House of Commons - Agriculture

Select Committee on Agriculture First Report

FIRST REPORT

The Agriculture Committee has agreed to the following Report:—

THE CURRENT CRISIS IN THE LIVESTOCK INDUSTRY

1. The current crisis in the livestock industry is a matter of record. Figures from the Ministry of Agriculture, Fisheries and Food indicate that Total Income from Farming fell by more than 60% between 1995 and 1998, and net farm incomes for livestock farms outside the Less Favoured Areas were negative in 1998-99.[1] In recognition of this desperate situation, in November 1998 the Minister, the Rt Hon Nicholas Brown MP, announced an aid package worth £120 million to the livestock sector. By July 1999, all but £2.6 million had been paid out to farmers and the growing sense of crisis over the summer brought pressure to bear on the Minister to put together a second package. Consequently, on 20 September 1999 he announced further measures, including new money, the waiving or delaying of charges, agrimonetary compensation, and non-financial assistance to the industry in the form of regulatory reviews. We considered that this package and the current state of the livestock industry to which it responded made it imperative for us to hold an early session with the Minister to discuss these matters. We included abattoirs and the beef ban within the remit of our inquiry as two of the key issues affecting the crisis in the sector.

2. We took evidence from the Minister on 9 November 1999. As ever, we are extremely grateful to Mr Brown for his characteristic courtesy towards the Committee in agreeing to attend. In advance of the session, we issued a general invitation to interested parties to submit brief statements of their concerns, and we thank all those who did so. These submissions, together with the transcript of the Minister's evidence, were published as an independent document soon after the hearing.[2] Although we recognise that much of this evidence speaks for itself, we believe that it is right for us to report to the House our concerns on some of the important issues raised by this short inquiry.

The September Aid Package

Presentation

3. The financial elements of the aid package in September were presented by MAFF as follows:

£m

a: Hill Livestock Farming Allowances (HLCAs)
60

b: Specified Risk Material (SRM) enforcement charges
44

c: Cattle Passport Charges
45

d: Support for Marketing
1

TOTAL
150

Source: Ev. p. 2.

At the same time, some £387m of agrimoney compensation was announced, bringing the total package to £537m. This is a considerable sum of money. However, when it is broken down into its individual components, the picture becomes less clear than simple addition would imply. Doubts were raised in our minds about how much was new money, how much was 'real' money (that is, not just income forgone by the Government but actual payments to farmers) and over what period this package was intended to last. We questioned the Minister in each of these areas.

4. We first raised the issue of the amount of new money in the package. Of the agrimoney compensation, MAFF identified £94m as already paid or notified and it is accepted that the remaining £293m to be paid during 2000 is mandatory, following changes to the system of European payments fought for by the Minister.[3] Mr Brown strongly defended himself against criticisms that, of the domestic funding, only the £1m for marketing schemes (topped up by an extra £5m in October) was new money.[4] He described the extension of the enhanced HLCA payments for a second year as "new money that was not factored into the budget before"[5] and argued that the deferment of charges for SRM and cattle passports was also "new money", on the basis that "it is money that the Treasury would have had that the farmers have now got".[6] This is closely linked to the second question we posed on the perception that the postponement of charges was not 'real money' going into the farmer's pocket but, in the words of the Tenant Farmers Association, simply a "hypothetical saving" of costs which if levied "would have made the industry's precarious position even worse".[7] On this point, we have some sympathy with the Minister's predicament when he described himself as "in danger of falling out with both groups because the Treasury know that I have the money not them and the farmers are being told that they would have got the money anyway, which I have to tell you is not so".[8] Nevertheless, we also have sympathy with the farmers who were led by the headline figure to expect extra money in their pocket, rather than a notional decrease in the amount that would be taken from them.

5. The third point which we felt required clarification from the Minister was the time frame in which these sums of money would be made available to the livestock sector. The notes supplied by MAFF to its table indicated that the HLCA payments were for 2000, the two measures concerning the waiving of charges applied until the end of the financial year 2001/02 and the marketing support was for schemes submitted by 30 November 1999 and completed by 30 November 2000.[9] Of the agrimonetary compensation, £129m is to be paid over the next two financial years, although the Minister himself was somewhat hesitant on this fact, underlining the complexity of the aid package.[10] In effect, the money announced in September is to be spread across three financial years, with different end dates for the various elements and some of it already received by farmers.[11] This makes it difficult to assess the value of the package to farmers and its cost to taxpayers at any specific point in time and has led to misunderstandings and disappointment.

6. All three issues are to do with presentation, rather than content, but they are still matters of substance. We recognise that such packages are inevitably complex and difficult to explain. However, the reaction MAFF encountered once the elements had been examined and attempts were made to identify new money demonstrates the importance to the Ministry as well as to the industry of presenting the package in a clear, intelligible form. A significant proportion of our evidence session with the Minister was spent trying to clarify exactly what the package meant and when the money would be available. We had the opportunity to do so, but others who needed to understand what had been achieved for them by the Minister are less fortunate and the Ministry had only itself to blame for the way in which the package was publicly reassessed once the grand total was unravelled. Media reports of the Minister's announcement varied in content between £150m and £500m. In addition to an unambiguous announcement, the Minister should take care not to give false hope to farmers whose first news of help packages is a limited media story. We recommend that in future MAFF agree a form of presentation to be used in presenting all such packages that makes them readily comprehensible in terms of new money, actual payments made to farmers and dates upon which assistance will be made available, thereby indicating the total cost to the Exchequer in each financial year in which they apply.

