Examination of Witnesses (Questions 180
- 199)
MONDAY 23 FEBRUARY 1998
MR LAURENCE
BERNTHAL, MS
DAWN BLAKE
and MR JOHN
COLLIN
180. Do you, to your knowledge, produce your
own meat pies, using those as an example, within the Co-op system
and do you know how you label them?
(Mr Bernthal) That is outside my level of expertise
I am afraid.
(Ms Blake) We do have our own brand products which
are currently under review. It is actually a small area for us
traditionally. It is something that we are in the process of totally
revamping at the moment. It is certainly an area that we could
possibly have an influence on in the future.
Ms Lawrence
181. Just getting back to this issue of labelling.
You mention later on about the assured schemes and the importance
of that to the consumer. You yourselves are consumers, if you
like, buying from the manufacturers. Have you made any attempt
to influence the way that they package these processed foods in
the interests of the final consumer, bearing in mind the emphasis
put on the fresh meat and the need to have precise labelling of
that?
(Mr Bernthal) Again I would say that it is not my
area of expertise. I am not going to hide behind that one. Our
technical division have spoken to all the brands and asked them
to identify and give us full reassurance that the products are
of the quality that we demand.
182. I am thinking more of the very visible
labelling for the ultimate consumer.
(Mr Bernthal) I could not answer that.
(Ms Blake) As I said before we are just literally
starting to completely reinvent our own brands and labelling is
something which is under review and very much evolving. The only
thing that I can think of and bring to mind at the moment which
would be applicable would be our ready meals and they have literally
been launched over the last few weeks.
183. Do you think this is perhaps a role to
look at there in terms of your role in restoring confidence in
British beef and beef products?
(Mr Bernthal) Again if I can speak as an individual,
yes, I think there may be opportunities there. If I can just refer
back to the fresh meat side, I hold certain views about marking
our beef as British. I am a staunch supporter of British beef
and I certainly support everything that everybody is endeavouring
to do for the industry. However, I do hold certain opinions. I
do not want to appear here as somebody who is going to give some
bleak news. As I have my crystal ball out at the moment I would
like to look into it. If all areas of meat production were forced,
or coerced should we suggest, into marking everything as "British"
or "Imported", I think potentially we may inflict on
ourselves, and I say ourselves as an industry, certain pain that
we would not want to. I would qualify that. By presenting British
beef against an imported beef product the only product differentiation
we have in that is that one is British, and we can all extol the
virtues of British beef, and the other is imported. The price
mechanism may, however, dictate that there will become a price
differentiation and we could be faced with a situation where British
beef against imported beef sits more expensively against the imported.
It is that price differentiation that may swing a customer's decision
to purchase. That would paint a particularly bleak picture because
it may further send the demand for British beef into a tailspin
and the price mechanism would crash even further for British beef.
Mr Jones
184. Can I just press that because that is quite
an interesting concept. Surely that would only hold good if, for
example, the value of imported beef carries an advantage because
of the relative strength of the pound?
(Mr Bernthal) Indeed.
185. If the pound reduced in value then British
beef would become far more competitive in your shops.
(Mr Bernthal) Yes. I was talking conceptually rather
than looking at any corporate strategy. Yes, I think there are
many factors involved in it, the principal one being the strength
of the pound.
186. Okay. Can I just ask you on this issue
of labelling because, of course, there is this discussion, and
you have touched upon it, as to whether labelling should become
compulsory or voluntary. Currently the Government is looking at
a voluntary scheme rather than a compulsory scheme. Would you
not think that the interests of the consumer would be best served
if retailers were forced to label the source of the beef so that
the consumer could make the distinction rather than it being left
to the retailers who then, if I can use the word, would look at
ways in which they could market their beef in their own particular
way?
(Mr Bernthal) Are you specifically looking at fresh
beef?
187. For the moment, yes.
(Mr Bernthal) I think given the state of the British
beef industry at the moment and the problems it is having, you
used the word "forced"—
188. Compulsory rather than voluntary.
(Mr Bernthal) Sorry, compulsory. Compulsory identification
is potentially one of these confrontational issues.
189. Yes.
(Mr Bernthal) My view, and it is certainly the view
of the people I work for, is that confrontation at this stage
is not going to get the industry anywhere. I think we would rather
work together to look to common strategies that can build the
business and take it back from the 14 kilos up to the 19 kilos,
if that is possible, rather than doing anything through compulsion.
I would err on the side of caution on that one.
