Examination of Witnesses (Questions 120 - 139)
MONDAY 16 FEBRUARY 1998
MR WIN
GRIFFITHS, MP, MR
HUW BRODIE,
MRS ALISON
JACKSON and MR
JASPER ROBERTS
120. But those increased costs are being taken by the farmer
and it seems, therefore, that the supermarkets are just plodding
on and it is the farmer that is actually taking the brunt of the
whole situation and not the supermarkets in any sense?
(Mr Griffiths) Certainly. I think this is a general
difficulty among all primary producers. Across the whole world
primary producers have these sorts of difficulties. Huw, I do
not know if you want to say anything else?
(Mr Brodie) Mr Jones, our evidence on this really
comes from the analysis that the Meat and Livestock Commission
has carried out and I believe you have had a detailed memorandum
from them. What their analysis seems to show is that the supermarkets
have actually protected their margins and it follows, therefore,
that the extra costs that the Minister has referred to in the
beef supply chain, as you say, the burden of adjustment has been
put back on the farmer. There is no great evidence from their
analysis that the supermarkets have actually increased their profits,
but there are these genuine additional costs coming into the system.
121. I find that quite surprising, if I may comment, because
I did some research on the net profits before taxation and found
that two of the supermarkets had actually trebled over the last
five years. But may I ask a question which I was going to ask
later and which follows on from that. You mentioned earlier the
role of the Office of Fair Trading in maintaining competition.
Can you tell us when the Office of Fair Trading last conducted
a study of supermarkets and meat retailing?
(Mr Griffiths) I think they have looked at this issue
in the last couple of years and I think what they have said is
that they believe that, even though, as Richard pointed out, one
supermarket can take over another one, and there was one not that
long ago, if I remember rightly—I cannot remember which
ones were involved now, Kwik Save and someone else, so these things
happen—in fact, the competition between the likes of Tesco
and Sainsbury's was such that it was still generally a healthy
position, where they were not making excessive profits. There
was an interesting point you made there about how some supermarket
groups have increased their profits quite significantly. Of course,
that may not be because of what they are doing in the meat sector.
It may be because of their overall performance, and again obviously
this is something, I guess, the Office of Fair Trading have looked
at. It was only a year or two ago when Tesco themselves were looking
a bit groggy and we know now they made a comeback a couple of
years ago. It was Sainsbury's riding high in the market and they
are looking at ways of improving their market share now. So the
overall evidence is that the competition between supermarkets
is fairly strong and whatever their overall levels of profitability
may be, there is not any evidence so far to be seen that it is
because of making lots of money on meat products.
122. But would you not agree with me, Minister, that if this
trend as outlined in paragraph 3 continues—and the lamb
figures I noticed increased from 36.6 per cent in 1996 to 51.9
per cent in 1997—in the face of that over such a short period
there is every reason why the Office of Fair Trading should look
at this as a matter of urgency?
(Mr Griffiths) Certainly if that continued to happen
I believe there would be a case for looking at it. I do not know
if Huw can add anything about the vagaries of this market.
(Mr Brodie) Can I make it clear that what I was saying
a few minutes ago referred to the beef side, where BSE has already,
as the Minister has explained, led to a number of extra costs
in the chain. On the lamb side, to be honest with you, when we
look at the MLC analysis we find it harder to understand precisely
what is going on and I think there are questions that you may
wish to ask of the MLC and others in that area.
Mrs Williams
123. But the present figures indicate that the Office of
Fair Trading should be starting to look at this position now and
not later, because the figures we have in front of us would lead
me to think that it needs to be looked at now.
(Mr Griffiths) Certainly, as Huw pointed out, the
lamb figures are more difficult to interpret as compared with
the figures for beef, and certainly there is a need to look at
exactly what has happened here and whether there is a case for
looking in more detail. It is something we can get the Meat and
Livestock Commission to do in the first place, to say: "What
is the basis for the analysis you have done? Are you concerned?"
and certainly if there is a concern that is not properly explained,
then the Office of Fair Trading perhaps could be asked to look
at the lamb market in particular.
Ms Morgan
124. Have you any idea at all of the price spread for beef
and lamb produced in Wales?
(Mr Griffiths) Unfortunately, we do not because the
figures are not produced on a regional basis.
125. Do you not think it would have been important to monitor
the situation that you did have these figures?
