Session 2010-11
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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 671-vi

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Environment, Food and Rural Affairs Committee

the impact of common agricultural policy reform on uk agriculture

Tuesday 1 February 2011

john bridge, tim bennett and jonathan tipples

andrew opie and andrew kuyk CBE

Evidence heard in Public Questions 353 - 434

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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Tuesday 1 February 2011

Members present:

Miss Anne McIntosh (Chair)

Tom Blenkinsop

Thomas Docherty

Richard Drax

George Eustice

Neil Parish

Dan Rogerson

Amber Rudd

________________

Examination of Witnesses

Witnesses: John Bridge, Chairman, Agricultural and Horticultural Development Board, Tim Bennett, Sector Chair, DairyCo, Agricultural and Horticultural Development Board, and Jonathan Tipples, Sector Chair, HGCA (Cereals and Oilseeds), Agricultural and Horticultural Development Board, gave evidence.

Q353 Chair: Good morning, gentlemen, and welcome. It is a particular pleasure to welcome you to the Committee for this session as part of our inquiry on Common Agricultural Policy reform. Mr Bridge, can I invite you to introduce yourself and your colleagues for the record?

John Bridge: Certainly, Madam Chair. My name is John Bridge. I am Chairman of the Agriculture and Horticulture Development Board, which is an NDPB within DEFRA. To my left is Jonathan Tipples, who is the Chairman of our Cereals and Oilseeds sector. To my right is Tim Bennett, who is Chairman of the Dairy sector. The six sectors we have all have a chairman who sits on our main board, so they are sitting on the AHDB Board as well as representing their sectors.

Q354 Chair: I know you are all particularly well qualified. We have obviously invited you with your brief to focus on the science and the research that you do. With that background, do you think there is one particular option of those before the Commission that lends itself to a solution that would be good for Britain?

John Bridge: I think we have all had a great deal of time to study the evidence that has been presented to this Committee from a very wide range of people. As far as AHDB is concerned, we need to be able to be satisfied, through the evidence that we secure through our research and knowledge transfer work, that there is a system for the future that will provide the stability in the farming sector as well as allow us to achieve our objective of getting a more efficient and productive sector for the future. Therefore, we simply would like to see a solution that would deliver that very strong platform that we need to support the levy payers who we provide services to.

Q355 Chair: Thank you. Are you at all concerned, particularly with the larger units that we have in our British farms, that some of the terms that the Commission is using, in terms of public goods, income forgone and less favoured areas, may discriminate against British farming?

John Bridge: Obviously the size of farms across Europe varies enormously, as the evidence has shown. As far as we are concerned, one of the pieces of evidence that we do have-and it is referred to in our written evidence-is that larger farms by and large tend to be more sustainable farms; they tend to introduce new production methods and they tend to be more productive. As a result of that, they usually have an opportunity to make those farms more sustainable from an environmental point of view and they normally have per hectare a lower emission of GHGs. So I think the conclusion we would draw from the evidence that we have to date is that large farm units can be a major contributor to the solutions that we are all seeking.

Tim Bennett: I think there is an agenda that goes above CAP reform at the moment. If you look at all the evidence from around the world, we have to be able to produce considerably more food while using less of the planet’s resources. So I think being able to do that and being able to do it competitively is almost an agenda that should run through the next CAP reform, because that is quite a challenge. In British agriculture-certainly from the dairy sector, if I may say so-we feel we are really well placed to respond to that challenge and we would not want the CAP reform changes preventing the British dairy industry responding to that challenge. So it is about competitiveness.

Q356 Amber Rudd: Could you take us through any modelling you have done to help DEFRA decide how best to position itself regarding CAP reform?

John Bridge: As far as we are concerned, we are normally looking at evidence drawn from sampling and evidence drawn from basic research that tells us the environment in which farmers operate at the present time. Just to re-emphasise the point that my colleague Tim Bennett has made, we see that we need to deliver services into our levy payers that allow them as individual farm units to understand what the information is and therefore become more efficient and more productive over time. That is our major purpose; it is our mission and it is established very, very clearly within our corporate plan. It is well understood by DEFRA. DEFRA attend our board meetings as observers. We meet them on a regular basis; we have very recently been invited to have a workshop with them on future strategy within DEFRA and we have a whole series of less formal ways of maintaining very close contact. They fully understand the role that AHDB plays within the agricultural sector and are very supportive of it.

Q357 Neil Parish: Carry on talking about the competitiveness of British agriculture. Did the previous reforms of the CAP actually help British agriculture to be competitive or do they hinder it? The New Zealand dairy farmers manage without subsidy-why shouldn’t we?

John Bridge: In my introductory remarks, I should have said that I have sitting to the left and right of me people who have roughly 70 years’ farming experience between them. So if I may could I defer to them to respond?

Neil Parish: Yes, I was targeting Mr Bennett there.

Tim Bennett: If I may respond to that, to come back to this competitiveness argument, it is a common agricultural policy and sometimes there has been a tendency of reforms to move away from that common aspect. If you are in a single market and you develop over time wildly differing aspects of that common subsidy system, then it can possibly work against you in terms of competitiveness. As I say, we are relatively well placed if you look at the demand for food in the world, and I think the most important thing from an evidence-based point of view-and from an AHDB levy payer point of view at the moment-is that this reform should not get in the way of British agriculture responding to those signals from food production for the next 30 years.

Q358 Neil Parish: The aspects of the reforms coming out of the Commission really are talking quite a bit about smaller farms and labour requirements. Now that for me rings alarm bells, because they do not mean smaller farms in a UK context. So what is your view of that aspect of the CAP reform?

Tim Bennett: Well, I think defining small farms is always interesting, because a small farmer in one Member State is a relatively large farmer in another Member State. I will go back to my original answer: if you have a Common Agricultural Policy that can end up discriminating against the ability of the most efficient to emerge, then that creates difficulties for those very efficient farmers.

Jonathan Tipples: But if I may, I think there is almost a philosophical question to be answered first and that is: what is it that you wish the CAP to do? There are those within Europe that will wish it to be there to keep people on the land to preserve a type of rural idyll, as they will see, and there are those that will see it as a means of addressing the sort of problems that John Beddington has been highlighting of global food security. They are two entirely different aims, and until the policymakers have decided which way they want to go in the future, I think we are not in a position to judge what the possible effects might be, because they will go in absolutely different directions.

Q359 Neil Parish: Is CAP reform taking it in that direction or is it taking it in the opposite direction? That is what I rather fear.

Jonathan Tipples: I don’t know yet.

Q360 Neil Parish: Okay, but certainly the proposals from the Commission to me are slowing up reform rather than speeding it up. Would that be your analysis or not?

Jonathan Tipples: I think we would certainly wish to see a simpler CAP. The more complicated it is, the less competitive you are likely to be in the world market.

Q361 George Eustice: We have had a lot of conflicting evidence about the impact of direct payments and in particular what the impact would be on different farms in different Member States if you were to reduce those. Have you got a view on what that might do to the viability of UK farms?

John Bridge: I will start with a slightly general response to that and perhaps ask my colleagues to look at it in some detail. Obviously, direct payments are important in the context of farming in the UK at the present time; there is a substantial subsidy sitting next to the net value of farm output. If, in the process of trying to make farms more efficient and more productive over time, there is need for less subsidy, then that seems to me to be a very laudable objective. But you can’t do it overnight, because there will be serious exposure if something were to happen very immediately. So the transitional arrangements that would need to be put in place would need to ensure that, if we as an agricultural sector in the UK are set on a particular path, we should be able to achieve that.

Jonathan Tipples: As an observation more than evidence, if all direct subsidies to support production agriculture were to be removed, it would seriously hamper the policymakers’ ability to have any effect on the environment, because in order to claim the single farm payment one has to comply with crosscompliance. If the single farm payment disappears, the requirement to comply with crosscompliance would disappear along with it and it seems unlikely to me that that is a route that will be fully gone down.

Q362 George Eustice: Some would say the alternative is that if you put more into Pillar 2 and more emphasis on environmental schemes, you would not need as much in Pillar 1 and would not need these direct payments.

Jonathan Tipples: The only compulsory part of the environmental schemes is crosscompliance and that is only compulsory if you are in receipt of the single farm payment. If you cease to be in receipt of it because it is no longer there, then you are left with a lot of voluntary environmental schemes.

Tim Bennett: When the Pillar 1 and Pillar 2 concept was developed in the CAP many years ago, we were in a world where people thought that food would be there, we would never have to worry about food security and that we would be a nation that could import as much as we wished because we are wealthy enough to compete with everyone else for that precious food supply. In a sense the world has now moved on, in that the real challenge is, as I have mentioned before, how we produce enough food in a sustainable way. I am not talking about the policy, but the evidence base suggests that talking about whether we do the environment or whether we produce food is an oldfashioned agenda. The new agenda is how we merge those two and manage to reduce our impact on the planet and respond to the need to produce food not just for the UK but for the world.

Q363 George Eustice: In terms of farming competitiveness in the long term, I think the term you used was it is a "laudable" aim to reduce direct payments. Of course we are now in this slightly odd situation where the only reference point for the single farm payment is historic activity on a farm from a decade or more ago. What would be a realistic timescale if you were to say it is a laudable aim and over time, done in a transitional way, it would improve competitiveness? What would be the timescale?

John Bridge: This is a question we were discussing between the three of us before we came in and it is an extremely difficult question to answer in any unambiguous way, because to a certain extent, the body being what we are, we would react to a policy decision. All we would say is that the period certainly cannot be immediate, for the very simple reasons that my colleague has pointed out. How long it would take to move to a position where you had so much robustness within your own agricultural sector that this would be less and less of an issue I really can’t say at the present time.

Tim Bennett: Milk quotas is an example where the Commission have decided to abolish a key plank of the Common Agricultural Policy and they gave many, many years of winddown to that so industries-not just farmers but also the processing industry-could adapt to that. So it is very clear signals and definite timelines. If you start talking about winding down subsidies, you have to give very clear signals, because the industry and the supply chain have to have considerable adaptation to be able to cope with it. In other words, you would not want a sudden shock, because we have a very sophisticated food supply system.