Strategy

7. Few would deny that the crisis in the livestock industry justified the September aid package. Nevertheless, we do not believe that this form of crisis management is in the best interests of the sector. The pattern of mounting pressure on the Minister leading to intense discussions with the Treasury to release emergency aid has now been repeated for a second year and it may become a trick the Minister is expected to pull off every autumn. Mr Brown himself admitted that he "had a sinking feeling" when he announced the original increases in HLCAs in November 1998 that, despite his protestations that this "was for one year and one year only", problems would arise in holding this line in future years.[12] This is inevitable in the absence of a clear statement to the industry of Government policy on aid packages and on the limits of intervention, set within the context of a long term strategy for the sector.

8. It is essential that farmers know what they can expect from the Government and that they are encouraged to look beyond short term responses. This was recognised in memoranda to us by the Braintree Branch of the NFU who called for "a medium to long term strategy involving farmers and growers, the entire food industry and the Government in which British Agriculture can flourish again",[13] and the TFA who lamented the "lack [of] a long term plan sufficient to see our way through the present major difficulties to a more sustainable economic future".[14]

9. We know that the Minister needs little persuading of the wisdom of such an approach. In evidence to us, he underlined the point that HLCAs and such schemes "are not of themselves going to get us through the current difficulties in the livestock sector".[15] He added: "The only way through is to market our way through and to make sure that the product that is being produced, the food product, has a ready and appreciative place in the market at a price that gets a decent return to the farmer".[16] This is in keeping with the Minister's assumption of the role of "the sponsoring Minister for the industry, for the whole of the food industry".[17] Yet it was not reflected in the aid package in September which included just £1m, later increased to £6m (the additional money intended mainly for the pig industry), for schemes aimed at assisting the future development of the industry. We recommend that MAFF set out a clear statement of its policy towards aid to the livestock industry in order that the sector might best prepare for its future. We also recommend that any future aid package be in keeping with the objectives of enhancing the competitiveness of the sector rather than emergency measures to manage a crisis.

Review of regulations and charges

10. We welcome the non-financial elements of the September aid package as a valuable contribution to the strategy we call for above. Following discussions with the industry, the Minister identified three priority areas for review of the regulatory burdens imposed on agriculture. These were (a) the meat industry, (b) the operation of the IACS system and farm inspections, and (c) the operation of the intervention system.[18] Reports are expected from each review group by mid-December. The Minister told us that "it is right to look again not just at how the regulatory burden on the industry works but also at where the proper boundaries are, certainly in the short term, between what the public purse takes responsibility for and what we expect the industry to carry".[19] The reviews are intended "to re-examine absolutely everything that can be said to be a constraint on the industry here domestically and which can be said to have put obstacles in the way of the industry marketing its way, selling its way, through the current difficulties".[20]

11. We look forward to examining the results of these reviews in due course. We note the Minister's caution that, in acting on their recommendations, "there is no blank cheque ... I am not sure that there is any cheque at all".[21] However, we expect that proper consideration will be given to all recommendations and that where any suggestion is not accepted, a detailed explanation of the reason for the refusal will be provided. We also strongly urge the Minister to take note of two crucial factors when responding to these reviews or in making any new regulations. First, it is essential that the regulatory burden be looked at in toto. When additional burdens are to be introduced, the Ministry must take full account of the overall weight of regulation pressing on an industry and consider the new proposals in this context. This applies equally to new charges. While the September aid package lifted the threat of some new financial burdens, others are still threatening, for example in connection with the integrated pollution prevention and control directive, which together with the climate change levy is now the subject of an inquiry by the Committee. Secondly, the Ministry must recognise that steps taken in the UK for public health or other reasons, while justified in themselves, might have an adverse impact on the competitiveness of our industries in relation to their foreign counterparts. If the livestock industry is to market its way out of this crisis as we all hope, it can only do so if it is not disadvantaged by extra burdens unilaterally imposed by the UK, whether financial or regulatory, caused by the imposition of charges here or by Governmental assistance to competitors elsewhere. We would welcome a firm commitment from the Ministry to these two principles.