(Mr Griffiths) I think one of the difficulties we
have here is because Welsh beef and lamb is not contained within
a market in Wales but goes all over the place, and I would guess—perhaps
Huw or Alison might like to come in on this—that the picture
in Wales is not so different from the figures which are produced
for the United Kingdom as a whole, but I must admit I have not
seen any figures which could lead us to any other conclusion.
(Mr Brodie) I certainly think that the United Kingdom
figures are the ones that are going to be very important for the
Welsh livestock industry, given that such a high proportion of
our livestock is slaughtered outside Wales for a start as well
as ultimately ending up in the United Kingdom market and so on.
Mrs Williams
126. I am interested in the butchery sector as well. What
do we know about the Welsh butchery sector? Has this been declining,
and if so, could you tell us by how much?
(Mr Griffiths) It undoubtedly has been declining.
I do not know if Jasper or Huw has any specific figures.
127. Do we know the regional figures for these?
(Mr Roberts) We have no evidence on trends. There
is a large independent retail butchery sector in Wales, some 7-800
outlets which we have identified in the context of the beef labelling
scheme, quite apart from the in-store butchery facilities which
exist in the major retail stores now, but we have no data on trends.
(Mr Griffiths) Could I say, and this is totally anecdotal
and relates to my own shopping experience, that butcher's shops
have closed. I can think in Bridgend of one quite large butcher's
shop which closed recently. I can think of smaller communities
where butcher's shops have closed in the last few years. So I
think for the individual butcher, whether it is a family business
or it is part of a chain, there still have been closures. If I
could mention Dewhurst as an example of a chain of butchers, I
do not have the figures but I am quite sure that if you got the
figures for the Dewhurst chain, say, in 1990 and the Dewhurst
chain today, there would be a reduction in the number of shops
that they have, Bridgend being one of the places where one of
their shops closed.
128. Have we found something? It seems as if there is some
movement to your left?
(Mr Roberts) We have trends in GB household meat purchasing
but not in the number of actual butchery outlets. It does indicate
that in the ten years up to 1994 the quantities sold in the independent
butchery sector have declined. These are MLC estimates and are
contained in a December 1995 MLC report.
129. Does it say by how much?
(Mr Roberts) Yes. In beef, for example, 59.3 per cent.
down to 31.2 per cent. by volume. In sheep meat the change is
not so noticeable, from 57.7 down to 40.1.
130. But the MLC estimates that you have just quoted were
December 1995, did you say?
(Mr Roberts) Yes, referring to the ten-year period
up to 1994.
Chairman
131. Arising out of what Mr Brodie said in answer to the
question before last, given that what you say is true, Mr Brodie,
that a lot of Welsh livestock is slaughtered outside Wales and
we have an over-capacity of slaughterhouses, am I right in thinking,
within Wales, what is the Welsh Office doing to encourage slaughtering
within Wales, which is obviously going to have a beneficial knock-on
effect on the agricultural community within Wales?
(Mr Griffiths) I will start off and then I may hand
over. First of all, one of the difficulties is that in Wales as
a whole we still have an over-capacity in our slaughterhouses.
It is reckoned that for cattle it is about 52 per cent and for
sheep, 83 per cent, so there is this over-capacity. We are trying
again to promote through our meetings with farmers, etc. the use
of Welsh slaughterhouses and also to try and develop a food processing
industry in Wales. Obviously the food processing industry will
not come very quickly, but we do want to develop this and I do
not know whether this is an appropriate point to mention the proposals
of St Merryn to develop a plant just outside Merthyr, which currently
is a facility specifically designated for Tesco and obviously
would be taking meat from both within Wales and outside Wales
to meet Tesco's demands, but they also have plans for a slaughter
facility there. I do not know, Huw, if there is anything more
that can be said about that. Do we know anything of the timescale
they are operating to?
(Mr Brodie) I am not sure I do offhand, but if I can
comment generally, obviously as part of the general food strategy
we are very keen to see a greater amount of value being added
to Welsh agricultural products within Wales, and so one of the
things we want to look at very hard is the question of adding
value to meat within Wales. Having said that, of course, it is
important to bear in mind that those farmers who live on the Welsh
side of the border but very close to the border may always wish
to send their livestock to the nearest slaughterhouse, which may
be on the English side of the border, but already there are a
number of instances where we have used our marketing and processing
grants to support a number of initiatives within Wales, and again
we want to look to continue that. One general point, of course,
is that, as we have said, the margins within the slaughtering
sector are very thin. It would seem to be very difficult to imagine
fresh slaughtering facilities actually being set up in terms of
the economics. What I think many people suggest to us would actually
be more viable would be for there to be investment in combined
small-scale slaughtering and then integrated cutting and processing,
where the overall economics of that would be much more viable,
and that, of course, is one thing that we will want to be looking
to develop.
