Third Report:
(1998-99 Session) the UK Pig Industry
GENERAL UPDATE
1. The Government welcomed the Select Committee
Report as valuable contribution to the necessary debate on the
future of the British pig industry. While it did not agree with
all the comments and recommendations, its stated wish was to build
a constructive relationship with the Committee as both are striving
to achieve the same thing, an efficient and competitive UK pig
industry.
2. Progress has been made in a number of
areas covered in the Committee's Reports and comments on each
individual conclusion and recommendation are set out below. However,
the state of the pig industry had worsened since the Reports,
in that market prices remained below break-even point for most
of the period. Recently though the crisis in the pig industry
throughout most of the EU has started to ease; this is also true
of the UK, where the market price has been rising for the past
few weeks. Indications are that this improved trend will continue
for the next month or so, but the outlook beyond that is less
certain.
SPECIFIC ACTION
Harmonisation of animal welfare standards
Recommendation a: The current disparity in
legislation on stalls and tethers between the UK and the EU is
acceptable only if the UK is leading the way to higher standards
across the Union. The Government should redouble its efforts to
secure an early and positive review of EC Directive 91/630. While
retaining the right to introduce national measures on animal welfare
and consumer standards, we feel that when such measures weaken
the competitive position of the UK industry MAFF should consider
appropriate and limited compensation for the essential change.
We regret the fact that the EU standards have been allowed to
lag so far behind the UK's and want to see any future changes
in animal welfare legislation imposed and implemented on a uniform
basis throughout the EU.
3. The Government supported the Committee's
view that, wherever possible, future changes to farm animal welfare
legislation should apply on an EU wide basis. It is for this reason
that, while retaining the more stringent provisions in UK legislation,
we lose no opportunity to remind the EU Commission of their obligation
to bring forward their overdue proposals for a review of the EU
pig welfare directive, 91/630. The Commission has a heavy workload
on animal welfare, and has yet to respond positively to our pressure.
But the report from the EU's Scientific Veterinary Committee on
which the Commission's proposals must be based was published late
in 1997. The Government will therefore continue to press the Commission
for progress. Meanwhile, the UK is working constructively within
the Council of Europe's Standing Committee of the European Convention
for the Protection of Animals kept for Farming Purposes to develop
a recommendation on pig welfare and thus build a wider consensus
on the welfare standards that should apply."
Producer costs and UK agricultural competitiveness
Recommendation b: While we recognise that
farmers in other countries often face particular burdens not encountered
by UK farmers, higher costs for UK pig producers confirm the Committee's
frequently expressed view that successive Governments have been
too quick to impose costs and burdens on UK agriculture without
adequate consideration of the impact on competitiveness. We repeat
our call to MAFF to be more aware of the financial implications
flowing from unilateral actions in the UK.
4. The Government recognises the importance
of minimising burdens on producers. That is why in September 1999
the Minister of Agriculture, Fisheries and Food launched a review
of red tape burdening agriculture. After consulting the industry
on the areas of major concern to them he appointed three working
groups to look at the top priority concerns. These groups reported
in December 1999 and their conclusions are now being studied.
Farm gate and retail prices for pigmeat
Recommendation c: The onus is upon the downstream
processors, manufacturers and retailers to ensure that their profit
margins are not at the producers expense, thereby undermining
the long term viability of the UK industry. We remain unconvinced
that the majority of the industry after the farm gate—abattoirs,
processors, manufacturers and retailers—either understand
this or is ready to act on it. On the basis of the evidence provided
to us during this investigation it is difficult to make detailed
judgements about the specific concerns expressed to us by pig
farmers about retailers. However, the Office of Fair Trading is
currently investigating pricing practices of retailers and will
be reporting its findings soon. We eagerly await the OFT's findings
and, depending on the results of this study, may return in future
to the issue of retail margins made on pork and other fresh meats
and to the ability of supermarkets to dictate contractual arrangements
to their suppliers. We also consider that the retailers and manufacturers
should support government efforts to provide for higher standards
of animal welfare by not directing their purchases to cheaper
producers elsewhere and by insisting that European suppliers maintain
the same standards. It is also probable that some parts of the
UK supply chain are less efficient than their EU counterparts.