Abattoirs

12. The abattoir sector is one which seems destined to be under constant review. The Minister set out details of two studies which had taken place of "the relative positions between our own regulatory regime and our European partners" and two ongoing reviews - that referred to above, under the chairmanship of Mr Robin Pooley, and a second efficiency review of the Meat Hygiene Service by Mr Archie Pugh.[22] There is also a review arising from the European Commission advice on the need for the presence of an Official Veterinary Surgeon for post-mortem inspections in low-throughput slaughterhouses.[23] In each case, these reviews have to be placed in a context where, in the Minister's words, "there has been a remorseless trend in the abattoir sector to consolidation of the sector around larger plants to get the efficiencies and economies of scale".[24]

13. We are concerned that the review process has so far produced few outcomes. In particular, we find it a matter of deep regret that there has been no announcement on the impact of charges on the smaller abattoirs, which has been expected for some time. The Minister admitted, when asked when the results were to emerge, "I would have answered the question, had you asked it of me in May, by saying it is imminent and that is still my answer".[25] The Soil Association sent us a copy of a letter to the Minister signed by 67 organisations to express their concern about the future of the small to medium sized abattoirs.[26] Their analysis of the impact of the loss of small, local abattoirs on the industry and community bears close consideration.[27] Mr Brown assured us that we were mistaken in inferring a lack of urgency on his part from his comments on this issue.[28] However, the long delay in bringing the review to a firm conclusion is doing nothing to help the industry. There is a strong case to be put for Government policies which encourage the maintenance of a network of rural abattoirs, perhaps including a reassessment of the potential of mobile abattoirs to meet the needs of farmers who have small numbers of animals to bring to slaughter. We recommend that the Government bring its review of small slaughterhouses to a swift conclusion and bring forward proposals for encouraging rural abattoirs across the country.

The pig industry

14. The September aid package contained little direct assistance for the pig industry which, as the Minister asserted, is suffering a depression beyond the classic pig cycle.[29] Mr Brown made it clear in announcing both tranches of finance for marketing schemes in September and October that this should be directed first to those industries which had benefited least from the main package, of which the pig industry is the prime example.[30] This is to be welcomed but the National Pig Association remain "bitterly disappointed" that the Minister has not found a way to meet their request for assistance with the offal disposal costs which have been imposed as a result of BSE containment measures.[31] Mr Brown told us he was "incredibly sympathetic" on this question[32] and assured us that "I want to explore everything the Government can do that will help".[33] We support his efforts to find ways to relieve the burdens on an industry which is still in crisis and urge him to make an early announcement on positive measures to this effect.

The sheep sector

15. In the course of our evidence session, we raised with the Minister the problems experienced by the sheep industry and the possibility of offering some assistance to farmers in this sector by ending the requirement to split sheep carcases, a measure the Minister himself described as "at the extreme end of the precautionary measures we have in place in this country".[34] We are encouraged by his willingness to take "a hard look at whether it is justifiable or not"[35] and once again urge him to bring forward early proposals to relieve the sheep industry of the disproportionate cost of this requirement.

The beef ban

16. At the time of our meeting with the Minister the issue of the ban on the export of British beef imposed by France and some German Länder was high on the political agenda. We regret having so little time to discuss the matter with Mr Brown on 9 November but we will continue to pay close attention to developments in this area, in particular attempts to restart exports to all those countries which still refuse to accept British beef. We look forward with interest to the Government's response to our conclusions at the end of last Session on the near impossibility of meeting targets for exports as set out in MAFF's Business Plan.[36] We welcome the Prime Minister's recent announcement that the planned £7m increase in MHS will not be imposed on the industry next year and the announcement of the Minister of Agriculture, Fisheries and Food that the ban on beef on the bone is finally to be lifted. In this context, we urge the Minister to make great efforts to persuade those local authorities still imposing a ban on beef in schools that there can be no justification for such action, given the public health and other safety measures now in place. According to the Meat and Livestock Commission, in November 1999, 31 local education authorities had a total mandatory ban and a further 22 a primary ban on British beef.[37]

Conclusion

17. The nature of our evidence session with the Minister was such that we have restrained ourselves from producing a report with recommendations addressing issues which we were not able to discuss in detail, for example, the many suggestions in the memoranda we received for specific measures to address the crisis in different livestock sectors. Instead, we have concentrated on more general themes. We will find future opportunities to take forward individual proposals and conduct in-depth inquiries into aspects of the livestock industry in our usual way. It is likely that we will incorporate into our work programme the outcomes of the various reviews, especially the Pugh review into the efficiency of the Meat Hygiene Service. We conclude with the recognition that there are many contributory causes to the crisis in the livestock industry and the sheer scale of its impact makes the means of addressing it hard to find. We understand the pressure on the Minister to produce immediate emergency aid packages but in the long term as he himself declared during his evidence, "if I were to leave the Committee with just one point it would be ... it is the

demand side not the supply side that will get us through this".[38] We strongly agree. The one message we emphasise to MAFF is the need to set out a strategy for Government involvement in and responsibility for the industry which concentrates on enhancing the long-term competitiveness of the whole UK livestock sector to the benefit of producers and consumers alike.

1 Ev. p. 1. All references to Q or Ev. are to question or page numbers in HC 931-i, Session 1998-99 (see paragraph 2). Back

2 HC 931-i, Session 1998-99. Back

3 Q 46. Back

4 Q 19. Back

5 Q 14. Back

6 Qq 34, 52. Back

7 Ev. p. 28. Back

8 Q 56. Back

9 Ev. p. 2, para 6. Back

10 Q 46. Back

11 Q 29. Back

12 Q 14. Back