UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1955 i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Environment, Food and Rural Affairs Committee

Followup evidence session to the Committee's inquiry into the implications of the Welfare of Laying Hens Directive

Wednesday 25 April 2012

Andrea Gavinelli and Bente Bergersen

Terry Jones

Evidence heard in Public Questions 1 70

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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday, 25 April 2012

Members present:

Miss Anne McIntosh (Chair)

Richard Drax

George Eustice

Mrs Mary Glindon

Neil Parish

Ms Margaret Ritchie

Dan Rogerson

Amber Rudd

________________

Examination of Witnesses

Witnesses: Andrea Gavinelli, Head of Animal Welfare Unit, European Commission and Bente Bergersen, European Commission, gave evidence.

Q1 Chair: Welcome to this followup session on the evidence to our inquiry into the Welfare of Laying Hens Directive. May I ask you first of all, Mr Gavinelli, to introduce yourself and your colleague for the record?

Andrea Gavinelli: Yes. Good afternoon. I am Andrea Gavinelli, Head of the Animal Welfare Unit in the Directorate General for Health and Consumers.

Q2 Chair: Excellent. And your colleague?

Andrea Gavinelli: My colleague is Bente Bergersen. She is an official in charge of the file on the Welfare of Laying Hens.

Q3 Chair: Excellent, thank you. We are very grateful to you. May I just explain a little bit of housekeeping? We may have parliamentary votes this afternoon, in which we case we may have to disappear. We will come back as quickly as we can. We will let you know if that is the case. If we proceed now, if we may. Are you hearing us well?

Andrea Gavinelli: We cannot hear you so well now. There was a problem hearing your last statement.

Q4 Chair: We may have to go and vote this afternoon. Did you hear that?

Andrea Gavinelli: Yes.

Chair: We will explain when that time comes. We thank you for your patience and we will come back as quickly as we can. Could I ask, first of all, how many noncompliant eggs are still in circulation since the ban was imposed?

Andrea Gavinelli: If your question is about eggs, this is not a matter we are calculating on the information we receive. The information we receive is about the number of sites and the number of hens that are kept in noncompliance with the EU Directive.

Q5 Chair: Those figures would be very useful, if you have them.

Andrea Gavinelli: The number of hens that are kept in nonconformity is around 48 million, which represents around 14.9% of the total population of hens in the European Union. That is, in fact, estimated as a total of 326 million.

Q6 Chair: Thank you. Are you satisfied that you have accurate and sufficient data from all member states to assess the level of noncompliance with the Directive?

Andrea Gavinelli: We are basing our estimation on the data transmitted by the competent authorities. These data are updated every month on the occasion of the Standing Veterinary Committee meeting. We are satisfied about the cooperation provided by the member states’ authorities. As of today, we are expecting more precise data from two member states that are relevant to EU production, Italy and France. That is why we could say that in one month we will be even more satisfied about the accuracy of the data.

Q7 Chair: What is the penalty for these countries not supplying you with proper information?

Andrea Gavinelli: We do not have a specific penalty in terms of the provision of the information. We have a more general procedure, related to the infringement procedure, where in fact the information that is provided is fundamental for the case that is brought forward for member states. The data are fundamental for the case.

Q8 Chair: Have you received national plans from all noncompliant member states?

Andrea Gavinelli: Yes.

Q9 Chair: Have you accepted those plans?

Andrea Gavinelli: We have accepted all the plans, yes.

Q10 Amber Rudd: In the UK there has been a reported increase in the cost of eggs. Can you tell us if the same has occurred across other member states in the EU?

Andrea Gavinelli: Yes. We have data regarding prices that are calculated by the DirectorateGeneral for Agriculture. The data related to the 27 show a steady increase in the price of eggs until Easter. Now the price is diminishing. In any case, the price of eggs traditionally increases during Easter because the demand for eggs is really high during this period. The current status is that the price in the EU 27 is diminishing.

Q11 Amber Rudd: Are you saying that you think the price rise that we have experienced and, as you say, other member states have experienced is seasonal, so it is just to do with Easter and is now falling?

Andrea Gavinelli: There are two elements in increasing price. One factor is a seasonal increase, but there is also an additional percentage that is probably related to the shortening quantity of eggs available on the market.

Q12 Margaret Ritchie: What actions has the Commission taken to reduce noncompliance? How long do you think it will take to achieve full compliance?

Andrea Gavinelli: As said already, the Commission has limited powers in terms of actions because the implementing role is that of the competent authorities in the member states. In particular, as stated previously, we are in a situation where for the period of transition the Commission had no powers to request the status of implementation in member states, because there is no legal basis for it. As a consequence, we had to wait until 1 January 2012 to start the legal procedure necessary to open the infringement procedures against the member states that were not in compliance. We respected very tight deadlines. On 27 January 2012 we sent letters of formal notice to 13 member states: Belgium, Bulgaria, France, Cyprus, Greece, Hungary, Italy, Latvia, Poland, Portugal, Romania, Spain and the Netherlands. These were in reference to the implementation of these articles of the Directive. All member states have replied to the letter of formal notice with the exception of Italy, which has asked for a one month extension of the deadline. One month is 26 April, for the record. Do you wish to have an update on the analysis of the replies?

