four and five per cent of all chicken consumed in this country was produced in this country and now 40 per cent of chicken which is consumed in this country is imported. Would you like to comment on that? Is it something which concerns you? I think we are quite well placed to produce poultry, are we not?
(Mr Peel) The individual companies want to source the best supplies they have.
(Ms Rawling) There is an increasing demand for chicken and there are some issues about producing chicken in the UK; the siting of new poultry farms for example is often not very popular locally. That means that we have had to look at the question of imports. In particular, when you think of highly processed convenience foods containing chicken, there is a constant demand for chicken breast meat not matched by a demand for other parts of the chicken. However, there are other parts of the world which have a preference for darker meat and therefore there are third country suppliers who can send breast meat into Europe and the UK and dark meat into other areas of the world. This is increasing. I am afraid I do not have the numbers with me today, but it is increasing.
841. I am sure you would agree that it could work the other way round, in other words poultry meat could be produced here and the darker parts exported and the breast used here. Are you really saying that the problems of the poultry industry here are mostly to do with planning permissions? In that case what are these high level meetings going to do about it?
(Ms Rawling) A lot of poultry is still produced in this country and there is a demand for it. Many people specify that they want British poultry in their products.
842. Which of the supermarkets does?
(Ms Rawling) I am afraid I cannot answer that question directly myself.
David Burnside: It is a big question.
843. Everybody talks about shortening the supply chain, particularly for red meat. Speaking absolutely frankly, are live auction marts condemned to death?
(Mr Peel) I am afraid that question is outside my experience. I will come back to the Committee, but I suspect it is more a question for the NFU. I will check that.
Chairman: No, no; that is exactly the wrong answer. I began by saying that we are worried about the marketplace and you say it is a question for the producer. You are the marketplace. What is your hunch? You are the food industry. You eat the stuff, you prepare the stuff, you sell the stuff. Do you not have a view?
844. Do you believe auction marts will add value to your products?
(Mr Peel) I am sorry, I do not know enough about the red meat sector to be able to answer that question.
Chairman: It may be that we do not ask the NFU because I think I know the answer as far as the NFU are concerned.
845. You should stand shoulder to shoulder with the Chairman to say that. I want to turn to CAP reform because the Food and Drink Federation want a more market-oriented CAPmore power to your elbow. What benefits do you see arising from a more market-oriented CAP?
(Mr Peel) The markets for the food industry outside Europe are growing. There are many more people coming over the poverty line to enjoy a much wider range of food, particularly in Asia and Latin America at the moment. We want to be able to compete in that. European prices are high at the moment and we want to be able to compete on world markets to that end.
846. How about internally? Are exports the prime benefit?
(Mr Peel) They are a major benefit, but also, if you can bring down the price of your raw materials then the customer will benefit as well.
847. How can the consumer be made more powerful in the CAP? At present people are producing for subsidy, are they not? We want them to produce for the consumer, that is the people you are supplying. How do we do that?
(Mr Makin) To echo that and then go a bit further, the benefits are and should beand we have to work towards thisavailable to the consumer in terms of the run through that raw material prices close to world prices will bring to the consumer. That will have another internal benefit in terms of the sort of role of manufacturing within the UK. Manufacturing does mean employment and whilst a lot of that is driven by export, it is also driven by internal activity as well. The availability of competitively priced raw materials for manufacturers like ourselves and Nestlé and others will have an impact not only on maintaining the current manufacturing base, but have a big impact on business confidence in looking at siting manufacturing facilities in this country or in the EU rather than anywhere else but we are concerned about this country as well. We also think that a move to a more market related CAP will have benefits back up the supply chain within the farming communities as well. At the moment there are huge restrictions on what the farmer can grow and when and how much and the price. I really cannot believe that the current CAP is in the best interests of all those partners in the supply chain. It is driven by a move . . . We use terms like "market related" as freely as we use terms like "sustainability" but we are actually trying to reflect the real ability of the farmers at one end to reflect changing and quite often fast changing consumer demand much more flexibly.