This too deserves further study.
5. In relation to farm gate and retail prices
for pigmeat, work carried out by MAFF economists and a team of
academics show that red meat price changes (both increases and
decreases) are fully or partially transmitted through the supply
chain from producer to retailer but typically with a lag of several
months. The study found no evidence to support the suggestion
of a change in pricing behaviour within the supply chain during
August or September 1998, when it began to be alleged that retailers
were failing to pass on reductions in producer prices. The analysis,
which is published on the MAFF Web-site, considers changes in
prices; it does not assess whether the absolute size of the margin
between prices and costs is set at a competitive level. Competition
in these markets is a matter for the Competition Commission investigation.
6. The Competition Commission (formerly
the Monopolies and Mergers Commission) has been asked to examine
whether a monopoly exists in the grocery retailing sector, and
if so, whether it operates against the public interest. The investigation
will also examine the nature of the relationship between the multiples
and their suppliers including farmers.
7. The Minister of Agriculture, Fisheries
and Food has expressed his concern to lower the temperature and
raise the standard of debate about the food chain. In his view,
the whole industry needed to recognise its common interest and
work together in the interests of the consumer and the wider economy.
To work towards that end, the Minister set up the Food Chain Group
and asked it to review the opportunities for working together
and increasing understanding amongst the players in the food chain,
including consumers.
8. The Food Chain Group's Report, published
in November 1999, sets out the challenges that all parts of the
chain need to address if UK agriculture and food businesses are
to survive and thrive. The Minister has welcomed the Report, stating
that the Group rightly stress the need for action by both businesses
and Government, leading to results. The Minister has invited the
IGD (formerly the Institute of Grocery Distribution) to consider
how best industry might respond to the Report. Progress will be
reviewed this Summer.
9. The Government recognises the existence
of weaknesses in the pigmeat supply chain, and in the marketing
performance of our industry. On 11 October 1999 the Agriculture
Development Scheme 1999 was launched, to offer 50 per cent grants
totalling £2 million to support projects designed to improve
marketing, levels of collaboration and competitiveness of farmers
and growers in England.
10. The scheme had, as a priority, support
for sectors in economic difficulty and sectors which did not benefit
significantly from the aid package announced in September 1999.
A number of applications under the Agriculture Development Scheme
1999 were received from the pig sector. In the event, pig industry
projects benefited significantly from marketing grant under the
scheme, being awarded over 35 per cent of the total grants made.
Also, a Report on Pig Marketing in England and Wales has been
commissioned from ADAS. The Report concludes that there is a need
for a greater willingness within the production sector to share
information for the benefit of producers as a whole.
EU action to support the pig industry
Recommendation d: To help UK pig producers
survive the slump until pig numbers in the rest of Europe begin
to fall, the Government should encourage the European Commission
to bring forward further proposals on food aid, export restitutions
and aids for private storage.
11. In July 1999, the European Commission
began the process of removing market support from the pig sector,
first by reducing the special refund on exports to Russia and
then by ending (in September) the aid to private storage scheme.
The Minister of Agriculture, Fisheries and Food has written to
the Agriculture Commissioner asking for these schemes to be re-instated
and officials have raised the matter at meetings in Brussels.
Not only has the Commission refused to do so, arguing that producers
have had ample time to adjust their production to meet the situation,
but have began the process of reducing the high export refund
levels.
Recommendation e: The EU Agricultural Council
should make an early decision on its restructuring package without
breaching the principles of the current light regime.
12. The European Commission produced a working
paper on a possible "solidarity fund" for the pig sector.
This received a mixed response from member states and the Commission
is yet to take it further. The UK was concerned about the cost
and complexity of the idea and by the fact that it appeared to
be a backdoor method of introducing production controls (quotas)
into the pig sector.