Q364 George Eustice: I just want to push you on this point. Are you saying that it is a laudable aim that cannot really be done while there is cross-compliance-while you are having expectations on our farming industry for the environment? Or are you saying that you could still have that crosscompliance?

Jonathan Tipples: You can do anything you like.

George Eustice: But to still have a viable industry.

Jonathan Tipples: Yes, I am purely making the point that if the Government or the Commission want some level of control over the environmental standards on farms, the only compulsory control they have is through crosscompliance, which is dependent on the farmer receiving a subsidy.

Q365 George Eustice: And you are saying that is-yes.

Jonathan Tipples: If you removed that, all you would be left with are what is in Pillar 2, which are voluntary schemes.

Q366 George Eustice: And by doing that crosscompliance it adds costs to production and therefore it is illegitimate?

Jonathan Tipples: Indeed it does.

Q367 George Eustice: So while that remains you say that there should still be direct payments.

Jonathan Tipples: Well, there are payments for in receipt of public goods, which are delivered through crosscompliance.

Q368 Dan Rogerson: Just to sum up the discussion we have just been having, taking into account the current structure of the farming industry-as you talked about briefly-and that level of environmental regulation, do you think it is possible for British farming to be competitive without Common Agricultural Policy subsidy?

John Bridge: I think the broad response to that question must be yes, for the very simple reason that if you set yourself an objective to have a much more competitive and productive sector, you must be able to say at some point we should be able to be subsidy free. It is an argument that would apply in many other sectors of the economy, so I do not see why agriculture should be exempt from it. All we are saying is that we need to have the evidence, from our point of view, to proceed in the right direction and we need to have the support of others to buy into what I think is a very important debate about the role of food in the UK economy. That includes not just ourselves; it includes the supply chain, it includes consumers and obviously it includes Government.

But I think everyone does recognise that food is moving up the political agenda, food is important and food is possibly in a slightly more precarious position than it was, say, five or 10 years ago when it was just assumed that it was relatively easy to produce food. We are in a much more challenging environment and I think as far as AHDB is concerned, we need to ensure that levy payers particularly are given the tools to improve their businesses and to make them more sustainable.

As I say, making your farm more sustainable and more productive usually has the benefit of reducing your greenhouse gas emissions and increasing your environmental opportunities. So really there is a win-win situation in there, but it does take time to achieve it. I think all parties have to sign up to the fact that in the long term, if that is the solution you want, then we have to push very hard to get sensible timescales.

Jonathan Tipples: I think policymakers would need to take care that there is still some protection in the system to allow people to continue producing when prices fall away. In 2007, cereal prices peaked at a very high level and there could have been an attraction at that point to say, "If we took direct payments away from arable farmers, then they could probably survive at these prices." That was probably true for that one year. The following year, because across the world we produced the biggest crop of grain the world has ever seen, prices collapsed back to about £95 per tonne. At that level, it is unlikely that anybody would bother growing cereals, because, as you will be aware, you can be in receipt of the single farm payment without actually producing anything-you just have to manage the land. So the option would have been to grow nothing, in which case the world would starve. This is not just the UK price-I am talking global prices; the cereal market is a global market. We know that when prices go up, the world will produce big crops of grain. We demonstrated it in 2007 and I bet we will demonstrate it again this year. So if you take away all level of support-if you take away the safety net-the outcome could be catastrophic.

Tim Bennett: It is interesting, because in terms of CAP reform, people major on the aspects of the direct subsidy, but there are still aspects of intervention and safety net that operate. I guess consumers and the public would think back and remember the butter mountains and skimmed milk powder mountains, but perversely the system now works very much as a safety net and actually can reduce the volatility as commodity prices trade.

I will give you an example in the dairy industry, in that in the past there used to be, if you go back to the 1970s and 1980s, mountains of powder that were then sold at distressed prices. In the last couple of commodity price spikes and falls, the Commission have bought skimmed milk powder at safety net prices and have managed the market volatility and have then sold the skimmed milk power at more than they paid for it. So in a sense, that is a good deal for the taxpayer and the consumer as well, because it takes out some of the volatility to some extent and they can turn a margin on selling the product on the rising market. So it is important to recognise that intervention operated completely differently from how it would have done 20 years ago.

Q369 Neil Parish: You cannot always guarantee that in intervention you can buy it cheap and sell it dear, so if you are going to spend the money from the CAP, my view is that you can only spend it once. So from your perspective, do you actually want to see that money go directly to farmers in the form of the single farm payment or do you want more measures to manage the market? That would be reversing a lot of the way the reform has gone.

Jonathan Tipples: As individual farmers, Tim and I would have a view on that, but as AHDB we should not have a view on that, because we should not want anything; we are purely here to react to what we get, which is what we will do. So I can’t really answer your question there. All I would say is that as far as cereals are concerned, the intervention system has effectively ceased. I have seen nothing in the current proposals that suggests bringing it back, although I have heard some MEPs talking quite fondly about the old intervention days. But I certainly have no indication at all that there is any move by the Commission to reintroduce market intervention in that way.

Q370 Neil Parish: The dairy sector was slightly different.

Tim Bennett: Yes, but I was not advocating intervention; I was just trying to point out that the tools that exist within the CAP are perhaps used in a slightly different way in the world that we are entering, where you have commodity prices tending to be tracking up with volatility rather than tracking down as we faced for 30 years up until about five years ago. I will be careful on this because it is obviously not for me to put a personal opinion here, but in general, farmers will respond to the marketplace and produce the right product if they are not paid to produce. So going back to the days of, "You will have a subsidy for producing something," will get in the way of the way British agriculture has developed. I think that is as far as I can go on policy.

Q371 Richard Drax: We hear a lot about removing subsidies from farmers or not giving them so much or whatever it may be. Do you not think, when people say, "Will they ever go?" the answer to that is probably not, in the sense that politically, subsidies allow farmers to produce food at a relatively cheap price? As I understand it from some research that my office has done, if the wheat price had been allowed to go to the free market you would now be looking at about £700 a tonne. Our costs have increased and the price stays low and even when you are getting wheat prices of £180 a tonne, which to the public seems a lot of money, it is in effect not a lot of money. So to remove the subsidies altogether probably is a totally unrealistic option. I just wondered what your view on that is.

John Bridge: Again, I suppose we have to be careful as to where we start the argument. As far as we are concerned, what we are pushing very hard for along with many others is to try to achieve that higher level of capacity within the UK agricultural sector, where a number of things come together in terms of efficiencies and productivity, but also, as I say, in terms of environmental sustainability and greenhouse gases-to achieve all of that, but with a very, very clear recognition that we will, as we move into the future from today, be operating in a much more volatile set of markets as far as prices are concerned, whether it be at a global, European or even at a UK level. So even if you become very effective and very efficient, it is highly likely that there are going to be circumstances where you would want to intervene in the market to smooth out some of that volatility, because you knew that if you did smooth it out, you would bring the model that you are trying to develop forward to its next stage. So I can see, on a personal level if no other level, that there would be a strong prima facie case for trying to retain some capacity, however defined, to intervene in the market from time to time if that then served the bigger cause, to have a much more efficient and productive agricultural sector.

Jonathan Tipples: The evidence is historically that governments like to have some control over their supply of food, for fairly obvious reasons. As a case in point, over the last 10 days the amount of grains that have been bought by North African countries has been quite extraordinary. Political instability is not a good thing and that is why a government will always want to have some control over its food supply and therefore its farming. The obvious way it can do that is to have a level of subsidy where it can then point the subsidies in different directions to achieve different results. That is what history tells us.

Q372 Dan Rogerson: Just following up on that point about how the commodity markets worked, you have already talked about the difference between dairy and the leadin times and the ability for cereals perhaps to respond more quickly to what is happening. Does the policy need to be sophisticated enough to cope with that-that where it is looking for more competition on the global market, it has to reflect the differences of the sectors within agriculture?

Jonathan Tipples: Well one of the things that we certainly do and, we think, do very well is we provide a lot of market information. In fact, we do quite a lot of the statistical work for DEFRA. So we do a lot of horizon scanning. We will be trying to forecast what is going to happen in the following harvest; we will be trawling in information from around the world. We do that all the time and place that in the public domain; that is available on our website and we are all doing it through our market information departments. So we would hope not to be surprised by something, but we can always be overtaken by an event such as the Russian drought this year, which none of us spotted until quite late in the summer.

John Bridge: Almost as a point of detail, you used the phrase "across all sectors" and we have obviously looked at the cereal price and it is a very clear example of what we are talking about. However, an increase in cereal prices will start to impact on the livestock sector in terms of feed stocks and so on. So very, very quickly, you can see that spikes in one sector may in the long term need to be controlled over a much wider range of sectors.

Tim Bennett: Cereals are widely traded and based on very large export volumes, but in the dairy industry-and this is why the statistics are important to inform us of how people can react-the majority of milk that is produced around the world is consumed in the country in which it is produced. So about 5% or 7% of the world’s total output is tradable. About onethird of that is from New Zealand and that is only slightly bigger in milk production than we are in this country. So it gives you an example that when you have only that small amount tradable, one half a percent either way and you get extreme volatility. So that is why anything that can manage that volatility, right through to consumer level, is relatively important. You are bound to get spikes when you are trading such small volumes. One other statistic to throw in, having just come back from the World Dairy Congress, is that dairy consumption is growing at about 3% a year, obviously driven by Asia, and so you can immediately see the challenges in terms of being able to produce enough dairy product in the next decade, let alone the next 30 years.

Chair: We are coming on to price volatility in a moment.

Q373 Dan Rogerson: Just to finish off my original line of questioning, having said that you think it is possible for greater competitiveness to be achieved, what tools do you think would allow that in a reformed Common Agricultural Policy?

