Examination of Witness (Questions 962 - 979)
TUESDAY 28 APRIL 1998
MR JOHN
KELLY
Chairman
962. Welcome, Mr Kelly. Our humble apologies for keeping
you waiting for such a long time. This is one of those investigations
which raises more questions than answers, I am afraid. Would you
like to briefly explain the relationship between Dawn Pac, Dawn
Meats, the Dawn Group and the Queally Group in your introduction?
(Mr Kelly) May I start by saying that I was invited
here as Managing Director of Dawn Pac, hence the brevity of my
submission. Dawn Pac is the retail packing arm of Dawn Meats Limited,
which is a private family firm in Ireland. We are part of the
Queally Group of companies which started out as a cold storage
company and then evolved into a meat company, starting in 1980.
The total group turnover is about £700 million, of which
beef is about £500 million. Other interests in the Queally
Group are pork, chocolates, mineral water, pasta, pizza toppings—a
fairly widespread business.
963. Apart from the Dawn Pac site at Crosshands, what other
plants do you run in the UK?
(Mr Kelly) We have three abattoirs and retail packing
plants. We have one in Scotland, which was our original one in
Britain, and two abattoirs in England that we acquired last September,
both of which are retail packing plants, and a retail packing
and further processing plant in Milton Keynes. There is also a
trading depot in London.
964. How many people do you employ in the United Kingdom?
(Mr Kelly) 1250 in Britain and about 3,500 in red
meat in the group. A total of about 5,000 in the Queally Group.
Mr Livsey
965. Dawn Pac's principal activity is retail packing of beef,
lamb, pork and turkey for four multiple retailers, we gather.
(Mr Kelly) Yes.
966. Can you tell us who these retailers are?
(Mr Kelly) Co-operative, Somerfield, Asda and Safeway.
967. What else does Dawn Pac do? Do you export any meat,
or do you deal in any frozen meat?
(Mr Kelly) No, solely for UK consumption in the UK
multiple retail trade. We do not export anything, and it is a
fresh plant.
968. Do you actually handle, for example, frozen beefburgers
from Ireland, or anything like that?
(Mr Kelly) No.
969. How much beef and lamb does Dawn Pac buy in a year,
and where from?
(Mr Kelly) In a year? I can tell you per week and
extrapolate it. We currently pack about 200-220 tonnes of meat,
of which turkey is about 40 tonnes, beef about 120 tonnes, lamb
about 20 tonnes and pork about 10 tonnes. That should come to
200-ish, I think.
970. There is anecdotal evidence as a result of the protest
that took place at Crosshands that there were some cardboard packs
of New Zealand meat.
(Mr Kelly) There were two that the farmers found in
the skip out the back. It was not Co-operative, but one of the
customers asked us if we would do trials in about November, and
we said we would. We did the trials because a lot of the UK retail
trade buys New Zealand lamb in the spring period, so they asked
us to do some cutting trials and see should they be packing New
Zealand lamb. So we had two or three sample cases of New Zealand
lamb to retail pack and cost for them.
971. Presumably this was frozen lamb?
(Mr Kelly) No, it was chilled.
Mr Thomas
972. Looking at your figures for sources of raw material
on page 4 of the papers in front of us, those figures suggest
a shift away from importing Irish meat, if you compare 1997 and
1998.
(Mr Kelly) Yes.
973. Do you see that trend being sustained throughout the
year?
(Mr Kelly) Yes, I do. Originally, Dawn Pac was set
up to retail pack primal vacuum packed meat coming in from Ireland.
We were selling primal meat to supermarkets out of Ireland. When
transporting primal meat you get about 20 tonnes in a truck, whereas
in retail packs you get about 5 tonnes in a truck. A retail pack
is very customer specific and primal meat is not necessarily,
it is a traded commodity a lot of the time. So we said we would
build our plant in Wales, which we did. So the meat came in from
Ireland to start off in Dawn Pac at Crosshands, and then it was
retail packed, so your 20 tonnes in one container became four
containers and they went on to the central distribution depots
of the supermarkets. That has been the most transport-efficient
way to do it. Then, last February, twelve months ago, we looked
at how the market was evolving and it was moving more and more
towards dedication, supermarkets were asking for dedicated plants.