Mr Livsey
132. Following up on that, obviously the Irish, for example,
have been very successful in integrated slaughtering and meat-packing
plants. Do you have any figures as to what proportion of the output
of the Welsh livestock industry in terms of beef and lamb is actually
slaughtered outside Wales?
(Mr Brodie) I think from memory that roughly a quarter
of Welsh cattle are slaughtered within Wales and approximately
65 per cent. of Welsh sheep are slaughtered within Wales.
133. So over-capacity can be described as rather a bit of
a phantom really?
(Mr Brodie) I would not agree with that at all. The
concept of over-capacity needs a lot of explanation. Perhaps I
can take you through it. We had a report done by the MLC for the
Welsh Office roughly two years ago, which was published and which
you are very welcome to have a copy of. That distinguished two
concepts of over-capacity. The first basic concept is simply reflecting
the fact that a lot of the facilities in slaughterhouses are not
used to the full all the time and that is in a sense a basic over-capacity
and that obviously to some extent is inevitable given that the
flow of Welsh livestock into the slaughterhouses is highly seasonal
and, as the Minister said, if you analyse the peak weekly kill
and project that forward to a year compared with the average weekly
kill, they you get the figures the Minister mentioned of roughly
52 per cent over-capacity on cattle and 83 per cent on sheep.
But the report suggested very strongly that not all of the excess,
unused capacity was actually due to the seasonality at all because
it also asked abattoirs what their optimum capacity would be,
what volume they would really like to be operating at, and that
showed that they wanted really to be running at much higher levels
of volume than their peak weekly kills projected forward. So that
projected a further over-capacity of round about 60 per cent for
cattle and 24 per cent for sheep. When you say this is over-capacity,
that is not to imply that it is necessarily an object of policy
to reduce it in the sense of actually reducing the facilities.
The objective obviously is to get the facilities being used because
if you have overheads that are not actually working, then that
is a cost on the industry in Wales to that extent. So one or two
plants there have closed over the last couple of years since the
report was done but the basic picture it paints is, to our knowledge,
still essentially sound.
134. Mr Chairman, without engaging in a dialogue with Mr
Brodie, I would like to say that basically if you were able to
capture more of that market for slaughtering and packaging in
Wales that is going outside Wales, you would create a bigger market,
bigger value, more jobs, a better return for Welsh agriculture?
(Mr Griffiths) Yes. Obviously that is something which
the Welsh Office is intent on doing. We want to try to make sure
more of our cattle and sheep and lambs are slaughtered in Wales
and then more of the cutting takes place in Wales and also, where
possible, actual food processing. This is one of the reasons why
we are very keen to see Welsh Food Promotions playing a stronger
role, but, of course, particularly for farmers along the border
where there is a slaughterhouse closer to them on the English
side of the border, we cannot expect them to send their livestock
on longer journeys across Wales, but certainly the evidence would
suggest that some livestock is being sent out of Wales, if not
exactly passing Welsh slaughterhouse facilities, certainly undertaking
longer journeys than would be necessary if they used Welsh slaughterhouses.
Mr Caton
135. Minister, you say in paragraph 6 of your memorandum
that: "A substantial element in the final price of food to
the consumer is accounted for by processing, distribution and
marketing costs." Do you have any evidence of the relative
mark-ups of each of these elements in relation to Welsh farm produce?
(Mr Griffiths) Obviously we have figures for some
of the costs relating to removing specified risk materials, etc.
I do not know if Alison can add some specific detail to this particular
question.
(Mrs Jackson) Yes, Minister, if you wish. The costs
in Wales that are going to arise from implementation of the specified
risk materials legislation, which will add to the general costs
of production, are estimated to be about £2.7 million, although
the Meat Hygiene Service are still looking at the level of potential
charges. A great deal will depend on the precise level of supervision
that is required in the plant because each plant is charged for
the cost of the hygiene inspector that is assigned to it and the
level of the state veterinary service, so it is a little difficult
to be sure.
136. That is very interesting but I was wondering more generally
about what the mark-up is for processing, for distribution, for
marketing. You have clearly identified that it is a substantial
element and I wondered what, in percentage terms, it might be
for Welsh products?