John Bridge: As far as we are concerned, we need to ensure as AHDB-and I am being a little bit pedantic here-that we understand the sorts of problems and issues that individual farm units are trying to resolve. We need to direct our research and development expenditure and the money we spend on knowledge transfer and market intelligence, and then package that very effectively so that we are providing individual farms with an ability to react very positively to what is being done. So if you looked at it exclusively from AHDB’s point of view, we have out there levy payers who in their turn account for something like 75% of British agriculture. So we do have an ability through the programmes that we deliver-quite a significant leverage on the sector. So if we can do our job very, very effectively and we get more productive farm units, then I think some of the bigger issues that we have just been discussing here become that much more manageable.

Q374 Amber Rudd: Precision farming enables farmers to use inputs like fertilizers more efficiently. What is preventing farmers from doing this already and what could we try to include in the CAP reform to encourage them to do so more?

Jonathan Tipples: What is being done about it? Within the cereal sector-and I think we are at the forefront of this-we have done quite a big piece of work. We ran a campaign called Be PRECISE; we ran a whole twoday research and development conference on precision farming. It is at quite early stages of development. We have about three different systems out there that seem to struggle to talk to each other and that is certainly not helping. I think we are at the very early stages. There are certainly some people in your constituency that I know that are involved in it. There are certainly quite a lot of people on Romney Marsh; the whole of the Romney Marsh is now covered by a satellite network, which enables tractors to pick up and position themselves exactly where they are. So there are some quite exciting developments going on. There is quite a high cost at the moment. That will come down as they become more available and as some second-hand stuff comes on the market it will enable some smaller operators to get into it. But we have done quite a lot and I would be very pleased to make that work available to you if you would be interested.

Q375 Amber Rudd: Yes, we would be. Thank you. But what about other, in a way, more traditional forms of precision farming like crop rotation? Do you think they are being used sufficiently?

Jonathan Tipples: I think farmers who have farmed on their farm for a long time have always been precision farming, because they know exactly where the wet hole is, where the tough bit of ground is; they know exactly where things work well and where they do not. So I think they can manage their own farms very precisely. Where precision farming comes into its own is as we see farmers expanding and taking on extra land and we see companies like some of the big farming companies taking over farms that they are not at all familiar with, they can pick up the signals from the growing crop and through various sensors really very quickly, without having the local knowledge. So I would be more than happy to make as much information as you would like available to you.

Q376 Chair: I just want to say the word lagoon. What is wrong with good oldfashioned crop rotation involving sugar beet? Now, for example, that they have closed the York sugar beet factory, what is in it for the farmers to produce it? It is lowtech and it is fairly cost effective.

Jonathan Tipples: As far as I am aware, all farmers use crop rotations. You would run into enormous disease and pest issues if you did not. I do not wish to be insulting, Madam Chair, but my grandfather used to remind me that a decent arable rotation lasts longer than any Government.

Chair: That wouldn’t be difficult.

Jonathan Tipples: I do not know of anybody that does not use crop rotations. There are some people growing continuous wheat, but that is pretty limited. So crop rotations are very much part of arable production and are likely to become increasingly so as the chemistry to control some problem weeds becomes less and less available. It is likely that cultural techniques will become more important still.

Q377 Chair: If that is the case, why have the Commission not included it in their greening proposals? Would you argue that they should?

Jonathan Tipples: I can’t possibly tell you. I don’t know why they haven’t.

Chair: Legume is a French word, after all.

Jonathan Tipples: Yes. I don’t know.

Chair: Okay, we will take note and we will pursue that. Thank you very much indeed.

Q378 Tom Blenkinsop: Back to research and knowledge transfer, the Royal Society recommended that at least £2 billion should be invested over the next 10 years in agricultural research, yet little detail is given by the Commission that refers to this apart from knowledge transfer under Pillar 2. Should more of the CAP funding go to research and knowledge transfer?

John Bridge: I think you could respond on two levels here. First of all, you need to recognise that there is a very changing R and D and KT environment within the UK itself. For instance, AHDB over the last four or five years has become a much more significant contributor to R and D and KT, but that is purely a relative situation, because there are others who are contributing less, for a variety of reasons, including both the public sector and industry. So I think there is a very big challenge for the UK as a whole-and the Royal Society report pointed this out-that we need to have an agenda that a lot of people can agree to and that therefore will lead to more collaborative research and far more people getting involved in trying to tackle some of the very critical issues that we face. I do know that there have been various responses to the other level of your question, which was should CAP money be put into R and D. I have heard people say yes and people say no. I think it would be wrong for us to offer you a firm opinion on that issue. All I would say is that science and technology is a very, very important part of the answer to the questions that we are trying to solve. It is not the whole answer by any stretch of the imagination, but it is a very important starting point, and I think we do have to recognise in this country that if we want to achieve stability and growth in our food sector, then we are going to have to apply science very, very cleverly and very effectively.

Q379 Neil Parish: Before I ask my question, there is science and technology out there called biotechnology and there are blight-resistant potatoes coming through the supply chain and there are crops that will use less nitrogen and less pesticides. Is Europe and Britain holding itself back by not using these technologies? Because that is very much science.

John Bridge: We have, both in our main AHDB board meetings and within the margins of some of those board meetings over the last year or two, discussed precisely the issue that you pose. On this particular issue, we have produced a statement-a policy statement-as far as AHDB is concerned. Some people reading it may see it as being slightly bland, but inevitably it is trying to steer a course through a very difficult environment. All I would say-and I guess this is almost from a personal point of view-is that it seems to me that if you want to prove that science can help you, then you have to prove the science. What that means is that, for instance, within the UK and Europe as a whole, field trials of various genome strains need to be tested, otherwise how on earth can you go out to the public and say, "This is something which is safe and will do all of the things you expect it to"? So to an extent, if you compare the European position with the rest of the world, both in terms of consumer acceptability and, of course, in terms of direct output, particularly of soya beans, Europe is well behind in those issues. Now, Europeans generally may take the view that that is a very comfortable position to be in. My instinct is that if we are going to grow more food on less land with less critical inputs, then we are going to need technologies to help us and my instinct is GM should be one of those technologies, but not the only one.

Q380 Neil Parish: I will not press you further; it is very controversial. The Commission refers to the need to address imbalances of power along the supply chain to ensure better return for farmers. What is the UK position? Have farmers got enough power in the supply chain or not?

John Bridge: I could give you, for starters, a more general response to that and then perhaps my colleagues could chip in in terms of the detail. I came into this job as Chairman of AHDB as an outsider, someone who had not had experience in the sector, and I think those who appointed me thought that that was probably a sensible position to be in. I have to say I agree with them, because it does allow you to bring different skills and different thoughts to the industry.

One thing that puzzled me at a very early stage was, what is this industry? Of course, the bit that we were focusing on and still do focus on is the first bit of what in fact is a very, very complicated and very substantial food chain. So if you then add in-and these are obviously facts you are all very familiar with-the fact that food processing is the largest manufacturing sector in the UK, if you then add in the very sophisticated and complicated distribution systems that we have and also look at the retail sector as a whole and all the industries associated with it, then you are talking about extremely large numbers.

I do think we have to concentrate our minds on that much bigger picture, because we are just the starter point. If we get the starter point wrong, then quite a lot of things could be very good in the food chain and they will not work. But what we do observe, I think, from sector to sector is that the responses within the food chain are different and that I think needs to be rectified. Responses may be good or they may be bad; either way, they create uncertainty if you are not careful and we need to be sure that there are appropriate messages being passed up and down the food chain so that the whole works a lot better than the constituent parts. To me, as a personal observation, it looks like constituent parts; it does not look like the whole. But there are experiences.

Tim Bennett: Picking up on the dairy supply chain, which is subject to some work in the Commission at the moment and the highlevel group, can I turn it around from using the word power in the supply chain? I think it is important to have more transparent supply chains and what we have been working on from AHDB in terms all our market information is to make sure that we have very good statistics. We have tried to do pieces of work on where margin is low within the chain, which is sometimes controversial, but that is our job; we are independent in the way we put the evidence out. If I can make the comment, I think there is some good practice there in the dairy supply chain. It needs to be more transparent; lack of transparency is damaging confidence. The fact that the market response this year does not seem to have followed the rest of Europe is damaging confidence and I guess if that supply chain was more transparent and debated a little better, then we might get away from some of the short-term views. I think what we have to get in the dairy industry is an understanding of how the chain works now so we can have a long-term strategy to develop the British dairy industry, which frankly has some huge opportunities once it sorts its supply chain out in the short term.

Q381 Neil Parish: Talking about transparency, will the Groceries Code Adjudicator help with this transparency or will he or she have enough teeth? What is your view on this matter?

John Bridge: I think it is Government policy, isn’t it, so I am not making a comment on that.

Q382 Neil Parish: Can I press you further on the policy?

Chair: I think they are here to discuss the science and the research, so if you do not want to express a view-

Tim Bennett: No, that is a political-

Q383 Chair: No, you were very clear at the outset. I am sure we will have other opportunities to discuss that. Can I just come back to some comments you made earlier about price volatility? I am particularly mindful of the comments you made about political instability, but what are the best tools? How can a government best manage price volatility? Is market management an effective tool?

Jonathan Tipples: Well, if I can take it from a grains perspective, price volatility has worried governments across the world recently and there have been some moves to try to control the activities of some of the fund managers. There was a feeling that the funds were causing prices to spike to very much higher levels than they would otherwise have done through natural forces. The IMF carried out a survey and did quite a lot of work on this and failed to find any evidence at all. The US and the UK regulators have tried to do the same and I understand that the EU was due to publish a report last Wednesday into the activity of fund managers and the effect on grain prices and that report was pulled for some reason; I know not what. None of them have managed to find any real linkage between fund activity and prices and so it would appear from the evidence that we have that that is not a route to pursue to control volatility.