Chair: Yes, please.

Andrea Gavinelli: We are in the process of doing that; you have to think of this as an ongoing activity we are going through. Some member states have declared that they will be able to enforce the Directive completely by 31 July 2012 and have been requested to report back on this in the next months. These are: Belgium, Bulgaria, Cyprus, Greece, Hungary, Poland, Portugal, Spain and the Netherlands. Then we have member states that are claiming they are now compliant. They are: France, Latvia and Romania. Italy, as I said, has an extension until 26 April of the period to provide a reply, so we have one day to wait.

Q13 Chair: Thank you. It would be helpful if we could have that in writing, if possible.

Andrea Gavinelli: The request for it could be sent to us. I will record it. Of course, it is not possible in writing today, because the process is ongoing.

Chair: We will certainly do that. Thank you.

Q14 Margaret Ritchie: Are there any direct sanctions the European Commission can place on noncompliant producers? In addition to that, have you received representations from any of those 13 member states requesting that the enforcement of the Directive be relaxed to respond to the shortage of supply and rise in prices?

Andrea Gavinelli: If I understood, there are two questions. Number one. If you are talking about direct sanctions in terms of taking measures that could, for example, prevent the circulation of eggs, it is not legally possible for the EU Commission to impose direct sanctions on member states.

Q15 Chair: Perhaps you could explain why. Surely if you cannot do that, it makes a complete mockery of the Directive that you are trying to implement.

Andrea Gavinelli: There is a misunderstanding of the concept of direct sanction. What I understood you intended by "direct sanction" was Brussels taking measures, for example, to call for the destruction of eggs or not allowing the circulation of certain products.

Q16 Chair: Yes, the products would not be put in circulation, which is what the Directive is calling for.

Andrea Gavinelli: This is not possible from our side, because there is no legal basis allowing the Commission to act directly in this way. It is up to the member states to act on the controls that are performed to take measures to prevent the circulation of illegal eggs.

Q17 Chair: So what you are saying is it would be perfectly legal for the United Kingdom to unilaterally ban the import of these products that should not be in circulation after 1 January. That would be perfectly legal.

Andrea Gavinelli: On the aspects of the Directive on control, it is clear there is an article allowing member states to take measures to prevent the circulation of certain products that are illegally produced if they could cause problems to the enforcement of their own legislation on their own market.

Q18 Chair: Which article is that?

Andrea Gavinelli: Good question. It is in the Directive on control and I shall get it for you later.

Q19 Chair: Yes. It is quite important that we have that.

Andrea Gavinelli: Of course there are specific lawyers that would have to reply to you. This could be done only once it had been demonstrated that the circulation of illegal products was creating problems for the market of a specific member state.

Q20 Chair: But with the greatest of respect, Mr Gavinelli, that is the purpose of the EU Directive.

Andrea Gavinelli: Absolutely. The fact is that this measure is not based on the Welfare of Laying Hens Directive; it is based on the veterinary control Directive.

Q21 Chair: I see. Perhaps while we are talking you could find the reference. That would be immensely helpful.

Andrea Gavinelli: I will ask if a colleague from the unit on controls could join us.

Chair: I think that would be appropriate. Thank you.

Q22 Margaret Ritchie: My second question was about representations that may have been received from member states requesting that enforcement of the Directive be relaxed to respond to the shortage of supply and rise in prices. Have you received any such representations asking for such relaxations?

Andrea Gavinelli: The Commission has received a request from the association of producers and transformers of egg products, to allow the import of egg products from third countries-and in particular egg products that were produced in countries that at this stage are not recognised and allowed to export to the EU-in order to reduce the price of egg products. We are not talking about eggs in shells. In this case, fresh eggs were never requested to be imported.

Q23 Chair: Could we just clarify that these egg products should not be in circulation?

Andrea Gavinelli: The health rules applying to imports today do not allow the import of egg products from many countries in the world, because they are not responding to the health requirements necessary to enter the EU market. As a consequence, the EU industry was trying to find availability in these markets, and these markets are not ready to satisfy these health standards. Therefore, the state is requested to take no further imports, and no followup was done.

Q24 Dan Rogerson: Good afternoon. The Commission has admitted that it has limited resources for detecting noncompliance. Does that mean that the Commission is relying on member states to report their own levels of noncompliance rather than carrying out its own inspections?

Andrea Gavinelli: The Commission is relying on two elements: first, as I said, the member state authority’s declaration; second, the audit of the Food and Veterinary Office. As it was planned, the Food and Veterinary Office started to visit specific member states-I have spoken about the 13-and in particular targeted member states that are declaring to have progressed and achieved compliance. The first member state visited was Ireland. Then, of course, after these states, others will follow, and we will see more declarations of compliance.