Chairman
190. Can I explore your crystal ball gazing,
Mr Bernthal, as to the likelihood of a drop in price of British
beef if British beef was compulsorily labelled vis a vis
imported beef. Given that British beef is acknowledged by everyone
as being the safest beef in the world now, and having seen all
of the evidence over the last ten years I believe that, is there
not a case for saying that in fact since imported beef, certainly
outside the European Union, does not have to meet the same strict
rules that British beef does there is a quality difference there
and that a premium would not be a problem in that regard? It sounds
pretty bleak to me that you are saying all your consumers or your
purchasers buy on price alone effectively.
(Mr Bernthal) Again crystal ball gazing was looking
conceptually and probably at the worst case scenario. I would
liken that, and have done in many conversations with people, with
the motorbike industry in the 1960s and 1970s. I certainly would
not hope that the British beef industry follows the same pattern
that the British motorbike industry did but there is that potential
for it. I agree with your statement that British beef is the safest
and I certainly hold that it is the best. I think I might be somewhat
prejudiced in that decision but I am sure I have a lot of supporters
in this room at the moment. Yes, I believe there will always be
an area of customer base who will want to buy a quality product
and there will always be people within the consumer base who will
buy at the price at the time with what effect that would have
(1) on demand and (2) on the overall price mechanism.
Ms Lawrence
191. First of all I have to say that in your
memorandum I was delighted to see that you made the decision to
sell nothing but British beef. Can you tell us why you made that
decision? Was it because you regard British beef as being the
best quality? Was it because you want to support local suppliers
or was it for other reasons?
(Mr Bernthal) It was a combination of many, many reasons.
Principally as we came out of March 20, which is what I describe
as BSE day, there was going to be an obvious reaction from all
consumers about the safety of beef, whether it be British beef
or European beef or beef from throughout the world. Beef became
beef. I saw the opportunity, not a commercial opportunity but
an opportunity, to try and take forward the British beef industry,
given that I cannot influence too much because of the market share,
by trying to establish a base for British beef as going forward
and through that I would use our Farm Selected Farm assurance
scheme within which it would create a demand, hopefully—this
was my thinking back on March 20—that would allow our customers
the reassurances on British beef. I also at that time had a crystal
ball which was rather cloudy, as everybody's was around March
at that time, and I predicted that it would be a difficult and
traumatic time for the industry. I thought it part of my responsibility
and part of the responsibility of the Co-operative movement to
try and take us through that traumatic time and build an industry.
It was an opportunity for the industry to start getting itself
on an even footing and take hopefully a better beef industry out
of it. Of course I had a supply base in the UK, Sutcliffe's being
one of our suppliers, that was equally going through a traumatic
time so I had a responsibility to suppliers who had been suppliers
to CRS for many, many years, and indeed John had made significant
investment into an EC plant in Newport. We had to keep our suppliers
in business I believed. We had a duty to our customers and we
had a duty obviously to the people in our stores as well to keep
them in employment. There were many, many things that led me to
it and also possibly because I am just an old-fashioned lad as
well.
192. Has it in any sense been disadvantageous
to you to pursue that policy?
(Mr Bernthal) Yes, it has.
193. Can you outline in what respect?
(Mr Bernthal) I am sure if everybody refers to many
of the documents surrounding beef pricing at the moment the cost
of beef, the price of British cattle at the moment, and I am sure
some of the gentlemen behind me would say it is at one of the
all-time lows, was certainly a lot lower if I wanted to procure
from any of the other Member States within the EU. I think the
figures I have seen were that if I were to pay a pound for UK
the equivalent EU beef would be 80 pence or as low as 75 pence
per pound. That would have made a significant difference to our
net profitability. It has cost the Society to pursue this policy.
194. I think you have answered the next point
I was going to make which was the effect on your margins generally
of pursuing that policy.
(Mr Bernthal) Significant. We can open that brickwork
out a bit further and look at our position in the marketplace.
If we need to remain competitive on our beef products we have
to match where we can the competitive price of major retailers.
I have done that. Particularly at Christmas when you are trying
to do topside promotions and everybody is looking to go at £1.79
a pound and I meet them at £1.79, indeed I led them at £1.79,
it creates serious problems with the bottom line of profitability.
Chairman
195. What would you say is the reason for the
fact that you can buy EU beef at 80 pence? Is it purely the strength
of the pound or are there other factors that you know of? You
do not have to be an expert on growing beef in Germany.
(Mr Bernthal) Primarily I think it is the strength
of the pound. I am led to believe, and I have no reason to doubt
it, that the production of beef within Eire is to the same standards
as in the UK, as is the processing. Potentially the Germans may
have an advantage because of their policy on SRM—specified
risk material—disposal and that may give a slight price
advantage. I think bottom line the strength of the sterling is
the principal reason.
196. In your evidence which you kindly sent
us at paragraph 2.1 you mentioned your Farm Selected assurance
scheme. Can you tell us how comprehensive that is?