At that time we had four supermarket customers and one plant over
here in Scotland, so, in theory, in five or seven years' time,
we would end up with one supermarket if they all went totally
dedicated and we had to dedicate our Scottish plant to one of
them. So we acquired three more plants. We have, therefore, got
a huge capacity to produce meat in Britain and, therefore, are
less dependent on Irish meat. Also, at the time we bought the
plants in Britain, part of the thinking was that labelling laws
were coming along. I used to work in the Irish Meat Board myself
and spent three or four years promoting Irish meat before I joined
Dawn Meats and I know how sensitive it is: do you put it on the
shelves, or do you not? Do you identify it, or do you not? Labelling
was coming, so we had to have more raw material source in Britain
to sustain the business we had developed over the last ten years.
Therefore, the request came from the supermarkets that, basically,
they wanted—with the exception of one supermarket—100
per cent British meat. So that is how it has evolved, and that
trend is likely to continue.
974. You source all your lamb from the UK?
(Mr Kelly) Yes, totally.
975. Can I ask you, turning to page 5 of your report, with
reference to the assurance that you have apparently given that
no more than 20 per cent of your meat will be imported, how did
you arrive at that figure of 20 per cent?
(Mr Kelly) Because we set up Dawn Pac as a vehicle
to keep our Irish beef, at the time, on the shelves in Britain,
we were loath to say "zero Irish beef" because there
is a competitive advantage in taking beef out of Ireland, thanks
to Sterling. We were loath to say "none" because there
are times—due to availability as well as promotions in supermarkets—where
there may be a limited amount of beef available in Britain of
one particular cut which happens to be on promotion. We looked
at the figures from October through to the year-end, and the figure
came out at about 20 per cent of our beef. It was about 10 per
cent of our meat in total when you include turkey and everything
else. Anyway, it came out at 20 per cent, so we proposed that
figure to the Farmers' Union when they came to see us after the
invasion, and we thought they were relatively happy with that.
We said then we would get our auditors to audit that figure, which
they did, and Ernst & Young, our auditors, submitted that
figure to the Farmers' Union.
976. When you say they audited it—?
(Mr Kelly) As part of our annual audit. Our financial
year is the calendar year, so we had the auditors in in the Spring
time, and as part of the audit we asked them to take a look at
all the purchase dockets for the period and tell us whether we
were right in our 20 per cent estimate. Which they did.
977. When did that report appear?
(Mr Kelly) I can get that for you.
Mr Thomas: We will be interested in that. Thank you very
much.
Ms Morgan
978. On page 6 of your report, you say you are well aware
of the plight of UK and Irish farmers. Our perception here is
that Irish farmers are having it better—
(Mr Kelly) Marginally better.
979.—because of the strong pound. Could you expand?
(Mr Kelly) Marginally better. I will have to check
some of these figures—and you probably know them better
than I do, at this stage. Family farm incomes over here, I believe,
in beef and lamb in particular, have fallen by something like
30-odd per cent, if not greater—some people would say up
to 70 per cent. In Ireland the figure is probably more than 20
per cent in beef and lamb. As a meat processor, we are dependent
on a strong farming community, or we have no future. So the situation
in Ireland is not a lot better than it is in Britain, believe
it or not. Sterling, yes, but only so much Irish beef comes in
here anyway. In the meantime, export refunds are falling, and
the Russian and Egyptian markets, which are traditionally big
markets for Ireland, are not as favourable. So while the issues
are slightly different, the actual net effect on farmers is similar,
though not quite of the magnitude in Britain. Beef farmers in
Ireland are having it very rough, at the moment. Very rough.
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