The other method that governments could use to control volatility would be intervening in the market-and we talked about intervention a little while ago-and holding buffer stocks. But quite how big those buffer stocks would need to be in the size of the world grain market is unclear. But when one thinks that the public got fairly unsettled by having grain mountains of 2, 3 or 4 million tonnes, and in order to have an effective buffer against the sort of slump in world wheat supply we have seen this year through Russia not being in the market, you would probably need buffer stocks of a magnitude of five times that, I think the public would not find that particularly acceptable. They are probably the only two ways that I can think of that you can otherwise intervene in the market.

Tim Bennett: I made a comment that a small amount of market management within the CAP can be beneficial, looking at the evidence of the last five years. You can also do something within your own supply chain to take out that volatility. You can have longer term contractual arrangements for the product you are selling, which make sure that everyone gets a margin in the chain. To some extent-sorry to quote the dairy industry again, but we have some contractual arrangements with retailers through to farmers-that longer term arrangement takes out the extreme volatility. What it cannot take out, of course, is the volatility of the inputs to those farmers. So you can only mitigate it with long-term valueadded contractual arrangements; you cannot take away completely from the volatility in the inputs-for cereals going into dairy farmer rations, for example.

Q384 Chair: Would the Commission proposal for an EUwide insurance scheme work in this country? The futures market that the Commission is proposing seems terribly complicated, particularly for small farmers. Do you have a view on either of those?

Jonathan Tipples: I have seen it work in the States and it certainly works there.

Chair: Which aspect?

Jonathan Tipples: Sorry, the insurance side of it. It certainly works there, but only with a pretty massive injection of cash from USDA; it is very heavily subsidised. It certainly works and I can see no reason why it wouldn’t work in Europe.

Q385 Chair: You mentioned prices collapsing. When food prices go up, does it increase profitability on farms? What is the best way of coping with a scenario where food prices might collapse?

John Bridge: We do have some evidence on that, but I guess a lot of it is anecdotal.

Q386 Chair: Not science driven?

John Bridge: It would very much depend upon the transparency within the food supply chain, because if there are dominant suppliers in one part of the chain and less dominant farmers, then you are not necessarily going to get that trickle-down effect, so it very much depends on the relationships between the producers and the suppliers and the consumers. It does vary from sector to sector; there is anecdotal information where it can work and sometimes it does not work.

Tim Bennett: If you have a supply chain that is built around valueadded products, you cannot respond instantly to the commodity surge. For example, you cannot suddenly switch your liquid milk and cheese production-sorry to use dairy again-and export it into commodities, because effectively you are part of that supply chain into consumers. So you can respond to a certain extent to that commodity surge, but you also have to look at the long term viability of supplying your own consumer what you want. If you just purely responded to the commodity surge, it would no doubt be more profitable in the short term for farmers. That is why the supply chain really has to work in a better way so that farmers are better placed to continue to supply consumers with the everyday product, rather than just automatically responding to commodity surges.

Q387 Richard Drax: Commissioner Cioloş argued that a payment ceiling would not lead to anticompetitive behaviour, because the benefits to the farmer of increasing the size of his farm would outweigh the loss of subsidy. Is this a valid argument?

Jonathan Tipples: This is the question of capping.

Richard Drax: It is, yes.

Jonathan Tipples: And it has come up at every CAP reform Bill I can remember.

Richard Drax: He is suggesting €300,000, I think, isn’t he? That is a figure out of the blue.

Jonathan Tipples: Yes. It comes back to the statement that I made earlier on; this is a question of philosophy, of what the CAP is. If you believe that it is there to promote a rural way of life, then there is a perfectly coherent argument for capping the payment. If you believe it is about supporting agriculture, then there isn’t. There cannot be; it makes no logical sense. Why on earth would you wish to hamper the effectiveness of ever bigger farms? If you are interested in competitiveness, why would you want to cap the payment? I understand that people feel it is obscene that somebody should be getting an enormous amount of money, but if you are farming an enormous amount of land, what is the reason for doing it? I suspect that if the other proposal comes through that says that payment shall only go to the active farmer and not the owner of the land, then that will actually cure some of what are seen to be excesses.

Q388 Richard Drax: We have talked about that in this Committee, and I think I am right in saying their view is they do not want to change what an active farmer is; it is quite complicated, is it not?

Jonathan Tipples: Yes.

Q389 Richard Drax: So you do not think that big farmers would restructure, for example, to get more money? He is arguing he does not think they would-that farmers farm for more than just earning more and more public money.

Jonathan Tipples: I think we argued earlier on for simplification and I think it could lead to very much more complicated farming arrangements to get round it. I think it would just be counterproductive.

Q390 Chair: Reverting to the profitability question we touched on, DEFRA have said that rising food prices mean more profits for farmers. Would that always be the case?

John Bridge: Again, on an a priori basis, I am not too sure that that would apply as a consistent argument across all sectors. I could see it being true in some areas rather than others, but I can’t see why it should be consistently so. Equally, it would very much depend on the price increases being sustained over a period of time to allow some sort of sensible distribution to occur. We have heard already in terms of major commodity prices that those spikes in prices can occur over very short periods of time and therefore they have very little lasting effect on the supply chain. It seems to me that sitting in the middle of all of this is probably a slightly different argument, although it is obviously very much related to the question that is being asked. That is: do we need, in the future, a very clear set of understandings between suppliers of raw materials into the food chain as to the value of those products and the need to ensure that there is an appropriate flow of income back into those farm units so that, not just next year and the year after but five and 10 years on, you have some sort of guarantee of supply?

Now, there are very good examples where major retailers and food processors are already getting involved in long-term contracts-we have mentioned that very briefly-and it seems to me that that must be one of the paths that needs to be trodden, because the more you get some sort of long-term commitment through long-term contracts with farmers, the more chance you have of getting a buildup of capacity on the farm, because there is a big incentive for the individual farmer to do more if they know that they have some sort of guarantee of their product being sold to whomsoever over a five-year period, as opposed to literally over days.

Q391 Chair: Finally, would you say that joining an agrienvironmental scheme affects the profitability of a farm?

Jonathan Tipples: I can comment on my own farm from my point of view. I am in an entry level scheme and a higher level stewardship. It certainly pays for what it delivers. With grain prices where they are today, I would probably be better farming it rather than having it in the environmental scheme, but certainly up to now it has paid. On your question of farmers’ profitability, it really is a very sectoral thing. If you are producing strawberries, the strawberry arrives in the supermarket on a very short chain and it is in exactly the state in which it left the farm. If you are producing grains, they never arrive in the shop as they leave the farm; there is a whole process to go through. So they are very, very different chains.

Chair: That is very helpful.

Tim Bennett: You have to remember that food prices are often rising because the cost of producing that food very often has gone up more quickly than the price of food has risen, so actually it has reduced profitability. There is quite a lot of evidence of that in the last year.

Chair: We are most grateful. We thank you very much for being with us and I am sure we can continue the dialogue. Thank you very much indeed.

Examination of Witnesses

Witnesses: Andrew Opie, Director of Food and Sustainability, British Retail Consortium, and Andrew Kuyk CBE, Director of Sustainability and Competitiveness, Food and Drink Federation, gave evidence.

Q392 Chair: I welcome you both. Mr Kuyk, may I ask you to introduce yourself and your colleague for the record please?

Andrew Kuyk: Well, colleague is perhaps a polite description; we are from different organisations.

Chair: I am sorry. You introduce yourself and Mr Opie will introduce himself.

Andrew Kuyk: My name is Andrew Kuyk. I am Director of Sustainability and Competitiveness at the Food and Drink Federation, which is the trade association representing the UK food and drink manufacturing sector, which, as one of your previous witnesses said, is the largest manufacturing sector in the UK.

Andrew Opie: Andrew Opie. I am Food and Sustainable Policy Director at the British Retail Consortium, which is the trade association for retailers. Within our membership we have all of the major food retailers, accounting for probably just over 90% of grocery sales in the UK.

Q393 Chair: Thank you. Just at the outset, recognising that food manufacturing-food processing-is the largest manufacturing sector in the country, do you think the farmers currently get a good deal or a raw deal? I address that to Mr Kuyk.

Andrew Kuyk: Well I am not sure I would be able to answer it in quite the terms in which you put it, Madam Chair. We are the major purchaser of the output of UK farming and if we were not a successful, profitable, competitive business, there would not be a market for UK farmers. So I think it is a complementary relationship. I think if we look at the Government’s aim for the future, which is to increase sustainable output from UK agriculture, again it follows that it would be in the public interest that there is a manufacturing sector that is able to take that increased output. If we look to the wider challenges of food security, I think that must be a win-win scenario that we increase the productive potential of UK agriculture and we have a resilient, competitive UK manufacturing base to be the primary customer for that. So I think that is a situation where both farmers and manufacturers can profit, so I would not want to answer the question quite in the terms that you put.

Q394 Chair: Mr Opie, there does seem to be a clear and pronounced difference between farm gate prices and the prices on the shelf. Do you think that can be rectified of itself or do you think there is a role for the Grocery Code Adjudicator?

Andrew Opie: Well, there is a difference because there are lots of elements that go on from the farm gate before it reaches supermarket shelves and I am sure Andrew would be-

Q395 Chair: Not necessarily with strawberries.

Andrew Opie: Well, there still would be processing, distribution, the storage in the stores, the management of the stores themselves and the employees within the stores. There are lots of costs in running a retail store, whether it is a food retailer or a furniture retailer, so those costs would have to be paid. So it is not a simple case of taking it straight off the farm gate and putting it on the shelf; there are lots of costs in between. But having said that, if you look at the record of UK retailers and their support for UK farmers, it is quite clear that they are pragmatists, taking Andrew’s and previous speakers’ points about food security. We know that they want to have reliable, good quality produce, primarily sourced from the UK, on their shelves. So being the pragmatic businessmen that they are, they know that they have to pay the right price to keep farmers in business.