UK action to support the pig industry
Recommendation f: In the months ahead, the
Ministry must continue to encourage caterers and food manufacturers
to use more UK pigmeat and should aim to extract meaningful pledges
from these sectors on their procurement of UK pigmeat in the same
way it has from retailers. The Government should also amend the
procurement contracts of Ministries, Departments and other public
bodies to ensure that all pigmeat is sourced to welfare standards
no lower than the UK specification. MAFF must also urge all caterers
to provide the public with more details on the sourcing of pigmeat
used in restaurants, canteens and other catering outlets so that
consumers can make more informed decisions regarding the provenance
of the pork, bacon and ham they eat.
13. The Minister of Agriculture, Fisheries
and Food has:
— put out for consultation revised
guidelines for labelling so as to remove confusion for consumers
about the country of origin of pigmeat (responses are now being
studied);
— held meetings with retailers and
caterers to encourage them to source to independently audited
British standards (retailers and caterers have been very sympathetic
to the message put forward by the Minister);
— written to all MPs and public purchasing
organisations such as education authorities, hospitals and the
prison service stressing the high standards of British pigmeat.
(A number of the authorities have expressed an interest in developing
a sourcing specification which would result in the purchase of
product which conforms to British standards).
Monitoring of sourcing policies of retailers and
caterers
Recommendation g: The Government should monitor
all commitments made by the BRC's membership on welfare, sourcing,
origin and labelling of UK pigmeat in the near future. Such monitoring
should also apply to those branded manufacturers supplying retailers
with welfare friendly pigmeat products, as such arrangements as
currently exist appear to us to be self-regulatory.
14. The Minister of Agriculture, Fisheries
and Food has appointed a "verification officer", part
of whose remit is to work with industry bodies to identify cases
where product is being sold at retail or catering level which
misleads the consumer into believing it contains pork of British
origin when in fact it is imported. The verification officer's
role also includes checking progress on the commitment given some
time ago by major retailers that all their own label fresh pork
and certain processed products such as bacon would come from stall
and tether and MBM free production systems. Trading Standard Authorities
have also become involved with this work on labelling issues.
The verification officer has had some success; eg three different
retail groups have now either modified their labels (one on fresh
pork and two on bacon) or are in the process of doing so.
Welfare standards of branded pigmeat products
Recommendation h: We regret that discussions
between the BRC and the manufacturers of leading brands on welfare
procurement standards have not got underway before now, and that,
consequently, brands may not reach the same exemplary standards
as that of the BRC membership's own-label products. This is an
issue in which MAFF should be taking a keen interest.
15. A further element in the remit of the
verification officer is to check progress on extending the retailers'
commitment on sourcing and labelling to branded products.
Sourcing policies of retailers for pigmeat products
Recommendation i: We look to all retailers
to ensure that, as soon as possible, all bacon, pork, ham and
processed pigmeat products sold from their stores originate from
livestock systems matching or exceeding the current UK specification,
and to exhort manufacturers of the branded products they stock
to change their pigmeat procurement policies to support this aim.
16. The final element in the remit of the
verification officer is to check progress on extending the retailers'
commitment on sourcing and labelling to all products.
Labelling
Recommendation j: It is clear that more effective
marketing strategies must be developed to raise consumer awareness
of the quality of pigmeat products now available to the UK consumer,
but equally that any such strategy faces considerable difficulties
in terms of satisfying consumer requirements. We expect the MLC
and the leading supermarket chains to take the lead on this issue
and over the coming months to develop new and more effective means
of product differentiation. The Government should ensure that
labels accurately describe the food and the production method.
17. The British Pig Executive or BPEX (the
successor body to the Pig Strategy Council), is fully aware of
the need to differentiate British pigmeat in marketing terms.
Role of the Meat and Livestock Commission
Recommendation k: We welcome the MLC's introduction
of a differentiation campaign for British pigmeat, and hope that
it substantially raises the profile of a domestic farmed product
of which we can be justifiably proud. Our view is that British
pigmeat has animal welfare and traceability standards second to
none. However, for many of the country's ailing pig farmers, we
regret that this action will come too late in the day to be of
benefit. We also consider the MLC's £2.5 million campaign
budget to be inadequate for a promotion that should be laying
foundations for the industry not just for 1999 but for years to
come and urge the Commission to make more funds available. We
recommend that the results of the MLC's 1999 campaign for British
pigmeat be subjected by MAFF to an independent analysis of the
quality and effectiveness of the campaign, with the conclusions
of such analysis made available to all sections of the industry.