Q25 Dan Rogerson: So you receive reports from member states and the Food and Veterinary Office undertakes some checking that the information you are receiving is correct?

Andrea Gavinelli: Exactly.

Q26 Dan Rogerson: Have you taken any steps to increase the powers and the resources of the Food and Veterinary Office since it became apparent that several member states are noncompliant?

Andrea Gavinelli: I am not aware of any particular legal procedure to increase the power of the FVO. Concerning the resources, as you are aware, we have prioritised the welfare of laying hens as an issue for the auditing and we had the opportunity to conduct a mission combined with other issues. But for the moment we do not have any increase in personnel related to this issue.

Q27 Dan Rogerson: What might trigger such a request for an increase in resources from the Commission? At what stage would you think that it might be necessary to increase those resources?

Andrea Gavinelli: The estimation of the resources needed is based on the planning that is made by all the FVO tasks. The planning for 2013 is already ongoing and this will allow us to calculate whether extra resources can be reallocated to the welfare team.

Q28 Richard Drax: Can I ask you about a loophole in the EU egg marketing regulations that means it is not possible to prevent noncompliant eggs from being used for processing? The UK Government is doing what it can to close that loophole. What are you doing to close this loophole? How soon do you think that can be achieved?

Andrea Gavinelli: The question is an issue related to the DirectorateGeneral for Agriculture; it is about commercial use and classification of eggs. When we are discussing it with colleagues, it is clear that this question should be addressed to them, because it is their first priority to take up this measure. From our side, we have not checked with the teams for the initiative. We could pass the question to them if you wish.

Q29 Richard Drax: Just so I am clear, you are talking about it and for the moment that is all you are doing. Is that right?

Andrea Gavinelli: At SANCO level yes, but I am not able to answer for my colleagues in DG Agri. This question is something that I have just now in front of me and I should pass it to my colleagues.

Q30 Richard Drax: I would have thought this was quite a big question that your colleagues might have been asked before, do you think?

Andrea Gavinelli: I would have to ask them. Personally, I have never received this question and being a commercial issue, we in SANCO are not leading on it. As a consequence, we are not informed of the most recent steps. But I repeat I could clarify this with my colleagues.

Q31 Richard Drax: Yes, we would be very grateful if you could ask that question and even more grateful if you could let us know what the answer is.

Andrea Gavinelli: Of course.

Richard Drax: Thank you.

Q32 Chair: Perhaps I can help you, Mr Gavinelli, because our Minister, Jim Paice, told us on 13 December that the UK Government had asked the European Commission-presumably DG Agriculture-to amend those regulations. He then went on to say that this had not happened so far and yet it seems crucial to the ability of the Commission and DG SANCO to influence this Directive that this loophole in the marketing regulations be closed. Would you agree?

Andrea Gavinelli: Yes. Of course it is an important element. We have a clearcut problematic issue of transferability when the eggs are then used for products. As I said before, the different plans that we accepted from the member states are at least avoiding the circulation of illegal eggs even if transformed into products in a second step because of the policy of being transformed in the member state of origin.

Q33 Chair: Have you found that document you were looking for, the compliance Directive? For the record, could you possibly read out the article?

Andrea Gavinelli: Yes. The regulation I am referring to is 882/2004 on official controls performed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules. This regulation, in any case, falls under the responsibility of a specific unit in SANCO and I will be pleased to pass this question directly to them. In any case, I refer to two particular articles: article 54, action in case of noncompliance; and article 55, about sanctions. These articles list the actions that member states are able to take to ensure that they are reining in the situation on noncompliance with the laws in these areas. These actions include: "the restriction or prohibition of the placing on the market, import or export of feed, food or animals" and their monitoring and their recall.

Q34 Chair: Just for the sake of clarity, Mr Gavinelli, would you agree that those articles would prevent noncompliant eggs being circulated for use in processing?

Andrea Gavinelli: Could be used to prevent by the member states?

Chair: Yes.

Andrea Gavinelli: Yes.

Q35 Chair: So the UK can ban processed products from nonshell egg products under those articles.

Andrea Gavinelli: I think in this case I would call on the lawyer expert on this particular regulation, but it is clear that we have measures here that are made for this purpose.

Q36 Chair: It would be enormously helpful to this Committee and to the industry if you could furnish us with a written note to that effect, in those terms. What we are trying to establish, Mr Gavinelli, is that not just shell egg products, but nonshell egg products from noncompliant hens will be excluded. It appears that you have the legislation there that would empower the United Kingdom to exclude these products. We would just like a written paper of two pages saying that.

Andrea Gavinelli: Yes.

Chair: Thank you.

Andrea Gavinelli: This is clearly something that could be done. The only request from my side is to provide this question in writing in a way that I could pass in an appropriate manner to colleagues, because my notes are not sufficient to respond to all your details.

Q37 Chair: I am sure you would wish to run it past the jurist linguistes as well. Can I also ask you, please, what is the relationship between DG SANCO and DG Agriculture in relation to the Directive?

Andrea Gavinelli: In relation to the Directive in terms of enforcement?