Q396 Chair: If you look at the gross valueadded sourced from DEFRA’s Food Statistics Pocketbook in 2008, if you add together the 9% of agriculture and fishery, the 27% of food and drink manufacturing and the 27% of food and drink retailing, surely you must be as big, if not a larger sector than, say, the equivalent in France. How is it the agrifood industry in France seems to have more clout with its government?

Andrew Kuyk: I am not sure I am in a position to comment on those comparative figures. I would be slightly surprised if we were larger than France, given what I know about the size of agriculture in France. The question of political clout with government is a matter of the political system as well as a matter of the relative size or economic importance of particular sectors. So again, in a political system where you have a larger agricultural population, the way that constituencies are organised and so on, that may well give a different measure of political importance to a particular sector. So I am not sure that that is necessarily a valid comparison.

Q397 Thomas Docherty: Mr Kuyk, if I understand correctly, your written evidence slightly contradicts what you said a few moments ago, in so far as in your written evidence, you said, "Supporting inefficient or unproductive sectors will not help the EU to remain competitive or meet future food security needs. It may also harm UK interests." Without drawing you too much down the road of one particular sector, if I take, for example, beef, where quite a lot of it is farmed on land that without subsidy would not necessarily be viable-and, for example, Scotch beef has a certain premium cachet to it which we know customers like-if there wasn’t the subsidy, surely that type of product wouldn’t be available or would be available at a much greater cost to the consumer on Mr Opie’s shelves.

Andrew Kuyk: I am not sure I would disagree with that. I think you are perhaps putting a slightly different interpretation on what we said in the evidence. There, we were talking in terms of the EU as a whole and I have the section in front of me: "The EU is a very diverse area of agricultural production." What I go on to refer to in there is the principle of comparative advantage. If we are looking in terms of future food security and we are looking at the impacts over time of climate change, back to what was said in the earlier evidence session about the need to produce more from less and with less impact, it follows that we should be exploiting comparative advantage-doing the things that particular areas do best so that you make the most efficient use of those factors of production. It is in that context that I say that supporting inefficient or unproductive sectors will not help the EU to remain competitive or meet future food security needs.

I think that goes to the heart of some of the debate around Common Agricultural Policy reform. We have heard, and I do not disagree with the idea, that it should be a common policy, but the idea that there is a universal right to produce all types of produce in all parts of the EU seems to me very questionable, for precisely the reasons that I have stated in terms of the need to increase resource efficiency to exploit comparative advantage. So it is in that context I think that there are particular types of production where, in particular areas-say beef on hills-if you are to use that land productively, grazing it to produce meat may actually be the most resource-efficient use of that land and so that in that sense is perfectly legitimate. To take a hypothetical example, it wouldn’t make sense to have a scheme to boost citrus production in the UK; we are not adapted for that. We are very well adapted for wheats, for grasses, for some types of meat production and so on. So that is what we were seeking to say in the evidence about not supporting inefficient or unproductive sectors. It was not specifically in the UK context; it was in that much broader context of the need to exploit comparative advantage, the need to take account of resource pressures as a result of the effects of climate change and back to this mantra of producing more from less and impacting less.

Q398 Thomas Docherty: And just finally, would you accept that without some form of subsidy, large but not all parts of the United Kingdom-in all four nations, I should add-would struggle to be viable? I think there are parts of Yorkshire, Madam Chair-the uplands, for example-

Chair: Indeed.

Thomas Docherty: -that very much depend… So you would accept that the subsidy is important?

Andrew Kuyk: Well I think it depends a bit what you mean by subsidy. Previous rounds of CAP reform have introduced decoupling, single payments and again, as we heard in the earlier session, crosscompliance. I think the view that we have tried to reflect in our written evidence to your Committee is that-again, looking through the lens of food security-what we need to do is maintain and enhance the productive potential of the EU and that means using public funds for things like soil quality, water, biodiversity and various farming practices that support that, including crop rotation. We think that those are the things that should be supported.

Interestingly, the Commission’s paper itself actually says-back to the earlier thing about what the philosophy is, what the Common Agricultural Policy is for-"The primary role of agriculture is to supply food." I think from the point of view of the food manufacturing sector, we would regard the supply of food as the primary public good that the Common Agricultural Policy should be delivering. We would see some of the environmental things that go with that as a means to an end; unless you have healthy soils, unless you have healthy biodiversity, unless you have good water-unless you have all those things you are not going to be able to be productive and supply future food needs. Food is not a discretionary activity. The Foresight Report lays out very clearly that the world will need to double food production by 2050. The European Union has to play its part in that and it needs a policy that is adapted to that outcome. So I wouldn’t use the term subsidy in quite that way. If supporting some of those factors that I have described enables, in a decoupled way, certain types of production to continue, then that I think is perfectly legitimate. So I would not regard it as subsidising a particular thing.

Back to comparative advantage, it may well be that there are some things that are done in the UK or indeed elsewhere at the moment that over time will be less competitive, because comparative advantage has to operate on a global scale as well and if there are people in other countries who can produce that more competitively, fulfilling these criteria of more from less with less impact, then in an open international trading system they should be allowed to do that. That comes back to the earlier point. If that then has socio-economic consequences-regional employment and so on-you need a mechanism to deal with those consequences in their own right, not through a policy that should really be about sustainable food production. I am sorry if that is rather a longwinded answer, but I hope that sets out the approach that we were describing.

Q399 Richard Drax: What factors influence your decision whether to source from the UK, EU or globally? As far as the EU is concerned, do you think the produce from there is of particularly high quality and good standard?

Andrew Kuyk: Well, I think as a general point-Andrew may like to comment on this from the retail perspective as well-decisions on sourcing are primarily commercial matters for individual companies. We as a trade association don’t have a view on that and indeed, competition law would not be very friendly to us having discussions around those sorts of issues in a trade association. So I think those are primarily commercial matters for our member companies. They will take into account a number of things: quality, continuity of supply, price, year-round availability, traceability and increasingly, I think, sustainability; people will be looking at what resources are used in those various types of production. So I think it will be a combination of those factors.

Businesses are in business to meet the customer’s needs. If there is strong consumer pull-and I think we are seeing many more examples of that, where customers in the UK are attaching importance to provenance, are asking for things that are of UK origin or more local-then obviously as businesses we would seek to do that. So I think it is not possible to give a general answer to that. Some companies with particular requirements from their customers will source in particular ways; others that are perhaps in less differentiated markets will take a view based on these general criteria about quality, availability, price and so on.

Looking ahead-and given some of the points made in the earlier session-I think if we are to tackle some of these issues of food security and sustainable increase in UK agriculture, there is a need for the food chain to work together in a more collaborative way and to have more discussion about how we can jointly meet those objectives. That is something I think as a trade association we can and do legitimately support.

Q400 Richard Drax: And what about the quality and standards from the EU? What is your view on that?

Andrew Kuyk: I think there is good and bad in all markets. As I said earlier, I think UK food and drink manufacturers buy roughly two-thirds of the output of UK farmers. Most of the rest of what we source comes from the EU, but some also comes from international markets. So it is a question of what meets the basic commercial criteria and what meets consumers’ needs.

Andrew Opie: I totally agree in terms of the role of consumers, but the great thing for British farmers is there is a lot of support for both the quality of the produce that is produced here and an element of British support through things like Assured Food Standards, which all the major retailers support. So there is a strong brand in itself, plus we have a very capable agricultural industry, which gives retailers that continuity of supply and the quality that they know their consumers will demand. As I said in my evidence, there is a very strong support for UK sourcing from retailers, because that is the pragmatic thing to do. For example our liquid milk market: you would not go outside the UK; it just would not make sense to do that. We produce that in this country. There are lots of debates about how strong the UK element is in consumer choice. It is clearly one of the elements, but it does have to be balanced with price, quality and even durability, for example, in the stores. But we feel we have a very strong sourcing record on UK and we would expect to see other parts of the food sector being as strong in their support as we are and I would include Government procurement in that.

Q401 George Eustice: You talked about other factors that influence buying and I want to build on this theme. In particular, Mr Opie, I think the British Retail Consortium in their evidence were quite upbeat or bullish about the prospect of the expanding market for ethically produced food or food produced to higher standards of environmentalism. DEFRA have flagged this up as the future and one way that farmers could develop and reduce their dependence on direct payments. Do you think, though, that this trend can be sustained if you have food security issues and rising food prices? Can that trend of an increasing market in this area be sustained?

Andrew Opie: I think there are a couple of factors there. First of all, there are clearly some issues that consumers do relate to quite closely and are prepared to pay more for. A good example would be free range production, which held up really well; even in the recession we saw a growth in sales. When it comes to some of the environmental factors, there are already some higher tier products on the shelves, as you are probably aware, from organic through to things like LEAF and various other products.

I think what it will be is two factors. First of all, consumers seeing that there is some value in that, because of course consumers buy on value, not on price, of which this would be one of the components that would be within their choice. But secondly, increasingly what we are finding is retailers working with suppliers, primarily in the dairy industry at the moment but increasingly in other sectors, to look at the whole environmental management through the chain, because sustainability for us and our consumers is definitely going to increase. That will almost be a standard of production.

Within that, there are some benefits for farmers, because of course some of those areas are around efficiencies, which actually may mean they produce not only better food but cheaper better food at the same time. So I think there are some real win-wins. I think we are lucky with the UK production; we have a great farming industry in this country that has always been shown to be quite responsive to the market and can work with the market. So that was why we felt that puts UK farmers in a very strong position going forward in terms of sourcing into the UK market.

Q402 George Eustice: The farmers’ groups themselves are actually quite sceptical about their ability to get a monetary value from these higher standards of production. They said that people always say that they want these things and they want good animal welfare, but when push comes to shove, when they go into the supermarket, they will buy cheaper options.

Andrew Opie: It is not always seen as necessarily an added value, so there is not always an added value product like we saw with the growth of organics, but the basic cost of getting entry into the market may be through this. Again, if we talk about standards-we talked about Assured Food Standards earlier, for example; the Red Tractor-retailers have always been very careful to make sure when they source from outside the UK, for example, they apply similar standards to those types of products that would compete against those within that UK market. So it may well be it is the cost of doing business as much as we have pressures on us in terms of what is expected from us to deliver that when we do business. But that will be the entry into the market.