848. I just want to direct that question on what you think about reform of the CAP to two people in particular: at Ruth Rawling because Cargill is a very large commodity trading business, purchasing in different sorts of subsidised marketplaces. Secondly at Simon Harris, because I remember a time when Simon Harris was lobbying hard for radical reform of the sugar regime and the last time the sugar regime was up I seem to recall him saying that it was absolutely smashing, the status quo was exactly what they needed and it should not be touched. I am just interested in terms of your companies what reform would benefit you and would enable you therefore to benefit the consumer.
(Ms Rawling) My own company is in the first processing of grains and oil seeds and oil seeds are in a relatively free market already. The main change in that market recently has been increasing demand for European rape seed, particularly for the oil, in preference to soya bean oil, because of the GM debate, because European rape seed is not a genetically modified crop. In that area, that is a consumer preference coming right back to farmers and helping farmers in Europe increase their oil seed production as much as possible. CAP reform in this area has actually gone to some extent against oil seed production and still favours grain production. Further reform in the grain sector would actually help oil seed production. In the grain sector itself, as the intervention price for grain has come down, we have seen an expanding grain crop in Europe because there is a clear demand in Europe for grain for livestock feed and also grain for milling. In fact what has happened is a solid growth in demand for grain for livestock feed, in preference to imported feeds which used to be the case to a greater extent. In the milling area, as far as possible, millers using British wheat but having still to import a small amount of very high quality Canadian wheat in order to blend in the mill to get the right quality to get the bread of the right consistency. Reform in that area has really helped farmers produce the right varieties for millers. What we still need is further reform on the feed grains, because they are still really supported at the intervention price rather than the market price.
849. Mr Harris? I am just anxious to know why this radical revolutionary has suddenly become such a proponent of the status quo.
(Mr Harris) It is slightly unfair to hold my previous incarnations against me. I have been around too long.
850. We both have, which is why I remembered.
(Mr Harris) I could say that having been on both sides of the fence, I certainly realise, at least in relation to the sugar sector, why there is so much government involvement. When I go round one of our factories I realise how much capital is invested. In relation to an unstable world market, it is very difficult to justify investing huge amounts of capital on a continuing basis. In terms of sugar reform, one issue which particularly concerns us is the level of quotas, where the UK quota for sugar is only about half our domestic consumption and this has been an issue which has been with us for a long time. Although we accept that there will undoubtedly be change to the sugar regime as a result of the WTO negotiations, we are concerned that reform should not be a recipe for wholesale change given both the amounts of money we have invested out there and the need for a very long planning horizon in the sector. May I just add to that the point that we are also interested, picking up one of the Curry commission recommendations, in the development of a bio-ethanol industry in the United Kingdom? One of the raw materials for that is likely to be sugar beet or fodder beet as well as cereals. We see that as helping on the volume side if we are going to be coming under price pressure.
851. I was cheered by what Mr Makin said because there is so much food manufacturing in Grimsby and we certainly need to encourage it. I was impressed by what Ms Rawling said about the effect of subsidy cuts on grain production. Is that not the way we have to go really because the lesson of our visit to New Zealand was that if subsidies are cut entirely in their case farmers have no alternative but to produce for the consumer, for the market, which is what we want. Is that not the lesson we have to learn?
(Mr Makin) Yes, that is the route we would support going, reduction and cutting of subsidies and quotas.
852. That is what you would like to see.
(Mr Makin) Yes.
853. It is a bit disconcerting to find we are getting declarations and then it is getting cooler. The FDF says, ". . . businesses, markets and communities [should] be given sufficient time to adjust". Cadbury Schweppes supports radical reform but not now, after 2006.