Q38 Chair: Enforcement. But you also referred earlier to the competence and said in response to a question, I believe from Mr Drax, that DG Agriculture was dealing with it. Which is the lead Department on this?

Andrea Gavinelli: Could you give me one second? Two colleagues from the unit on control are with us.

Chair: Yes, not a problem.

Andrea Gavinelli: Sorry for the break. I just informed my colleagues in the competent unit that they will receive a question from you and to prepare the answer.

Chair: Okay. We will take it exactly as I put it on the record and we will send that to you in writing. We are very grateful.

Q39 Neil Parish: Good afternoon, Mr Gavinelli. It is Neil Parish here; we know each other. I understand that Italy has not yet replied to you. Italy uses a lot of its eggs for pasta. How long will the Commission ignore Italy and allow them to trade amongst themselves within Italy with noncompliant eggs? I can understand the Commission wanting to stop exports in the first instance, but how long is the European Commission going to allow member states to trade their noncompliant eggs within their own member state?

Andrea Gavinelli: Hello. It is a pleasure to see you again. The fact is the Commission is not ignoring any one of the member states that are not in compliance. On the contrary, as I said, we have a letter of formal notice that has to be replied to and any reply that is given will be followed up with appropriate legal action by the Commission. There are no facts that will be ignored. On the contrary, each month over the deadline is aggravating the penalty that Italy will have to pay back to the EU. What is important to understand is even if Italy declares it is in compliance, this would simply put the FVO in a condition to go there and audit whether this corresponds to the reality. There is no ignorance of any facts.

Q40 Neil Parish: But do you have a time limit on how long a member state will be able to trade noncompliant eggs in its own country?

Andrea Gavinelli: The time limit has already gone. What is ongoing is in fact illegal. That is why a formal infringement procedure is ongoing. There is no acceptance of this.

Neil Parish: Okay. I will be interested to see how it works out.

Q41 George Eustice: How confident are you are that the infringement procedure or the infraction process in itself will get those member states that are not compliant to comply? Are you confident that the simple infraction procedure will succeed in achieving that?

Andrea Gavinelli: This is quite a complex question. As you know, on animal welfare-not only laying hens-the infringement proceedings are doing part of the work to ensure the implementation of these rules. We have other instruments. In particular concerning laying hens, we have used our resources to inform the citizens on the state of play of the situation. In this way, we have increased the pressure in terms of the marketing demand. Our legal resource is not the only resource to deal with infringement.

Q42 George Eustice: You mean you are informing the public in the countries that are not compliant that they are not compliant? Is that what you are saying?

Andrea Gavinelli: Exactly. What we have done until now is to keep the citizens informed as to the state of play of the situation and what is going on in each country. That is why the names of the member states that were not in compliance on 1 January were disclosed immediately to the public. Our action in relation to consumer awareness has started. We have used all the media channels we have available to keep consumers informed of the evolution of the situation.

Q43 George Eustice: Is there any evidence that there is public pressure on those governments that are not compliant?

Andrea Gavinelli: There is evidence. This is based on the number of letters and petitions calling for severe implementation of the rules that have been addressed to member states, particularly in countries where we have seen a number of important noncompliances.

Q44 George Eustice: I know you said earlier that you did not think it was legally possible for the European Commission to implement an intraEU trade ban for noncompliance. Is that the final position or is it something that the Commission might reconsider if all other measures fail?

Andrea Gavinelli: The problem with intracommunity measures to forbid the trade of eggs or egg products is that they have never found a similar legal issue in the area. This is the first welfare situation in which we have had to examine this legal possibility. In the regulation on control I mentioned before, there is a precise article on safeguard measures. This article has never been used in terms of animal welfare. This is article 56. As it has never been used, nor challenged legally speaking, it is very difficult for me to have the final word on whether it is legally feasible to use it or not.

Q45 Mary Glindon: In order to avoid a repeat of the chaos that has occurred with the Welfare of Laying Hens Directive, how will the Commission alter its approach to the ban on sow stalls due to come into force in January next year?

Andrea Gavinelli: The situation in relation to the market and the enforcement of the pig welfare Directive is different from the one on eggs. In a sense, there are no market measures that allow us to ban trade in pig meat or animals derived from farms where there is noncompliance with the Directive. As you are probably aware, there are no labels and no systems applicable to the meat or the animals that identify the system of production and their origin. That is in terms of welfare. Regarding the state of implementation, we will discuss the update about implementation and, if necessary, which measures will be taken in the Agriculture Council in Luxembourg tomorrow.

Q46 Chair: Mr Gavinelli, do you think there are lessons to be learned from the EU Welfare of Laying Hens Directive? Do you think it has gone as smoothly as you might have hoped?

Andrea Gavinelli: That is a nice question, especially for someone who was there on the night the Directive was voted on by the ministers in 1999. I have to say that we have a lot of lessons to learn, which are not only related to the implementation of welfare legislation per se. The first one is clear cut and has been stated by our Commissioner. We have an important role in the legislation when such long transitional periods are defined. It is a problem when you are thinking about implementing something in 12 years, and in that 12year frame nothing is happening and no legal possibility is offered to the Commission to monitor the state or advancement of the enforcement so we have to wait for day one of its entry into force to start to make things serious. This is the first lesson, in my opinion.