Q403 George Eustice: Just probing this point of whether it can continue to grow in the future, are you aware of any economic modelling done by you or any of your members to see whether this is going to be a growing market?

Andrew Opie: No, but we see the sales data themselves-so the retailers, and people like the Institute of Grocery Distribution, do quite regular surveys with consumers to see what their thoughts are in the future in terms of what will influence their decisions in terms of consumer behaviour. They do pick up this issue, but it has to be something that gives the consumer recognisable value. Simply producing something that we think might be the best thing might not actually get an added value, because consumers might not see the value in it themselves. That is the key thing. Consumers have to recognise and think that there is some value in it for them and therefore be prepared to part with their money.

Q404 George Eustice: I know it will differ from product to product, but is there any kind of ballpark estimate you can give us as to the amount of sales that are currently organic and how it has grown in, say, the last decade?

Andrew Opie: Organic is still a fairly small part of the UK market, but we actually look at the core market for people now and what that is delivering. So if you look at the standard ranges and what they are delivering, increasingly they are turning their attention to how we can cut carbon emissions and water consumption through the chain and how we can manage our waste through the chain and that is collectively from farmers, through processors to retailers. These are all added benefits that consumers are getting, not necessarily always at an added cost, because often they are an efficiency within the chain itself, but it means that the value and the quality of that product is increasing year on year without necessarily being in what you might see as a subbrand.

Q405 George Eustice: Just to push on it, you said it was a small part of the market. Are we saying 10%? Less?

Andrew Opie: No, it is less than that. I don’t have the figure to hand, but we could send you a figure.

Q406 George Eustice: If this is going to be a growing trend, is there any policy response that Government or the EU could have to put farmers in a better position to exploit it?

Andrew Opie: We have obviously had some discussions on this around issues about how farmers adapt to the future challenges, sustainability being a good one of those. I heard earlier people were talking about knowledge transfer, for example, and research and development. How do we manage with this? How do we produce more food more sustainably? That to us would seem a really good place for the Government to play its role in terms of research and knowledge. There are some areas where retailers are working directly with their groups of farmers to try to look at things like feed regimes and waste management, but what we also need is the Government maybe to hold that centrally, so that all farmers could participate in that.

Q407 Thomas Docherty: I used to work for one of the Big Four on their new stores project. Let us be clear on this: the reason why the Big Four are going down that particular angle of waste water and so on is twofold. No. 1 was it was driving down their costs and secondly, particularly for Tesco-because I used to work for one of their rivals-the joke was whenever they had a controversial store, they would roll out the eco store, because it was a way of trying to get planning permission. This is not the Big Four suddenly discovering a new sense of community ownership; it is a) cost and b) a PR gimmick for them.

Andrew Opie: I certainly would disagree that it is a PR gimmick, but there is an element of cost in there. I made the point earlier that there are cost reductions for all in the supply chain in this, from farmers through processors to retailers. But retailers have made it clear-through things like our own Better Retailing Climate that we publish every year and through retailers’ own CR reports, which are independently audited-the role that they are playing in sustainability. They recognise that as major sellers of food in this country they have a major responsibility and they want to step up to that responsibility.

Q408 Thomas Docherty: Perhaps the argument was too strong. It is being driven by the consumer, but also local authorities and getting planning permission. Particularly Tesco-their eco store only ever comes out when their stores are getting into trouble with the local authorities.

Andrew Opie: We would say it would be a good thing if consumers were driving that kind of agenda, because it would drive a more sustainable food supply chain from the retailer right through to the farmer at the other end, so that would be a positive. Things that do raise the profile of how our food is produced and whether we can produce it more sustainably seem to me like positive things that all retailers and food producers should be engaged in. So we would welcome more discussion around this. The Government has had it in its sights in various food policies that have been developed over the last few years, and we are certainly playing our part in that. I do not see it as something that is a bit of fluff or something; this is just the way to do business responsibly going forward and all responsible food producers will be engaging in this.

Andrew Kuyk: Can I just add from the point of view of my sector, we at FDF have something called our Five-fold Environmental Ambition, which has been running for three years now, which is trying to reduce carbon, water, waste packaging and so on, very much for the sorts of reasons that Andrew has been describing. Just before Christmas we launched a review of that ambition where we are explicit in wanting to extend those behaviours across the supply chain. It is back to this thing around food security that greater resource efficiency is going to be essential across the whole food supply chain. We, along with BRC and indeed with the National Farmers Union, have been in discussion with DEFRA over several months, both under the previous administration and more latterly about how we can collaborate more across the food chain to deliver these sorts of wider benefits, because unless we do that, we are not going to meet these future challenges. I agree that there are some cost savings for companies themselves, but that is a very good incentive for them to drive up performance, because good environmental practice makes good business sense for all the reasons that it makes good food security sense; if it is more efficient, it goes back to producing more from less with less impact. So I think we are very much on a shared journey in respect of that drive to improve sustainable food production.

Q409 Neil Parish: The Foresight Food and Farming Futures study that came out last week highlighted the future challenges of food supply. Are you concerned about the future availability of raw materials? You talk, Mr Kuyk, about the need for Europe to produce its share of food in the world. Could it be argued that linking the single farm payment more to land and less to food production actually reduces the amount of food that Europe produces?

Andrew Kuyk: Not necessarily. I think it depends how it is done. I think the way I would personally see this is not so much a straight choice between Pillar 1 and Pillar 2, but I think we almost need a Pillar one and a half; we need something that is a little way in between. If those payments are directed to preserving and enhancing productive potential, then it will contribute, because it will make land more productive and again, back to the comparative advantage, if it helps produce a move into things that Europe is better at producing, then Europe can play its full part in meeting these global challenges. So I would not necessarily say that direct payments would inhibit that; I think direct payments, properly targeted, whether you call it some kind of crosscompliance attached to Pillar 1, whether in my terminology you call it a Pillar one and a half. But I think there is a way of doing that that would not inhibit Europe becoming more competitive and actually increasing output sustainably in a way that would help meet the global challenge. I think that is the real challenge for this reform of the Common Agricultural Policy: to take a longer term and broader and more radical view and say that this is the time to start that.

Clearly there are going to be transitional issues, clearly it cannot all be done in one move and, as I have already hinted, there may have to be some accompanying measures in terms of some of the socio-economic consequences in certain parts of Europe. So it will take time. I think, as I have already suggested, the language in the Commission’s paper is actually quite promising on that. I think where it disappoints is, having set that scene and having said that the primary purpose of agriculture is to produce food and having set out the background to food security, the options it then sets out for trying to deliver against that agenda are actually rather disappointing. So I think there is scope for a greater level of ambition on the part of the Commission to see if they can produce more of a step change rather than the three options, which are either a status quo or a greening of Pillar 1. I think something slightly more radical than simply a greening of Pillar 1 is called for.

Q410 Neil Parish: Are you concerned about the question of the availability of raw material?

Andrew Kuyk: Yes. Again, as food manufacturers-and I am repeating what one of your previous witnesses said about crop rotations being longer than the cycle of governments-a large commercial food manufacturer is looking to know whether they are going to have a business in 10, 15 or 20 years’ time, and so they are looking not just at current market conditions but what is going to be available as a raw material and indeed, in terms of future investment, whether to invest in new equipment in an existing factory in the UK, whether to put money into new technologies, innovation and so on, or whether to relocate a manufacturing site to somewhere where raw material supplies may be more abundant. So certainly the bigger manufacturers will be looking very keenly at things on that sort of timescale in the interests of their own businesses.

Andrew Opie: Certainly we share the concern in terms of the global issues around food production in particular. One example would be animal feed. Lots of soy is produced outside the EU and then needs to be imported into the EU to keep our livestock production-particularly pigs and poultry-in business. That is a concern for us and it is a concern we have raised with Government a number of times previously. But also the impact of global trade is very important to us in terms of its impact on commodity prices. We heard previous speakers talking about maybe the fact that some countries now are less willing to trade. We also understand that some countries now are securing more food supplies for themselves and less is available on the global market for trading, which again will have a knock-on effect on commodity prices. Commodity prices will then have a knock-on effect primarily in areas like livestock feed, for example, which will then affect our meat and dairy industry as well as those that directly go into processing for bread and various other issues.

Chair: We will come on to price volatility in a moment.

Q411 Amber Rudd: I think we share your concern about global food supply and prices, but looking at the UK, the UK used to have a policy of not minding too much about local food security because we could always buy it from somewhere else. Do you think that situation has changed and that the government ought to reconsider that position?

Andrew Opie: I cannot really speak on behalf of the government, but for food retailers food security is a big issue, because gaps on the shelves are the worst thing you can possibly have. It is not the done thing and it just wouldn’t work. So having secure, robust, auditable food systems is crucial to food retailers. I think that is why we have seen, as well as the work with farmers in terms of these issues around sustainability that we have talked about, the closer work with groups of farmers to ensure that retailers have a secure supply of various commodities-we have already seen it with liquid milk at the moment and we increasingly see it in some of the red meat sectors as well. It is a factor that is driving food retailers’ business. So that issue around food security, but also maintaining the quality that consumers demand in the UK, is a really important factor to us.

Q412 Amber Rudd: And so from a retail point of view, naturally you would like to see EU farmers encouraged to focus on food production?

Andrew Opie: Well, the right kind of food production is what we would expect to see-the food production that gives consumers what they want in terms of all the other issues around animal welfare, environment and sustainability.

Q413 Chair: On the fluctuations and price volatility, in the FDF written evidence a clear opposition was expressed to more market management through quotas. In the NFU Scotland written evidence, they talk about the situation possibly deteriorating if there was to be a World Trade Organization deal resulting in reduced import tariffs and therefore increased import penetration. May I ask both of you, in your view, is market management at government level an appropriate way of reducing the negative effects of price volatility on the food supply chain?

