Examination of Witnesses (Questions 100-119)
MR HUGH RICHARDS, MRS MARGOT BATEMAN, MRS MARY JAMES, MR BRIAN WALTERS, MR TERRY BAYLISS AND MR SIOÔN ARON JONES
TUESDAY 4 DECEMBER 2001
100. Can you describe how your organisations have reacted to the weak position of farmers and local food processors in the supply chain? How effective have these measures been?
(Mr Richards) We have encouraged co-operation, we have encouraged diversification for people to do everything that is possible, but we have got to remember that the vast number of our producers cannot diversify and cannot go into other things; they have to depend on the commodity market.
101. The NFU produce nationally a list of 150 diversification projects.
(Mr Richards) Local sources which we are saying we have bought out.
102. But are you employing research and development officers? Have you got Objective 1 officers, farmers' markets' officers to spread those best practices around?
(Mrs James) We have got a food and marking department. We are facilitators basically, trying to point people in the right direction for information, trying to provide briefings for people. For example, on NFU Net we would have briefings on farmers' markets, how they can get involved, what the Association means, what the commitments are, how to get into milk processing, for example, so acting in a facilitating role basically. As soon as it was safe to do so as a result of foot and mouth disease, the first thing we did was to hold a national conference looking at the way in which we could market and collaborate and add value to Welsh produce. We are trying to create the environment for people to take advantage of the circumstances that are currently prevailing. At the end of the day clearly the initiatives themselves have to come from farmers. Whilst we have extolled the virtues of co-operation and collaboration, at the end of the day we cannot dictate to members whether they subscribe to a particular venture, for example.
(Mr Richards) I am concerned at the avenue that you took earlier on and have taken now, that you think Objective 1 is one of the ways out. I wish I could find a way into Objective 1, let alone a way out of it.
103. If that is a problem, as the Chairman has said, we are having an inquiry into what are the problems and if the want to write to the Committee on that we would welcome that information.
(Mr Richards) At ground level it ain't working.
104. I know.
(Mrs Bateman) Before we leave that subject could I make a brief mention of Business Women of Rural Wales. That has been on going for three or four years where a yearly conference is organisedand yearly seems almost not enough, we ought to have this more often than that, a twice yearly thing. A colleague of mine in the National Farmers' Union organises a conference on an annual basis that brings in farmers' wives, rural women on whole, to come together and exchange ideas and gather information about setting up projects of diversification and about getting more involved in processing and value added, etcetera, if they so wish; none of this is compulsory, it is to get their minds around this sort of thing. As we all know, farming folk feel very, very isolated on occasions and that makes it very difficult as well to access real information which you can take along and digest and develop your own plan if you can.
(Mrs James) One other aspect I could comment on is the NFU with the IGD is trying to get training workshops going again so that people begin to learn and understand the food chain and understand their role in it.
(Mr Jones) As well as trying to draw farmers' attention to the opportunities which are available to them to look at their businessesand I think there has been a significant change in Wales since your last inquiryin political terms the Union has been very active also, along with our partners in the industry, in the establishment of the agri-food strategy, in pushing for Farming Connect to be an important part of Objective 1 funding to offer farmers opportunities to look at farming businesses and perhaps to apply for grants and follow a particular route. Therefore we believe that we have exerted as well as pressure amongst our membership also political pressure in order to provide farmers with opportunities and advice to look at the farming businesses.
105. Would you consider sponsoring a conference on Objective 1 farming perhaps bringing farmers' unions from Ireland who have seven' years experience, both the WDA and others?
(Mr Jones) There has been a campaign by every farming organisation and rural organisation over the past few years to go to Ireland and there has been vast human traffic back and forth from Ireland looking at the fabulous investments they have been able to initiate both in business terms and in the creation of bungalows in rural areas, but I think that to compare our Objective 1 resources and the support generally for the recognised areas of West Wales cannot be compared to the situation in Ireland where the resources both on a European scale and government support scale do not reflect currently what is happening in Wales. I think that is reflected in the fact that there was consideration that 1,500 farmers would be able to be funded with business visits from consultants in the first year of the Farming Connect scheme and the number of applications has been well in excess of 2000 farmers. That shows that farmers want to help themselves, they want to take advantage of the opportunities that Farming Connect and Objective 1 offer but the demand is very often greater than the resources that exist.