Another lesson learned is that the understanding of the legislation and the technology that is needed for proper enforcement, the knowledge of the farmer and so on have to be strongly considered. The legislation per se, introducing a ban, should also introduce elements that formalise the application of the new technology, like training tools for the farmer, promotion of innovation in terms of the process to produce the new equipment and so on. Those are the two main lessons, in my opinion.

Q47 Chair: Finally, looking at the next round of the World Trade Organisation talks, does the Commission or your Directorate have a view on this being extended to animal health and animal welfare provisions?

Andrea Gavinelli: I am not really able to answer precisely on animal health. Concerning animal welfare, we have a scenario at the European level that is encouraging keeping the EU’s profile in a very high and very demanding position in this area. This is what we are doing in terms of the bilateral at this stage.

Chair: Thank you. On behalf of the Committee, can we thank you, Mr Gavinelli and Bente Bergesen, for being with us this afternoon and for contributing to our inquiry? We shall send you the text of the question and we look forward to maintaining contact with you both. Thank you very much indeed for participating and goodbye.

Andrea Gavinelli: Thank you very much. Good afternoon.

Examination of Witness

Witness: Terry Jones, Communications Director, Food and Drink Federation, gave evidence.

Q48 Chair: May I welcome you, Terry Jones? Thank you very much indeed for joining us for our follow-up inquiry. Just for the record, could you introduce yourself and give your position?

Terry Jones: Thank you, Chair. My name is Terry Jones; I am Director of Communications with the Food and Drink Federation, which is the body that represents UK food and drink manufacturers.

Q49 Chair: We are very grateful to you for being here. As I explained before, do forgive us if we are interrupted by the vote; we will come back as quickly as we can. Just to establish on the record you, as a federation, employ a good many people-400,000-and it is a large part of the UK’s total manufacturing sector. Presumably, you would wish to support UK producers.

Terry Jones: Yes, and indeed we do. We currently purchase twothirds of British agricultural production. UK agriculture is a very important partner for UK food manufacturing. I think it is probably a symbiotic relationship. We are the downstream infrastructure from UK agriculture. We take those products, we add value to them, we get them to retailers and to food service operators and to the consumer. It is a very, very important relationship and, turning to this particular sector, indeed, many UK food manufacturers have relationships with egg producers and egg processors.

Q50 Chair: So you would not wish to import noncompliant eggs or your members would not seek to import noncompliant eggs.

Terry Jones: We would not, and we were clear very early on in the life of the work and in the discussions with Defra that we would rather not import noncompliant eggs. However, we do also need to keep the lights on in factories and we need to keep production lines going. We need to keep staff on. We need to satisfy customers and we need to keep shelves filled with much loved British brands. So we have a number of things that we need to do, but of course we want to do everything that we can to support British farms and we want to support the implementation of the Directive.

Q51 Chair: What assessment have you made of Defra’s handling of the Directive in this country since 1 January?

Terry Jones: We have been able to contrast Defra’s conduct since 1 January with the Commission’s. When the industry-because of course that is perhaps what we are interested in-has had problems of supply, then Defra’s door has been open and the Minister has been keen to understand the issues that have arisen following the introduction of the Directive. By contrast, the Commission have perhaps, in the first instance, struggled to see where the problem was, have used the eyewatering price rises as merely an indication that the Directive was working and have been rather slower to react. I can only really compare and contrast those two, but certainly the conversations we have had with our own UK Department have been helpful and understanding. Their position is very, very clear: only compliant eggs should be coming in to the United Kingdom, either table eggs or indeed egg products for processing.

Q52 Chair: What is your assessment of just what you alluded to there, the increase in the cost of cageproduced eggs and egg products?

Terry Jones: It was interesting to hear Mr Gavinelli talk about the prevailing situation. If we look at the run-up to Easter, it is true that the market was short of eggs. It is true that Easter is a peak period of consumption of all eggs and egg products, but it is also clear that the introduction of the legislation caused a much bigger dent in EU production than I think anyone could have predicted. There were estimates that 20 million birds would come out of the system and we actually saw 50 million birds come out of the production system, so in a sense we saw a perfect storm of increased demand but with much reduced supply. It has been mentioned by one or two members of FDF that we may have even seen some speculation in the market, although evidence is difficult to come by. Clearly prices were rising almost day by day and some of the rises we have seen cannot simply be explained away by those supply and demand figures. Some of them moved at such a pace and in such a way that it would tend to suggest that there may have been other forces at work.