18. The Government's five-year policy review
of the MLC recommended that a regular independent analysis of
MLC's promotional effort should be fed into the Strategy Councils
deliberations. As a result, this has already happened for pigs
and is being implemented for beef and lamb.
Dedicated pigmeat promotional body
Recommendation l: While recognising the strength
of feeling behind the BPISG's demand, on balance we agree with
the NFU and, indeed, the Minister's implicit remarks that the
MLC should retain its responsibilities for pigmeat promotion,
at least in the short term. But the Commission will have much
to do to restore its credibility with the UK pig industry. Producers,
processors and, following the MLC's publication of its supermarket
study, retailers alike appear to have lost faith in its activities,
which for any representative trade group is profoundly worrying.
Despite the hostility of what appears to be a majority of the
industry, we have decided to give the MLC the benefit of the doubt.
But it is our hope that the structure of the industry will change
in the future. If this happens, then the industry's promotional
and administrative functions may well be better discharged by
another more specialised organisation. However, given the fragmented
nature of the industry at present, which compares most unfavourably
with its Danish competitors, we believe it is preferable to keep
the promotional activities for pork and pigmeat products with
the MLC. With this in mind, we believe MAFF should conduct and
subsequently publish a fundamental review of MLC's activities
as they relate to pigmeat early in 2001 to assess whether the
Pig Strategy Council is delivering industry objectives effectively.
19. The Government's five-year policy review
of the MLC agreed in general terms with the view of the Select
Committee; pigs should stay within the ambit of MLC and a thorough
review of the performance of the Pig Strategy Council (name now
changed to BPEX) should take place in 2001-02.
MLC Statutory Levy
Recommendation m: We recommend that the MLC
publish an annual account of how the statutory levy from the UK
pig industry is spent and what precisely has been achieved for
the UK industry with this investment. This information should
be subjected to independent analysis commissioned and published
by MAFF.
20. As was stated in the Government's original
response to the Third Report, the MLC's annual accounts, prepared
in accordance with standards set by the Accounting Standards Board,
are published as part of its annual report. This is laid before
Parliament in accordance with the Agriculture Act 1967. The accounts
are audited by reputable Chartered Accountants and subject to
examination by the National Audit Office. The Government did not
consider any further investigation or analysis in respect of the
accounts is necessary.
Pig Offal Market
Recommendation n: The development of new value
added markets for offals, which are unconnected with feedstuffs,
should be given greater priority. The MLC's cross industry working
party has already made some advances in this area and we urge
the Ministry to look into developing this work further.
21. This is a matter for the industry (but
see paragraphs 22-23 below).
Offal disposal charges and Mammalian Meat and
Bonemeal (MMBM) ban
Recommendation o: We believe that any relaxation
of the ban on MMBM, whatever the short-term advantages for UK
pig farmers, would reduce consumer confidence in UK pigmeat and
should therefore be opposed. At the same time, MAFF must work
with the European Commission and its partners in the Agriculture
Council to standardise the exclusion of MMBM from animal feedstuffs
across the EU.
22. At the request of the industry, the
Government put an industry paper to the Spongiform Encephalopathy
Advisory Committee (SEAC) asking whether it was possible to relax
the feed ban by allowing porcine MBM, produced in dedicated plants,
to be used in poultry feed. Following consideration at its June
meeting, SEAC advised that the feed ban should not be relaxed
in the way requested.
23. However, subsequent to the Government
receiving and accepting that advice, the European Union's Scientific
Steering Committee (SSC) issued a Report which did not include
a proposal to ban intra species recycling or feeding pig MBM to
poultry. In the light of this Report and recognising the importance
of this issue to pig producers, the Minister asked SEAC to look
again at its advice. This it did at its November meeting and on
22 December announced that its advice remains unchanged; ie the
feed ban should continue in place. The Government accepts this
advice as its priority remains to remove BSE from the British
cattle herd.