(Mr Richards) But so many people are going to be put off by them once they are involved. I am involved. They want three years' accounts, nothing wrong with that if you are in business but then you have to go through four different organisations before you qualify to be offered a business evaluation. As Terry said earlier on, I am afraid we cannot stand still and once you start standing still in any sort of business, you have to keep on developing. If you started a project before they have approved it
(Mr Bayliss) I would like to support Hugh and Siôn on that. As I said to you earlier, you have to jump through these hoops and it is not possible to jump through them, you have not got time to mess about. You have got people making decisions, probably very intelligent people, but they do not know the practical side of agriculture, so it is very difficult. It is one obstacle. £2.1 million we have raised from farmers yet we have not had a penny off the Government or from the Welsh Development Agency but other people seem to be able to source this money for feasibility studies. There is no better feasibility study than a business up and running and developing projects and making a living for farmers.
106. Would you say that producers are collaborating more than was the case in 1997?
(Mr Jones) Yes, very much so.
(Mr Bayliss) Can I point out that rather than go to Ireland looking at this structure, I have spent quite a bit of time out in Holland and one of the banks is prepared to back agriculture and they have got a very good team of people who would be prepared to come over to talk to farmers and I think they would have more of a contribution to make as far as co-operatives are concerned. I am not running the Irish down but they always seem to be able to get things that we cannot get. As far as co-operative structures, I think the Dutch would be much better at explaining the co-operative system to us than anybody else.
(Mr Jones) I think the important point to make is that we are part of an evolutionary process whereby we have started on a massive change of mind set with regard to farming in the future but that we are only on the first step of the ladder. As I say, there are very many difficulties, one being lack of security and vision for the future, which are preventing farmers from investing their meagre savings or any funds which they have available to them, bearing in mind the terrible state of farming incomes.
107. Do the NFU want to comment on that?
(Mrs James) We would share that conclusion, that we have seen basically an increase in the number of initiatives. Clearly there is a role for the niche market but our concern is that if we are to have the negotiating clout with supermarkets then these ventures need to be fairly sizeable and perhaps we are not seeing that to the degree that we would wish.
108. What else do you think could be done to help the situation?
(Mr Bayliss) What I was going to say is I feel we have got an organisation as far as meat is concerned which is the MLC but I am sorry to say I think they have lost their way and they have got very top heavy. They also are not in on the general feel of things and understanding agriculture as it is today. They are taking £48 million a year out of our industry and if we can have £1 million of that we could do wonders with it compared to what is happening there.
109. As you will be aware, in Scotland I believe they have essentially formed an independent MLC successor organisation. Would you support a similar policy for Wales.
(Mr Jones) If I can assist the Committee with a way forward with what recommendations you as a Committee could make which would assist Welsh farmers. I think one of the important points we have not touched on yet is the Code of Conduct for supermarkets and the results of your efforts to establish an inquiry following your last inquiry, which we very much welcome. The Code of Conduct was immensely disappointing to farmers in that we believe that the original proposals have been watered down by the supermarkets, and we have argued that if consumers benefit from the new Code then suppliers such as Farmers First for example, or the Welsh Meat Company or Snowdonia Cheese, all of the examples you will hear referred to today, the suppliers must have the confidence to invest in their businesses and they require a financial return which ensures that such investment is possible. Producers are finding it difficult to make the investment necessary to compete in the global market-place which has been referred to previously. So that is a particular element which I think should be re-visited. We do not believe that anything significant occurred following the previous inquiry and we were very disappointed by the way we believe the supermarkets were able to water down the original proposals and we believe that that is something which needs to be re-addressed and needs to be re-visited.
(Mrs James) Can I say that we have been deeply unhappy at the way in which the DTI has handled this. We submitted detailed evidence back in March. Everything went quiet for seven months despite a couple of interventions on our part trying to find out what progress was being made, to find only at the beginning of November that circumstances were now a fait accompli without any dialogue with us or any other supply organisations. We have ended up with a Code that is totally ambiguous. It fails to balance the interests of parties. It is open to wide interpretation. We are certainly unhappy over the Code's provisions. It only covers four supermarkets who have a market share of over eight per cent. Clearly our members are dealing with a lot of smaller multiple retailers. Even this muted Code will have little or no relevance to everybody outside those four supermarkets. And certainly we have been pressing the Secretary of State for the Department of Trade and Industry for an early review of the Code to see what we can do. We are certainly continuing our negotiations with all the supermarkets, but we do feel that the way in which this has been handled has, quite honestly, undermined the negotiating position we have with the multiple retailers.