Reflecting on what Mr Gavinelli said about the situation from here on in-where he told us that there were 48 million birds still in noncompliant systems and that that represented 15% of EU production-there is considerable uncertainty then around how long this problem could persist. Indeed, when you talk to people within the egg industry there is even a feeling that that could be on the low side and that the numbers of birds in noncompliant systems could be as high as 70 million, which is roughly 20% of the EU flock. So, while we have seen some easing of prices postEaster, there is the concern that as the compliance is ratcheted up across Europe, and as we see noncompliant hens taken out of the system, postJune we could see prices rise again as we put a large dent in the EU flock, with seemingly no replacement birds on stream. Of course, if there is no compliant infrastructure for those new chick placements, then we would appear to have a longer-term supply problem in the offing.

Q53 Chair: Would you not also accept that the cost of feed for the birds and fuel costs have had a massive impact? I regularly meet producers and they leave me in no doubt-particularly in my own area, we have the record: the highest cost of fuel in the country. Surely that is having an impact?

Terry Jones: I have no doubt, but not to the extent that we should have seen prices for these products double. Of course, we have been collecting evidence since February on this and so you get a moving picture, but from 1 January the figures from members show that we have encountered price rises on egg products of anywhere between 70% in the early days to 225% at its worst.

Q54 Amber Rudd: We just heard from Mr Gavinelli that his view was the price rises had now started to come down; I think "diminished" was the word he used. Do you agree with that, because you seem to be suggesting that you are rather more anxious about a continued rise than recognising that there is any falling off?

Terry Jones: I think the timing of Mr Gavinelli’s appearance is fortuitous because we have seen a drop, but if you look at the numbers of birds that have still to come out of the system, if compliance is as we think it should be across the European Union, I think we will see prices rise as those noncompliant birds are taken out of the system. To pick up on Mr Parish’s point earlier, we have noncompliant eggs circulating in the Italian market. Clearly, if we saw full compliance within Italy then that country would need to bring in eggs from elsewhere in the community or beyond to satisfy that demand. The call on compliant eggs clearly is going to be much greater from June or July, depending on when the rest of the European Union approaches full compliance.

Q55 Chair: Did Mr Gavinelli not indicate that this was cyclical, as you yourself indicated?

Terry Jones: Yes. Certainly from a manufacturing point of view and, indeed, it is probably mirrored in the table egg market, there are two peaks of demand: at Easter and at Christmas. Certainly when we get later into the early summer my members will turn their attention to their Christmas production runs, so there is a seasonal element to this and we expect prices to rise at certain times of the year. What I am saying is that those price rises will be further aggravated by the constriction in supply that is a direct consequence of the implementation of the Directive.

Q56 Neil Parish: We have been talking about the shortfall in supply and I want to ask a question about which products are being most seriously affected. But could I throw a certain cricket ball at you and say to you that perhaps percentage increases in prices for liquid egg and powder egg could be quite confusing inasmuch as they start at a very low level in the first place. They are very much at the low end of the market, and so therefore could I say to you that perhaps the processing industry has been buying its egg far too cheaply in the past and they might have to get used to paying a bit more for it? Surely it makes a difference as to how much of a product is the egg content. I am bowling you lots of balls there, but I would be interested to see what you have to say there.

Terry Jones: Thank you. It is true to say that prices were depressed last year. We saw large numbers-and there are people much better qualified to talk about this, Mr Parish, including the BEIC and the NFU-of chick placements through 2010 and 2011. We saw a glut in the market, and it is true to say that prices were at lower levels than we had been used to. I should also say that, understanding how the system would change and how costs for compliant producers would rise, manufacturers expected prices to increase. However, this was a surprise for everybody, including the egg industry. We have seen the Commission talk about a drop in EU production of 2.5% and we have just heard in Mr Gavinelli’s evidence that 15% of the flock is still noncompliant. If I am right, then it is 20% that is noncompliant and we have already seen 50 million birds culled from the system, so I cannot believe that all of those percentages can even possibly equate to just a 2.5% reduction in egg production. While on the one hand I am talking about numbers of birds whereas the 2.5% figure relates to egg production, clearly there is a mismatch there.

To your second point around inclusion rates, you are right; it is a very, very varied picture and it is difficult to collect data in this area because of the variety of products used. There is a big reliance on dried egg, there is a big reliance on frozen yolk in ice cream production and there is a big reliance on liquid egg as well. Certain categories will be more affected than others. So, say, a cake manufacturer may be looking at inclusion rates of 15% or 20% of egg; ice cream manufacturers could be looking at as much as 50%. Of course, the market for egg products and where those eggs are produced is again not a consistent picture. If I were to reflect on one of our largest members, his use of eggs is split between two main product types and two main sources. About 50% of the tonnage he would buy in-and I may get this wrong-dried form from the UK and the other 50% would be in liquid form from the Dutch market, I believe. So, intracommunity trade of egg products is incredibly important because different countries specialise in different products and then, when you get into the categories, of course, different manufacturers have different usage rates. I hope that has at least answered some of your points earlier.

Q57 Margaret Ritchie: Do you agree with the National Farmers Union and the British Egg Industry Council that market forces should be allowed to operate, despite the impact that high prices are having on the manufacturing sector?