Andrew Kuyk: "Probably not" is how I would start that. Going back to the previous session, I think one needs to look at what factors are causing that volatility. I think there were some quite valid points made there. Food manufacturers try to hedge their risks in the way that prudent business would, through forward buying and so on, and I think there is some confusion in concerns around using commodity futures markets. Undoubtedly, there are some people who do use them as a means of financial speculation, but unlike some other futures markets, agricultural commodities are real things that people want real delivery of to make real goods from. Most food manufacturers engage in forward buying of commodities because they want physical delivery of that commodity; they want to be able to lock into a price. So I think having those sorts of instruments available is an important part of normal business.

Where you have fluctuations as a result of extreme weather conditions or other forms of disruption to supply, the classic CAP intervention buying could be one way of dealing with that, but again, there was a rehearsal of those arguments in the previous session. You can’t always guarantee that there will be the shortage that will enable you to sell that back at a profit or even at break even. Again, the point was made by one of the previous witnesses that if you are looking at some of the recent fluctuations in supply, if you were to create buffer stocks, they would have to be pretty large in order to deal with that. So I think it is quite a complicated set of arguments, but that is why I couched my initial response in terms of "probably not". There may be scope for some measures at the margin to try to deal with that, but I think wholesale intervention, either in the general sense of the word intervention or in the narrow CAP sense of the word intervention, is probably not a wise solution and may well be very costly and could actually compound some of the volatilities. But one of the reasons that there are these volatilities is because we are not making the most of productive potential, here or elsewhere. As all the pressures on demand increase from population growth, changes in diet and all these other factors, we are going to have to produce more sustainably, so that is part of the answer as well.

Q414 Chair: Thank you. Do you have a view, Mr Opie?

Andrew Opie: Not on market intervention, being freemarketeers ourselves, but we do believe in global trade and we think that is where the problem is. If you look at wheat stocks, for example, they are not that much different from what they were three or four years ago, but different countries around the world now have more control on those wheat stocks and are not as prepared to trade as, for example, someone like the US would have always historically been. If you look at some of the kneejerk reactions that have been taken in recent years by countries like Argentina, for example, in terms of exports, all of those things do have an impact on global trade. So we would be supporters of the maintenance of free trade around the world to even out some of these volatility issues.

Q415 Chair: Just to pursue you, Mr Kuyk, what would you propose? Do you think there should be longer term contracts-five-year contracts?

Andrew Kuyk: To return to one of my earlier answers, I think that is a matter of commercial choice for individual companies. But if they saw that as another way of hedging some of those risks, then that seems to me a perfectly good idea. I would echo also what Andrew said about an open international trading system. In my earlier, probably nonanswer, I was not trying to argue against that. I think an open international trading system is the primary means of trying to deal with this, but some of the things we have seen recently are resulting in price spikes and shortages despite the existence of an open international trading system. So there are issues there that do need to be looked at quite carefully.

Q416 Chair: Can I just put two measures to you-the continued imposition of quotas and a greater use of futures markets? How would you both view those?

Andrew Kuyk: I think our stance on quotas is, again, rather similar to what has just been said about trade liberalisation. We do not believe that quotas are a very good instrument for managing output and there are examples at the moment where prices of some commodities-sugar, for example-are at very high levels. The existence still of a quota regime inhibits farmers’ ability to respond to that in the short term. As I say, I think futures markets play a very important role for companies wanting actual physical delivery of commodities and that is the primary purpose of those markets, so if there were to be any nuancing of that, it needs to be done in a way that does not undermine that primary purpose-the use of those markets in order to provide that sort of forward buying facility.

Andrew Opie: I concur with what Andrew said. The only thing I would add from our point of view is that, looking at the UK market, it is not always easy to get farmers in the UK to enter into forward contracts for sales, for example, because some farmers do like the market, and actually, seeing volatility in the prices may encourage them not to go into forward sales, thinking that they might miss something in the future. Retailers would love more certainty in terms of the price they are going to pay in the future; it evens out some of the volatility, but it isn’t always easy to engage with the agricultural sector in terms of contracts.

Q417 Neil Parish: If we go back to 1994, the retailer was only making a very small amount of profit on milk, the processor was getting 22p and the farm gate prices were 18p. Now we are seeing the retailer getting significantly higher prices than that. Is it inevitable that farmers get a low return, and are they getting their proper value out of the food chain?

Andrew Opie: I am going to start my answer by saying those figures are slightly speculative, because they are not actually based on clear data and I would-

Chair: I think they are based on clear data; it is taken from the NFU website.

Neil Parish: I do accept that-

Andrew Opie: Yes, they are based on data, but they are not based on actual relationships between retailers and their suppliers, which was going to be my supplementary point. Actually, if you look at the league table of milk prices that are paid in the UK at the moment-and I have printed out the most recent one from the MDC Datum website, the industry website-it shows the top 10 prices are all paid by retailers. Retailers have led the way in responding to the problems that farmers have had with rising feed costs, for example, by upping the price that they have paid over the last six months. So all I am saying is that those figures come with a bit of a caveat.

Having said that, retailers’ profits remain pretty stable; if you were to look over the last 20 to 30 years, retailers’ profit margin is always around 3.5% to 4% overall in the equation. Interestingly, some of the recent price promotions on milk, which retailers have in some ways been criticised for, have been paid for by the retailers themselves, not the farmers, because their price is published and is clear. So there are some changes in there.

The other issue with dairy in our opinion is, if you break it down, approximately 50% goes into liquid milk and 50% goes into processed products. Retailers have a big share of the liquid milk market, but even then, it is well under 50% of the milk that is actually produced in the UK. Therefore, they cannot influence the whole of the market or the margins that farmers would be receiving. The other thing that is clear from all the dairy industry data is there is an enormous difference between the more efficient dairy farmers, even in the UK, and the least efficient dairy farmers in the UK.

Q418 Chair: But that is size, presumably.

Andrew Opie: Not just size. You can have some very productive small dairy farms.

Q419 Neil Parish: I accept that I do not want a price that is going to prop up every inefficient dairy farmer, but I think there is an argument that the retailers are taking significantly more in the way of profit. If you were being paid 18p back in 1994 for milk as a dairy farmer and you are now being paid between 22p and 26p, there has been an enormous increase in costs in that time and yet because the retailer is taking significantly more, the price of milk to the consumer has gone up. So part of my question-and you may not want to answer this-is will a Food Adjudicator be able to actually look at this process to see who is making the profit there and whether the retailers are necessarily taking out too much profit from the chain?

Andrew Opie: We don’t believe they are taking out too much profit and that is quite clear in the profit margins, the published figures that come out every year-every quarter for their sales but every year in terms of profits. But I think the other thing for farmers is to think about whether the price they are being paid is a sustainable price for them to stay in business, regardless of what anybody else in the chain might be taking-and we don’t believe we are taking a large proportion of the profit. So is that price-which is published, at which farmers enter into a contract through the dairy with the retailer, because most of them have this dedicated chain-sufficient for that farmer to have enough profit to be able to invest in his business for long-term development? We believe it is and obviously those farmers who are going into those contracts also believe it is.

Now, you can look around in terms of the price that different farmers are paid and the price on the shelves; there are lots of different issues. But I think the important thing for farmers to think about is, "Am I getting the right price from the people that I am supplying to keep me in business?" We believe the retailers have led the way in showing that that is possible. There are large parts of the food sector-the Government included-who do not enter into these types of agreements like retailers. Retailers have done that because we need food security and we want liquid milk going forward. We are prepared to pay the right price for it and we will show that in terms of the prices that we pay. But that won’t help all dairy farmers and that is the problem. You have a large rump of dairy farmers who are still basically sourcing into the usual market-which may go for processing, may go in skimmed milk or may go for liquid in hospitality and catering-who are not fortunate enough to be in those types of deals. They are the ones who have the problem, really, going forward. We have a lot of sympathy for those dairy farmers, but retailers can only help those that they need to supply them.

Q420 Neil Parish: And as far as the Food Adjudicator is concerned?

Andrew Opie: First of all it is interesting because Friday is the first anniversary of the GSCOP-the code of practice, which retailers did not oppose, have administered and have introduced to their business.

Q421 Neil Parish: Is this a voluntary code now?

Andrew Opie: No, it is a statutory code now and it applies to the 10 largest retailers. It was expanded; anyone with £1 billion turnover or above is now covered by it, so it takes it down to a lot of smaller retailers. There are lots of contractual issues in there that answer the questions that were raised by the Competition Commission on things like retrospective payments, how the contracts themselves are worked out and the right to independent arbitration if you cannot get satisfaction from your retailer. All of those things are in place and we would say, before rushing into a next stage with an Adjudicator, we should see how that is working. We are starting to get some evidence from that now. It is administered by the Office of Fair Trading and we will get a report from them later this year.

It probably would not help dairy farmers, because the GSCOP and the Adjudicator only affect those who have a direct relationship with a supermarket. Our main suppliers are actually very large multinational food companies: the ones that you will be very aware of, who have large brands themselves and are operating well outside the UK. Those are our main suppliers. We have very few direct farming suppliers-maybe some fruit and veg suppliers and these sorts of people. So our suppliers in terms of dairy are actually the dairies themselves-the processors and the dairy companies; they are not the farmers. We shortcircuit it through a special contract through dairies to try to help farmers, but actually the contract is between the processors, the manufacturers and the retailers. So the Adjudicator’s role would not extend into that area.

Q422 Chair: How do you feel that the Commission measures to give farmers more bargaining power, such as increasing transparency or standard contracts, would affect your industry?

Andrew Opie: I had a look at the high level group and we are obviously following that work at the moment. We don’t believe the issue that was raised in the dairy would have a huge issue for us. We feel the UK is quite a progressive market. UK retailers haven’t waited for these sorts of issues; they have gone out and secured their own dairy supplies, they are paying them the best prices in the market and they are happy to publish that so people can see it. So we did not see anything greatly different in here that would necessarily help the dairy farmers that are supplying our members with liquid milk.