110. Despite that could I ask both organisations have the retailers become more positive and productive in establishing development links with producers?
(Mrs James) I think it is fair to say. During the foot and mouth disease circumstances we were deeply concerned in Wales. We have a light lamb trade which has traditionally been exported particularly to South Mediterranean states and we were deeply concerned, when the export market closed, that we would have substantial quantities of light lamb on the domestic market for which there would be no outlet. You will be aware that contingency plans were put in place for a livestock welfare disposal scheme to meet that eventuality. Perhaps we did see a positive reaction on the part of some of the supermarkets in that they did alter the specifications that they were laying down in order to take light lamb and, in fact, marketed it to some success. I have to say, though, it was at the expense of larger lambs which traditionally they would have been taking on. Of course they were doing it off the back of market realisations which were at an exceptionally low level.
(Mr Jones) We were also involved in efforts to try and persuade supermarkets to recognise the difficulties facing the Welsh industry, in particular, as Mary refers to, the barrier which was put in place preventing Welsh producers from exporting light lambs, and we welcome the fact that so many lambs were able to be diverted into the UK food chain rather than the grim alternative. We have also welcomed the fact that Tesco, for example, have recently announced a £30 million deal in conjunction with Welsh lamb and beef promotions which has resulted in the procurement of over 30,000 cattle from Welsh farmers. The most important point there is that we have put pressure on the issue of clear labelling to assist the consumer to make a o decision in favour of Welsh high quality produce. Unless the consumer is able to decipher from the country of origin, then it is difficult for the consumer to make a decision in favour of Welsh produce and we welcome such steps.
Mr Caton: I think what Mr Jones said about the Code of Conduct, and indeed both the written submissions, makes it clear that you see huge weaknesses in it. In those written submissions you outline some areas of concern. Perhaps it might be useful for us to receive in writing the recommendations that you made to the Office of Fair Trading and also, I notice, in Farming for the Future, the Assembly has agreed they are going to press the UK Government for a review. If you could let us have a note on both what you have said to the Office of Fair Trading and any thoughts you have got now after negotiations, that is clearly going to be a central issue for us and the better armed we are, the better.
Chairman: As soon as you can of course.
111. What were your respective organisations' views of the Competition Commission's report on Supermarkets? The Report, for example, said: "that the burden of cost increases in the supply chain has fallen disproportionately heavily on small suppliers such as farmers." In a later paragraph it states that the overall profitability of the industry could not be considered excessive over the period 1996-99. Would you like to comment on that?
(Mr Jones) I think we have referred in our evidence to the increasing number of supermarkets imposed costs which do not result in any financial benefits to the producer. I am sure that Mr Bayliss would want to come in on this, but one of the most worrying aspects, if you like, is that we as an industry appreciate the fact that the consumer appears to want a level of traceability in the United Kingdom with regard to the produce that they buy, and through the farm assured Welsh livestock scheme over 7,000 Welsh farmers have supported this scheme which involves veterinary inspection of farms and their livestock to ensure that a level of traceability exists and a level of assurance exists with regard to the produce they buy. Our concern is that the same measures which have been demanded by supermarkets from the suppliers down the food chain (with the costs invariably being passed back to the primary producer) is not being asked for or questioned as regards to imported products and that is where we come across the old favourite of the level playing field, something we are not aware of as Welsh livestock owners or Welsh producers.
(Mr Richards) Can I pass a comment before I ask Mary and Margot to comment on this. We are into traceability and all the things we are asked to do as farmers. I will quote just as an example, this year we have had to tag all our lambs before they leave our farms to identify the farms they come from. The first thing when lambs come to slaughter as well as being stunned and their throats cut, they cut their head off so traceability has disappeared straightaway. I question what is the point of the extra costs that we are involved in unless there is feedback for the consumer and the producers?
(Mr Bayliss) Can I say
112. If you all have to have your say on every question
(Mr Richards) We can go into a winter fair now.
Chris Ruane: They are getting their own back now.
113. You would be even longer than a winter fair because you will have an audience. Unless there is something specific you would like to add
(Mrs James) I will be succinct, Chairman. I think, Mrs Williams, the point we would be making is the burden of cost seems to be inversely proportional. We are seeing a situation where farmers' production costs are rising and retail prices and food prices as a percentage of the Retail Price Index are going down. The gap is widening. Basically all the costs are being put on the industry. Rather being reflected up the marketing chain into the end price, they are being reflected back down the marketing chain to the primary producer which is a source of real concern to us.