Terry Jones: I reflect that it is a difficult question to answer when the market is already subject to a great deal of interference. When we have a market where until very recently-until only this week-we have had export refunds to incentivise the export of eggs, when we have seen political interference in intracommunity trade of eggs with the national plans, and when we have reported difficulties from those who would like to import from third countries that they are struggling with getting the required certificates to bring eggs in, clearly this is already a market that is subject to a great deal of interference.

So, to answer your question directly, yes, it should be a market that is left to its market forces, but I think that we all have a role to play in making that market function properly and well and, from the manufacturers’ point of view, we need to keep the lights on in those factories. We need to keep those production lines going because if we do not, when we get back into some sort of equilibrium of supply, the very downstream infrastructure that I referred to earlier that takes eggs and egg products from British farmers will not be there as a customer in the future. So there is a longer game to be played here and I think just to look at this through the free market lens is a difficult thing to do.

Q58 George Eustice: I just want to press you on this point, because in your body language you say you support this Directive and want to see it implemented, but then you say, "But we need to keep the lights on in the factory and egg prices are a big problem". You give the impression that you would probably sooner this was not brought in because, in your view, the Directive is having too big an impact on prices. Would that be a fair summary?

Terry Jones: If that were the case, Mr Eustice, we would not have seen food manufacturers sign up to the Defra work. I perhaps have not painted a severe enough picture of the difficulties that manufacturers have faced. This is not just a price issue. We have seen contracted deliveries shorted. We have seen contracts, in effect, not being worth the paper that they were written on. I am sure there will be one or two who would reflect that, as manufacturers, we perhaps should have seen this coming and that we should have put in place contract arrangements. Well, a lot of those contract arrangements were put in place and, as I said, in some cases they do not appear to have been worth the paper that they were written on. We have seen shortage of contracted deliveries and we have seen massive increases go on to previously agreed prices and only last week we saw added surcharges go on to manufacturers’ egg supply prices. So it is still a very uncertain situation, and this is not merely a price issue; this is an availability issue.

Q59 Amber Rudd: Are you confident that Defra’s surveillance regime has been effective in preventing the illegal importation of noncompliant eggs?

Terry Jones: The first thing for me to say is that the work on food fraud and authenticity is incredibly important. It is a vital piece of work. It is something that we feel very passionately about, so therefore we fully support the work. As a large downstream user, when the egg arrives in a state that you and I perhaps would not recognise because it is in a container or it is in a blown wagon or however it arrives, it is difficult to see its relevance at that stage of the process. If you were to talk to manufacturers, I think they would put greater value on the traceability systems that they have in place, having specced the type of product that they require from their supplier and then being provided with a series of batch numbers that they would then be able to trace back through the system. That is a more useful and powerful tool for manufacturers. However, to go back to my earlier reference, this is incredibly important work. I think it gives the Department a very clear view of how the Directive is working, but also on the effectiveness of the national plans and everything else that we have seen come into force since 1 January. I suppose it is not directly relevant to my members.

Q60 George Eustice: On the egg marketing regulations that we talked about and this loophole that enabled noncompliant eggs still to be marketed for processing, would you favour closing that to prevent that happening?

Terry Jones: For one thing, I am not sure that it is happening and my understanding would be that the gentlemen’s agreement that now exists within the European Union is preventing the movement of noncompliant eggs within the community in whatever form. So it is difficult for me to comment on something that would be designed to deal with a problem that I do not necessarily see is there.

Q61 George Eustice: If it is not there, you presumably would not object to that being closed.

Terry Jones: No, it seems like a commonsense measure to me when clearly the enforcement of the Directive is of paramount importance. I should also say that that is a matter for the Commission and the Government. I do not expect any sympathy from the Committee, but at times it has felt like we have been innocent bystanders caught in this particular crossfire. We are in the business of getting on and getting great products on to shelves to consumers. We just want to make sure that we have a good, legally compliant source of eggs that we can easily access at reasonable prices. The technicalities of how the legislation is enforced are really a matter for both of those bodies.

Q62 George Eustice: There is a bit of an issue though, is there not, because free range eggs are the most successful consumerdriven animal welfare initiative by a country mile? They dominate the market in shell eggs. But when it comes to products like mayonnaise a lot of people just would not even associate them with eggs anyway, so they do not think so much, which is why there is a greater requirement on the industry to be the gatekeeper in terms of-

Terry Jones: A number of brand owners have taken the decision only to use free range eggs, recognising the consumer will to consume free range eggs not just in shelled form but in the sandwich they buy at lunch time and in the Yorkshire pudding that they might buy to put with their roast beef on the weekend. Recognising consumer demand, a number of brands have already taken that decision.

Q63 Chair: Did you find Mr Gavinelli’s evidence quite compelling on the fact that there is an article that would prevent processed egg products from being imported?

Terry Jones: I would be interested to see Mr Gavinelli and DG SANCO’s written response to the Committee.

Neil Parish: Yes, so would I.

Terry Jones: That would make very interesting reading, Chair.