Q423 Chair: On Mr Parish’s line of thought, the NFU figures show that farm incomes have fallen by 8% and retailers’ income has increased by 4,000%. If measures were taken to increase farm gate prices for farmers, what would be the impact on food prices for shoppers?

Andrew Opie: There would be an impact but of course it is right to say that the commodity price itself, or even the farm gate price, is not the only price that is applicable. So things like oil prices, the exchange rate with the euro and employment rates for retailers who employ people will influence our food prices. All these factors would have an impact.

Thomas Docherty: The cost of fuel.

Andrew Opie: The cost of fuel, absolutely. Oil is crucial to these sorts of things. But ultimately, retailers can only insulate consumers from so much. So our own inflation figures, which we publish every year, show at the moment food inflation running at about 4%, which is actually historically quite high; we have seen periods of deflation. Now, we can only insulate consumers against so much, and while consumers are going through extremely tough times as they are at the moment-and with the very competitive business that we luckily have in this country, UK retailers can help consumers-the last thing any retailer wants to do is pass any additional cost on to consumers.

Q424 Chair: Just out of interest, are you able to say how much milk that you sell in your outlets, through your membership, is actually produced in this country and how much produced in the EU and outside the EU?

Andrew Opie: Liquid milk, or-?

Chair: Well, the totality of the market.

Andrew Opie: Well, liquid milk, none. It is all produced within the UK.

Q425 Chair: Powdered milk?

Andrew Opie: I would have to check things out, because then you are into things like cheese, yoghurt and dairy desserts, so the further down the track you go, of course, the further you get away from UK producers. But one thing I would say-and we did put it in our evidence-is we are the only sector that is committed to the new country of origin agreement, which we agreed with the Minister before Christmas. We have made it clear that we will put country of origin on all dairy products, where relevant; we will not make claims about UK that would mislead consumers at all.

Q426 Chair: Is that just for milk, or is it all the dairy products?

Andrew Opie: That covers milk, dairy products and also meat products. We are the only sector that is committed to this at the moment, so we are being absolutely transparent with consumers and we will tell them where their food is coming from. We are quite happy to do that, because if you look at the cheese counters, the dairy counters and the meat counters, retailers know they have a strong record to say in terms of country of origin. But we are the only food sector that is doing that at the moment.

Q427 Thomas Docherty: On the issue of labelling of country of origin, are you committed to ending the practice whereby, for example, cows are reared in Devon and then sent to Scotland for a month and slaughtered, to get the Scottish beef brand?

Andrew Opie: Well, the country of origin is UK, in this respect. So this is about-

Thomas Docherty: I know that, yes. B ut further to that, are your members committed to ending the practice of shipping animals around the UK to get brands?

Andrew Opie: I am not aware of that practice, but I can-

Chair: I do not know that we want to go there, because actually my farmers would not necessarily like that. So we will not put that question.

Q428 Tom Blenkinsop: Mr Kuyk, your evidence expressed that, "It is disappointing that the Communication sees increased trade liberalisation as a potential threat rather than an opportunity." An opportunity for whom-farmers or processors and retailers?

Andrew Kuyk: Both, I think. It follows from what I said earlier that if we move away from a situation where inefficient and uncompetitive production is being supported, you need some form of trade protection as a buffer to that. If you increase trade liberalisation, and where Europe can exploit a comparative advantage, that then opens up markets elsewhere outside the EU. So I think it is an opportunity. It is also an opportunity for increasing food supply-back to the point about affordability. So for all the reasons that we discussed earlier-and back to the need to use market forces to help iron out some of the volatilities and so on-we do believe that an open international trading system is the way to do that. Provided that Europe is revising its Common Agricultural Policy so that it puts emphasis on resource efficiency and comparative advantage, then I think Europe has nothing to fear from increased trade liberalisation and potentially a lot to gain in terms of export potential. The problem with European agriculture in the past is that when there were overt coupled subsidies that built up large surpluses within Europe that were then exported with the aid of export subsidies, that gave Europe a bad name and Europe was seen as inherently uncompetitive. That was an artefact of that phase of the Common Agricultural Policy. In a reformed Common Agricultural Policy, I see no reason why trade liberalisation should not be an opportunity rather than a threat.

Q429 Tom Blenkinsop: I get the Ricardian economics of it. Is there not a huge assumption that there are other global traders and players out there who, at the moment especially, are not willing to be as liberal in world trade? I am thinking of the Russian Federation in relation to wheat and-

Andrew Kuyk: Well I think there certainly are. It is probably invidious to name names, but there are a number of countries who are themselves agricultural suppliers who still have relatively high tariffs against agricultural imports. That indeed is why we as FDF have consistently been pushing hard for a successful conclusion to the Doha Round. We believe that that remains a priority. It is something that has had slightly less political emphasis over the last couple of years, but we see that as something that needs to be pushed alongside reform of the CAP.

Q430 Tom Blenkinsop: I take that, but even in the last six months, would you not say that global trade has actually become more protectionist?

Andrew Kuyk: I think we have seen some export bans and things like that. Again, as a Federation, I think we are slightly worried by the proliferation of smaller, regional trade agreements, because there is a risk that those could lead to greater protectionism. If they are genuinely open, why not globalise them? Why not put them in a WTO context and make them part of the Doha round? If they are being fragmented and segmented off, it is because somebody sees some advantage to doing that and that is probably a protectionist advantage. So inherently we are still strong supporters of a successful conclusion to Doha.

Q431 Neil Parish: It is a good argument, of course, if you are going to suddenly have Russia say, "No trade in wheat," to make sure that we do actually keep a reasonable amount of production ourselves. Because if it carried on across the world-if as soon as there was a problem everybody said, "Right, we are not going to export"-this argument that you can get your food anywhere in the world and your security of food supply-does that worry you?

Andrew Kuyk: What, the practice of-

Neil Parish: Yes, because basically if Argentina does not have enough beef it will stop exporting beef, and if Russia does not have enough wheat for its own people it stops it.

Andrew Kuyk: Absolutely, yes. That does worry us.

Q432 George Eustice: I want to push you on this point about free trade. We talked earlier about organic food, which you then get a market premium for. But in the pig industry, for example, a onesided new law came in and forced certain welfare standards here, then on the other side they were exposed to competition from countries that did not have those same standards. So it is an asymmetric thing, because you have regulation on one side and then you are telling these farmers that the only way they can try to pay for that is to-and quite a few people have said that maybe we should look at reforming the World Trade Organisation so that issues like animal welfare and impacts on the environment can be factors taken into account. We all know that protectionism is a dirty word and that that is why people are reluctant to do that, but the original GATT agreement did include provision for that. Do you think that would be a positive step forward?

Andrew Opie: I am not going to comment on the WTO, but I think there is an opportunity for retailers in this case, but brand owners; if they are serious about the product they are giving to their consumers, then they will apply equivalent standards around the world. In fresh pork, for example, retailers a long time ago had already put specifications that were akin to those in the UK. The UK Government, as you are well aware, went before the rest of Europe-2012 in terms of the ban. So I think there is an opportunity there if you are working with the consumers to do that, which overcomes some of the issues about trying to get it into the WTO. I am not an expert on the WTO, but I would imagine that might be quite difficult to achieve. But I think, as responsible food sellers, you don’t have to wait for those sorts of issues.

Q433 George Eustice: Are you saying that all the Dutch and Danish bacon is produced to exactly the same standards?

Andrew Opie: There are some very, very minor issues around-I forget what it is, but it is either tail docking or teeth trimming or something like that. But those issues around the stalls and tethers, which was the main welfare concern, the specification that the major supermarkets were using some time ago was that they would not take bacon from those production systems because they felt it was unacceptable and also it would impair the UK pig producers at the same time. It was unfair on them and wasn’t giving the consumers what they wanted.

Andrew Kuyk: Could I just comment on the WTO question with regard to the environmental thing? Again, back to the food security debate, which I know I have spoken about rather a lot, but that is because it is rather important. I think there are a lot of, in the jargon, externalities of agriculture and food production that are not internalised and I think the WTO probably does need to start looking at that. But one thing at a time; let us get the Doha Round concluded first. But I think that is probably going to be the next major international trade issue-to make sure that there is a genuine level playing field where countries that are trying very hard to improve sustainability and through environmental regulation to try to prevent some further damage, cannot then lose out to countries that have not enacted similar legislation. I think that is an area that the WTO should look at, and I think we would support that in the longer term.

Q434 George Eustice: You mentioned the problem of bilateral and regional deals outside of the WTO. If the WTO could be reformed in such a way that it was fit for purpose, it would actually make it much easier, wouldn’t it, to progress this?

Andrew Kuyk: We are getting into slightly different territory here. I am not sure that the WTO itself is not fit for purpose; I think what is lacking is the political will to use the mechanisms that are there. I think this proliferation of interim deals is a way of trying to move things forward in the absence of a multilateral deal. So I think the WTO has worked well for a number of years. I think this particular round has got bogged down in a number of ways and needs new political impetus. I don’t think it follows that the mechanism is at fault; I think what is lacking is the political will to get the negotiations brought to a successful conclusion.

Madam Chair, just very briefly, there were a couple of questions that were aimed at the BRC rather than at us where I just wanted to get on record the FDF position. On country of origin, we did also work alongside BRC with DEFRA to get these principles and as a Federation, we do support them and we agree strongly that consumers should not be misled about the origin of food products. The other thing, which again was not specifically addressed to me, but on the code of practice and the Adjudicator, I think Andrew said that the BRC did not oppose the code of practice. We actively supported it and we do believe that there should be an early introduction of the Adjudicator. We think that that would help supply-chain relationships. Thank you, Madam Chair.

Chair: That is very helpful. Thank you both for being so patient and so full in your replies and for being with us this morning. We are very grateful. Thank you very much indeed and I am sure we will continue the dialogue on this and other issues as well.