(Mr Bayliss) I would like to say at the abattoir in Kenilworth we have spent £35,000 putting in an IT system that does traceability and every lamb we kill has the farmer's name and address along with it. So we have got complete traceability. I agree with what you said, when the lamb gets there its head comes off and the tags are gone but we are obliged to do traceability and we do that. We are not seeing the benefits of farm assured, although I agree with the system because we need to have farm assured and have a high standard. We have never been asked in three million lambs for one farm assured lamb. Traceability back to the farm, yes definitely, but not farm assured.
(Mr Jones) That is specifically with regard to the exports.
(Mrs Bateman) I am a supplier to supermarkets of my particular product which is trout. I supply in one case all Welsh branches through a packer. It works very well but again traceability is an issue. As regards getting kit in, expending money to get yourself up to speed in order to be able to supply the supermarkets, you are talking things like bar coding machines, computers, transport to comply with food regulations, and so on. When that supermarket decides for reasons of its own to re-organise slightly which then demands a different kind of delivery tactics, that leaves you high and dry. It is not a particular axe to grind, I guess it is show business, but it can happen from your order being received in the morning, you turn up with your stuff in the afternoon and the rules have changed and nobody has told you. Things like that for a small business can make life with a supermarket quite difficult. The systems they have in place to feed information down to their suppliers could be vastly improved and I am sure I am not the only person who has experienced that. I think that feeds right through. The other thing that can happen also is that buyers for your particular commodity change in the way supermarkets work very quickly. It is this whole culture supermarkets have of "We are at the top, you are just the suppliers, you have to go through the hoops (as Mr Bayliss says) of supplying what we want". It is not about culture as such, of course the customer is always right, but if you are a small business diversifying, trying to get onto the ladder of supplying supermarkets, it is a tough old world out there, it really is.
114. Quality is obviously an important aspect as far as price is concerned but quantity is as well. We have seen in the lamb market in Wales that even when exports have been in place we have had very low prices from time to time. Some farmers would say we have never failed to sell what we have produced but there is hardly any point in selling it if it is sold at a loss. We heard from the milk people who gave evidence that they would like to control the supply to a certain extent to increase the price. Is there any prospect of that happening as far as meat outputs are concerned?
(Mr Bayliss) I think we need to operate in that aspect and be more aware of the product. We have got to produce the product that the market requires and the farmer in the past, unfortunately, I do not think was being rewarded for the effort and expense he has put into producing high-quality lamb. That is one thing we have got to change. Last year we paid 25 pence per kilo more for lambs coming into E grade and 15 pence for ewes because we had a market for them.
115. It does seem to me that prices are very depressed because the output exceeds demand.
(Mr Bayliss) There are certain times in the year when farmers tend to rush their lambs on to the market without thinking about it whereas if they co-operated more, if they graded those lambs and instead of thinking, "We will get those 10," he thinks, "We will keep them back for a fortnight and get the high quality ones through", that would slow the market down. We need to spread the market out into the spring because we need continuity of supply. That is something we have been criticised about for a long time and people who want a guarantee of lambs throughout the year have been advised not to have British because we cannot guarantee them continuity of supply. We have got to get together to take lambs further. When you have fed those lambs in the winter season you have got to get more money for those lambs for having fed them. This is something we need to address.
(Mr Jones) To be fair, this year in particular, with regards to supply, obviously the loss of the export market has played a significant role in that respect.
(Mr Richards) Again let's be perfectly honest, we have got far too many breeds of sheep, far too many sheep and the reason is we have been encouraged all along because of the CAP system to keep more ewes. The sooner the better, it will never happen, we go back to the old system of variable premiums where you were paid according to the quality of what you were producing rather than the number that left the farm, the better off we will be. That could be reflected indirectly via the premium or reflected directly via the price.
(Mr Jones) Alternatively, you could look at the number of sheep we have in Wales as an asset and an opportunity. We have markets in addition to the United Kingdom markets in Europe and that is why Mr Bayliss is trying to reach the opportunities which exist out there. They have been supplied over the foot and mouth disease period with inferior quality supplies, and I am sure Mr Bayliss would like to expand upon that. We need to work together in order to regain those lost markets which contributed £100 million to the Welsh economy in previous years.