Q64 Richard Drax: Mr Jones, the British Egg Industry Council has noted that food producers were fully aware of all the Directives coming into force, as did the NFU. The NFU suggests that manufacturers and processers could have done more, perhaps, to prepare themselves for the implementation of this Directive. Do you agree with that?

Terry Jones: No, I do not, inasmuch as if any of us were to go to Oxford Street this afternoon and buy a product in one of the many shops there, we would expect it to be legally compliant. We have rules that govern every aspect of our lives as consumers and as businesses and this is a matter for Government at every level.

I would go on to say that it was difficult to anticipate when we were not getting accurate information about the levels of noncompliance within the EU. To go back to my earlier conversation about the estimate of 2.5% reduction in egg production, if we based all of our decisions on those figures then clearly they are not accurate.

There is a third point-and I apologise for repeating myself-which is that even those businesses that did recognise that this would be a problem, even those businesses that did contract with prices, with tonnages, have found in many, many instances that those contracts were not worth the paper they were written on and have then been faced with unilateral price increases. That is a very roundabout way of answering the question, Mr Drax, but I think even where we anticipated we were badly let down.

Q65 Richard Drax: Finally and very, very briefly, I would just be interested to know: do you ever think that all the EU members will ever reach full implementation, realistically?

Terry Jones: Across the European Union?

Q66 Richard Drax: Yes. Do you think it will ever, ever happen, realistically?

Terry Jones: I suppose my previous nine years with the National Farmers Union before joining the FDF would tend to suggest that it is unlikely. However, there appears to be a greater will behind getting this Directive implemented and driving through change than perhaps I have seen in any other case. Of course, animal welfare is an emotive issue and I also think that this is almost a watershed moment for the Commission and that this is a very important piece of enforcement to get right. So I think it stands a much better chance than anything else that I have seen come out of the Commission in my 10 years of working in Westminster and beyond.

Q67 Chair: Do you fear for the implications for pig meat-pork-with the introduction of the sow stall ban?

Terry Jones: There is this continued mantra of, "We are unable to do anything until we get past the date". Mr Gavinelli referred to it in his lessons learned, at the end. It would be useful to be able to take action in the run up to implementation. I think it is probably fair to say that within the Food and Drink Federation the numbers of members buying pork and pork products would be quite low. But certainly when you talk to colleagues through the supply chain there is a feeling that we could be about to have a rerun on pork and that we should be trying to find every possible way to get a managed transition ahead of the introduction of the legislation rather than waiting until after its introduction.

Certainly from a user’s point of view, the sudden shocks to the market that we have seen since January make it very, very difficult to plan and I believe they have significant impacts on the egg industry in the longer term, because businesses reformulate. I am not just talking about manufacturing; I am talking about menus and I am talking about the way in which retail shelves are stocked. When you see these sorts of price rises coming through there are any number of coping strategies. One of them is reformulation. One of them is reducing your reliance on egg in the mix of what you do and there are other things that you could do as well. So if we can avoid those sudden shocks to the market then I think we should do everything we can to do so.

Q68 Neil Parish: Thank you to the Food and Drink Federation for entering into this gentleman’s agreement to stop this lower welfare egg into the country. Turning the question on its head, do you feel that this price increase for liquid and powder egg is putting more pressure on your members to possibly take some of this egg?

Terry Jones: No, because those businesses that have made that commitment will do everything they can to source compliant egg. I think, though, that there are more wideranging difficulties. There is just a basic supply-and-demand problem that we need to sort and so, if you look around the EU more generally, I think we need to do something to ease that supply. It would appear there is little appetite to relax the national plans and for noncompliant egg to move around the European Union and quite right too, but in that case we need to get product from somewhere. We therefore need to look very carefully at third country imports. The numbers around the eggs coming in from the US in the first two months would tend to suggest that that is already happening in quite large quantities, so that, I think, is the solution to the problem that you outlined at the start of your question.

Q69 Neil Parish: The demand perhaps will lead more production in this country, because do not forget that there can be quite a fast turnaround in egg production.

Terry Jones: It can be for free range, but I do not believe that it is a particularly quick turnaround for the new colony systems: you have to build these. I understand we have a million new birds coming into the colony system in the UK very soon, but that is a drop in the ocean compared to the 49 million or 70 million deficit that we will face later in the summer.

Q70 Chair: Just to tease out a little bit what you said in response to Margaret Ritchie and subsequently, how can we avoid the short, sharp shock and what representations are you making now about both the Welfare of Laying Hens Directive and the sow stall tether ban Directive to avoid this?

Terry Jones: We are in informationgathering mode at the moment to see what the exposure would be. In relation to eggs, we have made representations to Defra and asked that the Department make every effort to facilitate the import of eggs from third countries, either in shell egg form to go to breakers or liquid egg, so that manufacturers are kept supplied with raw material.

Chair: Can I thank you on behalf of the whole Committee for being with us and for contributing to the next stage? I am sure we will keep the lines of communication open. Thank you very much indeed.

Terry Jones: Thank you very much.

Prepared 1st May 2012