(Mr Griffiths) I think first of all you have to look
at the number of prime cuts from a carcase and this is affected
by the configuration of the animal being slaughtered. Obviously
you can get more prime cuts off beef than you can off sheep and
lamb and certainly we are looking at ways of trying to make sure
that in terms of livestock improvement we can get more prime cuts
off Welsh animals in future. The MLC has done some work on this
as well.
(Mr Brodie) I believe, Mr Jones, that the MLC memorandum
to you gives information on that. Certainly the best information
we have is the information that they have given you.
Chairman
137. Given that there does not seem to be a lot of information,
albeit we have some from the Meat and Livestock Commission, and
you said earlier that we did not really seem to know too much
about the price spread, how does the Government generally and
the Welsh Office in particular in terms of the problems within
Wales see, in the absence of that information, how the price spread
is going to change or the marketing relationship is going to change
to the benefit of farmers? How are you going to have an effect
on it if you do not know whether you have the information on it?
(Mr Griffiths) I think we do have certain information.
We do know about the price spread and we know what has happened
to it. There is an issue, as we discussed earlier, about whether
what is happening in the lamb trade should be looked at more closely.
Then in terms of the future development of Welsh agriculture and
the promotion of Welsh food products, in particular meat products,
I think the issue there is what can we do to make sure we add
more value to these products in Wales. Huw has given us the figures
about the numbers of Welsh cattle and Welsh sheep which are slaughtered
outside Wales. We know that, so we know we have to try and do
more to increase slaughtering in Wales. We know it is important
that we also get more of the cutting done in Wales and obviously
the St Merrin plant will play an important part there and that
itself could well be a stimulus to further slaughter facilities
and we are working on that. So whilst in some cases we do not
have very specific figures relating to Wales, I think the fundamentals
of the issue are well-known and we are working to try and improve
our role there.
(Mr Brodie) One of the key things obviously is to
develop the quality of the livestock produced. That, of course,
is a key aim of the Welsh Sheep Strategy in terms of breeding
and the work we referred to that ADAS are leading in a project
on the beef side as well. One of the things that underlines that,
I think, is our understanding that a number of the Welsh cutting
plants for meat actually buy in a significant amount of their
meat from outside Wales, partly—and it is only one reason—because
they do not feel they can actually get a sufficient supply of
the quality they are seeking from within Wales. So the quality
issues are certainly very important. Added to that, of course,
are concepts such as conservation grade and organic grade, where
those markets can actually bear it. Since so much of Wales is
nearly organic anyway, it would seem to be important to gain credit
for where we are on that spectrum and to start branding and getting
credit for extensively reared livestock. So those are all part
of developing the way in which Welsh farmers can, hopefully, get
better prices. We are never going to compete in the general commodity
markets, "pile it high and sell it cheap". It is a question
of trying, as far as can be, to get a premium product and a premium
price.
138. So in a nutshell you think you know enough about the
situation to be able to deal with it? Also with this part of the
investigation we are focusing on supermarkets and the role that
we think they have in the problem. So you are happy that within
Wales you know enough to do that or are you just simply guessing?
(Mr Griffiths) I would say simply that we know what
supermarkets want and Welsh Food Promotions, as I said earlier,
have, in the last couple of years, negotiated a couple of very
successful new contracts for Welsh lamb. Waitrose was one of the
two companies I mentioned and Sainsbury's is the other. The supermarkets
are the place where we can sell a high volume of good-quality
produce and we want to try to target those markets but we know
that to do that we also have to raise the quality of Welsh livestock
and we also know that on the organic and conservation sectors
we can do more to promote the quality of Welsh food.
Mr Caton
139. Minister, you mentioned Welsh Food Promotions then and,
indeed, you have mentioned it several times during this afternoon
and always quite positively, yet according to the Western Mail
last week, the Secretary of State said it will have to sharpen
up its act. What did he mean by that and are you aware that they
are sharpening up their act?
(Mr Griffiths) Yes. We want them to do even better.
We recognise that they have been very successful in a number of
sectors, for example in the promotion of red meat and the contracts
they have been able to help get for Welsh farmers, but we think
that they can perhaps target some of the areas where there are
small operators and to do something to help promote their products.
So we believe that Welsh Food Promotions has in a number of sectors
done a very good job. We want to see it doing a good job across
all sectors and we are negotiating with them about that.
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