House of Commons - Northern Ireland Affairs

Select Committee on Northern Ireland Affairs Second Report

III. SECTORAL ISSUES

22. The pig sector is the sector over which there is the greatest concern and both the duration and the depth of the slump in this sector have been greater than the Government initially envisaged. The industry in Northern Ireland has contracted dramatically: DANI reported that the June 1999 Agricultural Census showed that total pig numbers had declined by a quarter since June 1998.[43] The Ulster Farmers' Union told us that, at the beginning of 1997, 65,000 breeding sows in Northern Ireland were producing 25,000 pigs per week and providing work for 2,300 employees. At the time of its evidence, the Union claimed that the breeding herd was down to about 25,000 sows, and employment to around 1,100 people.[44] Figures supplied subsequently by the Department of Agriculture and Rural Development (DARD)[45] reveal that, according to the last Northern Ireland Agricultural Census, the size of the female pig breeding herd in the Province, which peaked in June 1997, stood, at the end of last year, at 42,211[46], a reduction of some 40% on the June 1997 level. The bar chart below indicates the changes in size of the female breeding herd since June 1996.

23. The number of pigs produced from the Northern Ireland breeding herd and available for slaughter in January 2000 has fallen by about 26% over the last three years.[47] The substantial and continuing falls in the size of the herd reflect the poor returns currently available. Prices are sufficiently depressed that the industry has for a considerable time been selling below cost; a recent estimate from industry sources is that producers have been incurring a loss of around £10 per finished pig for the last 20 months.[48] Despite the price falls, exports to the Republic of Ireland have virtually ceased due, according to DARD, to the exchange rate differential. However, imports from the Republic of Ireland of pigs for slaughter have also fallen markedly over the last three years.[49]

24. A variety of views were expressed on when this sector might be expected to show some recovery. In March 1999, there had been an expectation on the part of MAFF Ministers that the pig market should be on the way to recovery in six months or so.[50] Lord Dubs thought that the decline "may have to move on a bit further before things stabilise."[51] Mr Stainer, of DANI, commented[52] that some upturn had been expected towards the end of 1999 which had not materialised, but was expected "in the not too distant future."

25. The decline in the pig sector, which is also affecting Great Britain and the Republic of Ireland,[53] is attributed to a collapse of the Russian market and difficulties in the Far East. This led to lower prices across the European Union. This factor was compounded, as regards the United Kingdom, by the strength of sterling, which made imports generally more competitive, and was further exacerbated as regards Northern Ireland and the border counties of the Republic of Ireland by the fire at the Lovell and Christmas pig processing plant at Ballymoney, a major outlet for pigs from both areas. The announcement of the forthcoming closure of Malton Foods' processing plant at Ahoghill, Co. Antrim, leaving Cookstown as the only remaining pig processing plant in Northern Ireland, has further intensified the sense of crisis.

26. Despite the difficulties faced by the pig industry in the United Kingdom and, to a lesser extent, the Republic of Ireland, the European Union's breeding herd is estimated to be 12% higher than in 1997.[54] DANI witnesses thought that this was in part attributable to currency factors and in part to "a certain amount of trying to second guess the pig cycle ....".[55] Lord Dubs took the view[56] that Northern Ireland pig farmers "have behaved very rationally in terms of how to cope with overproduction, other pig producers in Europe have not."

27. Both UFU and NIAPA expressed concern about the added burdens on pig producers arising from:

measures introduced in response to the BSE crisis, which meant that certain parts of the animal formerly sold as a by-product now had to be disposed of at a cost, and that pigs could no longer be fed on meat and bone meal; and
the additional costs arising from the ban on pig stalls and tethers and close confinement stalls, principally conversion costs, which other European Union pig farmers are not required to implement until 1 January 2006, and then not fully.[57]

The UFU estimated the combined cost disadvantage at £8.47 per pig[58] — about 13% of production costs.