24. EU wide measures to combat TSEs are
still under discussion in Council. They would carry forward the
existing ban on MMBM in ruminant feed (with extra exemptions)
and provide a new ban on MMBM in all farmed livestock feed, but
only in countries at highest risk—so called category 4 countries.
National aids to pig sectors in other EU member
states
Recommendation p: MAFF must urgently gather
comparative information on costs, charges and subsidies relevant
to the pig industry in other member states, rather than leaving
these matters to the industry. The Ministry must be especially
assiduous in challenging through the European Commission any national
aid scheme which might appear to infringe EU competitiveness of
trade legislation. Our view is that market stabilisation schemes
should be available in all member states or none at all. We cannot
accept that it is an impossible challenge for our embassies in
other EU states to gain proper intelligence on the issues. In
the light of the disparities arising from the unique burden on
the UK industry and the significant subsidies paid to some EU
competitors, we urge MAFF to direct its efforts to ensuring fair
competition.
25. In line with its comments in its original
response, the Government continues to be assiduous in bringing
possible illegal state aids to the attention of the European Commission.
Indeed, as recently as 20 December 1999, the Minister of Agriculture,
Fisheries and Food wrote to Commissioner Fischler and asked him
to investigate a possible illegal state aid announced by the French
Government (and brought to the Government's attention by the British
Embassy in Paris).
Amendment of taxation regulations
Recommendation q: We consider amendment of
the tax system to take into account fluctuation in earnings of
UK pig farm businesses to be impractical.
26. The Government agreed with the Committee.
New market strategies for UK pigmeat
Recommendation r: Greater domestic demand
for the less popular cuts of pigmeat would be beneficial to the
whole industry. The MLC, retailers and manufacturers must work
together to encourage and promote product development and processing
with the aim of reducing the current dependence on export markets
for low value cuts. Value added within the UK would increase.
The more marketable products that result would increase the total
volume of pigmeat consumed nationally, as well as substituting
for imported pigmeat, and creating new export opportunities.
27. With the development of pork mince and
shoulder steaks, for example, the industry has recognised the
importance of increasing demand for less popular cuts in the domestic
market.
Pigmeat marketing co-ops
Recommendation s: We support the recent initiative
by the National Farmers' Union to persuade producers to forge
new co-operative alliances among themselves and across the industry
for marketing purposes and commend this action to the UK pig sector.
28. The Government agreed with the Committee's
view; indeed the drive on collaborative marketing is a joint MAFF/NFU
initiative. The Minister of Agriculture, Fisheries and Food announced
his intention that pig producers should benefit significantly
from the extra £5 million earmarked in October 1999 to help
farmers improve their marketing, collaboration and competitiveness.
For example, not only have pig producers benefited from the Agriculture
Development Scheme 1999, but Government is also helping to fund
a £4.6 million welfare linked promotion campaign. This will
run through to October.
Closer linkages in the UK pigmeat supply chain
Recommendation t: If pig producers are in
future to obtain a larger proportion of domestic market share
and increase margins of profitability for their product, they
must strive to forge stronger links with retailers, abattoirs,
processors and each other. A greater appreciation by farmers,
processors and retailers alike of the economic constraints and
motives of all the other elements of the supply chain will in
our opinion lead to greater efficiencies of production, benefiting
the whole of the UK industry.
29. The Government agreed with the Committee's
view—see paragraphs 5-10 on action taken by the Minister
of Agriculture, Fisheries and Food.
Long-term strategy for the UK pig industry
Recommendation u: Our view is that the compartmentalisation
of the UK industry has raised unnecessary barriers to its becoming
truly cost and price competitive. Ultimately, this could threaten
its survival. We recommend that MAFF, the MLC and leading representatives
from among producers, abattoirs, processors, manufacturers and
retailers meet to define a long-term strategy for the industry,
addressing both supply-side and demand-side issues. Such a strategy
should set clear and unambiguous targets for each element of the
industry which are easily verifiable, open to review on a regular
basis, and which could be co-ordinated centrally by the MLC's
Pig Strategy Council. The strategy should address producers and
procurement policies, marketing and co-ordination, and regulation
and the European dimension.
30. The Government believes that BPEX now
provides the means to meet the Committee's stated objective.
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