(Mr Bayliss) Mr Williams, I was very pleased that the two Unions had got on so well this morning but I am afraid I have to disagree with Hugh when he says that we have got too many sheep. What the problem is we have not done a good job of marketing those sheep. We were only exporting lamb, we were not working in the home market, and when we lost the export market we have built a business in the home market 5,500 lambs a week and we are finding business down in London with people who want supplies who have not been able to source them, especially for Welsh lamb. You get a fantastic piece of Welsh lamb and plenty of people want it. I am sorry, Hugh, to have to disagree with you on this but we need to go out and market our lamb. We do not want any less otherwise we will not have the product to deliver when we have found those markets.
(Mr Richards) The point I was getting at, Chairman, is if you visit a meat works in New Zealand, the lambs come off the line like peas in a pod and that is not the case if you visit an abattoir in Wales.
(Mr Jones) I agree with you on that point. Consistency is what you were referring to.
116. The dichotomy we seem to have here is that the FUW see the lifting of the ban on lamb exports and potential markets (in the rest of Europe in particular) as an opportunity perhaps to stabilise the price structure and ensure a more stable supply and demand relationship, whereas Mr Richards sees the dangers of the over supply side things wrecking the price. Is that a fair summary of the dichotomy?
(Mr Richards) It is a balance.
(Mr Jones) They are issues which we as an industry need to look at. We do need to look at consistency of supply but we also need to look at the opportunities for marketing and the markets which exist out there. I think we should not leave the room today without emphasising to you that the Welsh national sheep flock pre FMD was 11 million animals and is now down to 10 million animals. The foot and mouth disease issue has had an impact on the sheep flock.
(Mr Richards) We must be very careful that we do not over-supply the market. If anything undermines our market it is over-supply, and the milk sector is an example.
117. To ensure that what actually happens is positive and that we exploit the opportunities and reduce the dangers, is there anything that Government should be doing or is there something in your relationship with the processors and retailers that can be improved?
(Mr Richards) Strength of sterling is the major one. What influence you can have on that or your Chancellor might have on that remains to be seen.
Chris Ruane: He has got none!
118. I have got only slightly more than him.
(Mr Walters) An example of the strength of sterling is if you take the organic sectorand I was converted to organic on 1 April this yearthe day before I started producing organic my milk price was 31 pence per litre, the day I began producing it was 28. That was a loss on my herd of around £10,000 which I was looking forward to having as extra income, considering I had been on a milk price of 16 the previous summer at the low. There has been an emphasis, especially in Wales, on converting to organic and looking for a ten per cent figure in Welsh organic. It is all very well saying go down the organic line but it is not going to be the saviour of Welsh industry. What do you do with the other 90 per cent? It is a niche market but we have not reached five per cent yet and yet 50 per cent of organic milk at the moment is going into conventional and only because there is too much over-supply because of imports coming in from Europe because of the strength of sterling in relation to the euro.
(Mr Jones) Just very quickly, Chairman, with regard to that point in particular we have previously mentioned on security and farmers planning for the future and looking at their businesses and the problems experienced by people such as Mr Walters in converting to organic, the huge support from the Government in Wales and Government policy in Wales does not help the rest of the farmers who are looking at opportunities to change their businesses.
119. We have heard of the differential between organic and non-organic prices for milk. Could you tell us about the differential for beef and for lamb?
(Mr Walters) I am not sure about beef but there has certainly been a premium over the summer with lamb of around about 50 pence a kilo at one time. The problem has been on the lamb side is finding abattoirs to slaughter the lambs. There is certainly a market out there. Coming back to what Terry Bayliss said earlier about the small abattoirs being done away with over the last few years, there was an opportunity for them. There are one or two about but it is very difficult to find them and most of the large abattoirs are under supermarket indirect control or whatever and it is not an easy way to get the organic small quantities through those abattoirs.
(Mrs James) We have to be very careful and keep under review the potential of growing this market and setting ourselves targets of ten per cent without looking at the market place is unrealistic.
(Mr Richards) Having got to three percent this system is wobbling, so you have got to be very careful in talking about ten.
(Mrs James) I would quote two examples really. Iceland was intending to sell organic produce and then took it off the shelves because they could not sell it and the other example is a pronounced determination on the part of supermarkets to erode the premium which is necessary to make it a viable proposition.
3 NFU with partners have produced a guide on local sourcing of food. Back