(Mr Makin) We need to start now. You will have spotted in talking to colleagues in Europe and maybe others who come into this room that we do not seem to be adopting the beginning of this process with great speed. Indeed there is a lot on the horizon that does concern us; it certainly concerns Cadbury Schweppes. The WTO enlargement, the "everything but arms" initiative. Things are not going to change, unless we make them. All too often we talk to government in this country and indeed in other parts of the European Union and they talk about change, reform of the CAP, whether it be sugar or anything else, as being inevitable. Inevitable does not just happen by itself. You actually have to make it happen. Certainly the manufacturers are looking for at least signals to be able to give a clear direction on the way ahead. We are not holding our breath that we are going to get too much out of the mid-term review of the CAP sugar regime but we are looking for radical reform from 2006 onwards. To get there we are going to have to start preparing the ground. I do also have to say that there is a balancing factor here, that it is a supply chain and a lot of people are committed to doing things the way they are doing at the moment and that includes farmers, it includes processors, manufacturers, retailers and consumers. We do have to take some account of those sorts of needs and those requirements because we do not want to throw the market into chaos. I certainly would not want to leave you with the impression that we do not want to get started. We do need to get on with it and quickly.
854. So you are not like St Augustine, "Lord make me virtuous, but not now". You are saying "Lord begin to make us virtuous. Prepare the ground for our virtue".
(Mr Makin) Exactly.
855. Does that not point to a swifter removal of subsidies and a tighter game plan as being desirable, even if politically difficult?
(Mr Makin) Yes. I should quite happily see subsidies starting to reduce now in the mid-term review. I just do not think it is going to happen.
(Ms Town) It is very important that we get the synchronicity between this, that we stop some of the protectionist measures such as quota, for example, on dairy. You cannot start reducing subsidies and taking those off without doing the other things to allow that industry to become bigger, stronger producers, lower cost producers; any restraint mechanisms or other things like that have to work together and also make sure that we are in synch with what is happening with WTO concessions which may come as well. There is a risk that we give everything away and are left uncompetitive. That happened with milk in the last two years where refunds have been cut far more than the world market price has fallen and we have been out of synch. Exporting milk powder, for example, has been virtually impossible over the last six months, versus New Zealand with its lower embedded costs.
856. They got those low costs by slashing subsidies, did they not, producing more efficiently as a consequence?
(Ms Town) Yes; exactly. But the British farmer with his quota restriction has no incentive currently to grow. Most of the big farmers do want to do that, they do want to grow and become more efficient. They know they can produce milk at a reduced price. At the moment we are having to pay much higher than if they were allowed to do that; the quota actually prevents that.
857. To what extent were lower commodity prices arising from previous reforms passed onto the consumers by your goodselves? Why is that a stunned silence?
(Ms Town) Could you repeat the question, please?
858. Lower commodity prices did come about from previous reforms. There has been a pattern of partial reforms perhaps, but still they reduced the prices. To what extent was that price reduction passed on to the consumer?
(Mr Makin) I could not give you a figure. It is in our interests, certainly for manufacturers of impulse products such as confectionary and soft drinks. We are very aware of price points and the amount of competitiveness. We always try to do our best to keep price points as low as possible. I can try to dig out some information in terms of both soft drinks and confectionary to let you have, but I think you will find that the average price movements over the last few years have kept very much below inflation. It is in our interest. If you are manufacturing soft drinks, there is a growing waters market in which we compete and you want to make sure that you are offering it to consumers as low as possible. It is not in our interest to take that and stick it in our banks and do nothing with it.
859. Colin Breed asked a question which tracked farm-gate prices and consumer prices and actually the curves follow each other really quite closely, more closely than perhaps some people imagined.
(Mr Harris) We have done some examination of the relationship between raw material price movements and processed product movements. Certainly we, along with the farming sector, have seen something like a 30 per cent drop in pricing in sterling terms as a result of the euro and green pound developments. We have noticed pricing for processed products at retail as measured in the RPI continues to rise. While the raw materials are going down, the processed product prices are going up. That is just looking at the RPI evidence.
(Mr Peel) The fact remains that the price of foods in general has kept below the RPI over the last ten years. Certainly the pressures from the retailers make sure that the industry remains very competitive indeed.