(Mr Bernthal) Yes. I actually think it is a very comprehensive
scheme. We use the name "Farm Selected". It is based
very, very firmly in the Farm Assured British Beef and Lamb Scheme,
the FABBL Scheme, as run by the Meat and Livestock Commission.
Also within the lamb we have our Premium Quality Welsh Lamb Scheme.
Our Farm Selected scheme is built on to the existing schemes in
the UK and I think they are quite comprehensive.
197. So it dovetails with the existing WOAD
schemes?
(Mr Bernthal) Yes.
198. How can we develop better ventures to establish
the Welsh and Borderland beef and lamb bearing in mind that you
obviously have intimate knowledge of it dealing through your Farm
Select assurance scheme? Crystal ball again, Mr Bernthal, I am
awfully sorry.
(Mr Bernthal) That is a very, very good question as
well. I think there is an awful lot that has to be done. I do
not want to rattle on about some of my own personal philosophies
on the meat industry. The retailer is the window to the consumer,
if you like. The Co-operative is perfectly willing to have discussions
with all parties concerned to try and establish to every party,
particularly within the Welsh farming community, exactly what
consumer requirements are. I think I have seen somewhere, and
I made a note—please forgive me I am not a marketeer—essentially
it is the right product, right place, right time, right price.
We have the ability to tell people what our views are of the right
product in the right place at the right time. If we can use that
as a start position to ensure that livestock is bred at the time
and at the quality that is required for the consumer given that
the consumer demands are changing probably weekly and monthly,
and that is a crystal ball all retailers are looking at, I would
certainly like to see more food strategies, long-term strategies,
where the emphasis is put more towards the home consumer. I know
that may seem a degree of heresy for the Welsh lamb industry that
has been export driven, but we can see the effect of the higher
sterling at the moment and, of course, the reluctance of some
of the Southern Mediterranean states last week to take some of
the lamb. That has a dire effect on the pricing mechanism. Perhaps
we need to look at a long-term strategy for lamb. Also on beef,
I think there is probably more work required on beef than there
is on lamb. We have to look at perhaps the quality that is required
through the entire distribution chain. I would look to John for
some of this because the processor has certain requirements of
the carcass to give the yield required so that it becomes economically
viable for the processor to process beef and indeed the slaughterer
and to the final product. I think the quality issue is perhaps
of paramount importance to stimulate business from Wales and the
Borders. I also think that perhaps processors and the farming
community and retailers need to talk together a lot more. That
in itself would probably be a major step forward but I think there
is a sharing of knowledge that needs to take place. I would include
within that some of the agencies set up within Wales. I would
also include the Meat and Livestock Commission within that. The
sharing of knowledge is not just down to the breeding of any one
particular species, it is down to assisting the processors. John
has recently set up a meat packing plant that is dedicated to
CRS and we are moving into retail packaging. That in itself is
a huge area and it is fraught with danger. If you get it wrong
there is a lot of money that can be wasted. Nobody has money in
the meat industry to waste. I think there has to be consultancy
provided to the processors and within that I see the farming community
starting to be embraced within that. I understand that there is
cost assistance but that cost assistance is generally geared towards
capital investment. Personally I would like to see a cost investment
that would alleviate the initial set-up costs for processors and
that is not just meat processors. If the consumer is moving towards
snacking and we are looking at pizzas then it becomes a pizza
processor. Change the name from meat processor and look at it
as a general processor. The initial set-up costs, as I am sure
John can tell you, are extraordinary. Training costs and personnel
recruitment costs are all quite significant. Perhaps that is how
I would see the industry being moved forward. That is it in a
nutshell. Forgive me, I could talk for Great Britain on things
like that!
199. That was very useful. Mr Collin, would
you like to come in? Do not feel obliged.
(Mr Collin) As Laurence said, we have set up a retail
packing plant down at Pontardawe. We are planning to invest this
year 0.5 million in machinery just dedicated to CRS retail packing.
As Laurence said, to get some of the advice from people like MLC
and other bodies— It is a different operation completely
from our Newport business which is de-boning of meat into primals.
You have got to get it right because the next person to see that
product is the consumer. The labelling, weights, everything has
just to be absolutely perfect. Other companies who are in that
field obviously keep those secrets quite close to their chest.
It would be an advantage if there was some assistance to put us
on the right road. It is expensive if you make a mistake and mistakes
have happened. You have got to dispose of a product, you cannot
let it go out, or you have got to repackage it because somebody
puts the wrong year for example. It is something that can quite
easily happen, it is human error. We have been given some assistance
from the Welsh Office in setting up the machinery costs. We have
been given a 20 per cent grant. The original amount we put in
for was just under £1 million so we got £200,000. Since
we have started retail packing we realise that there is a lot
more space required and we are going to invest another half a
million.
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