28. Lord Dubs also commented that a relaxation of the ban on using meat and bone meal in some animal feeding stuffs, which would have returned value to a by-product which is currently disposed of at a cost, was unlikely to be agreed by the Spongiform Encephalopathy Advisory Committee (SEAC).[59] UFU witnesses made clear that they were not themselves in favour of reintroduction of meat and bone meal into any animal feeding stuffs, but asserted that "... over 40% of the pig meat eaten by UK consumers now comes from countries where that happens."[60]. As Mr Taylor, the UFU President put it:[61]

"... I repeat our anathema about feeding meat and bone meal. I do not think consumers in the United Kingdom will ever accept the reintroduction of that into any livestock rations, but we have to remember that that is an uncompetitive disadvantage in terms of supplying protein that should be borne in mind by UK consumers.".

29. On the ban on stalls and tethers, Lord Dubs rejected any suggestion that remaining producers should be exempt from the requirement to convert: in Northern Ireland only 5% of producers had not yet done so.[62] Instead, he supported the idea of promoting the high welfare quality of United Kingdom produced pork, claiming "I think there is a fairly clear relationship between high welfare standards and a better quality product ....".[63] He considered that some of the budget recently announced for pig marketing might usefully be used to promote welfare standards.

30. There have been repeated calls for financial assistance to be given to the pig industry, both in Northern Ireland and in Great Britain, to offset its cost disadvantages[64]. There have also been calls in the Republic of Ireland for financial assistance for pig farmers, particularly in the border areas.[65] DANI reported that attempts have been made to devise aid schemes, but a combination of the very "light" European Union pigmeat régime, coupled with the State Aid rules, made it difficult to devise a viable scheme. Lord Dubs emphasised the constraints of Community law and added that regard also had to be had to available finance.[66]

31. The unions had pressed for an aid scheme to offset the cost of disposing of pig offal, on the grounds that it was a cost that fell uniquely on United Kingdom producers as a consequence of BSE. Lord Dubs commented[67] that such a scheme had been considered but was unlikely to receive European Union state aids approval and would in any event be expensive.

32. DANI reported[68] that a number of possible approaches for providing aid to the pig industry had been proposed, such as intervention buying, production controls, an early marketing scheme and an outgoers scheme. However, none had attracted widespread support among Member States. Indeed, we understand that the Government itself opposes an outgoers scheme on policy grounds, because of the risk that the United Kingdom pig industry could be at a disadvantage when an upturn comes.

33. DARD also told us that, when MAFF approached Commission officials, last October, to seek views on the possibility of aiding pig farmers because of additional pig offal disposal costs in the UK, they were advised that such a scheme would most likely be regarded as an operating aid and therefore contrary to EU State Aid rules. It would furthermore be considered as a market support measure in that the scheme discussed with the Commission was temporary, not degressive, was not part of a long term strategy for the sector and did not result in sectoral restructuring. DANI had previously commented that MAFF may "test the matter formally" with a formal application.[69] We recommend that the Government and the industry seek promptly to devise a meaningful scheme that will provide long-term benefits to pig farmers and will also comply with EU state aid rules.

34. We note that the Government of the Republic of Ireland announced an aid package for border pig producers in December 1999, following detailed discussions with the Commission. Approximately £1 million is being made available to the producers, in recognition of the financial difficulties they faced with the loss of the Lovell and Christmas plant in June 1998, as part of a debt restructuring/interest subsidy package to be operated through the commercial banking sector. The scheme, which opened for applications on 27 January,[70] has been formally notified to the Commission. We recommend that the Government examine the scheme carefully in the event of its approval by the Commission to see whether it would provide a suitable model for providing at least some limited assistance to Northern Ireland pig farmers, whether or not any other broader aid scheme can be devised.

Sheep

35. DANI commented that sheepmeat had benefited from the slump in demand for beef in 1996 in the light of the BSE crisis.[71] However, three factors have apparently now led to a serious weakening in demand for mutton and lamb throughout the United Kingdom. These are:

recovery in the demand for beef;
the strength of sterling; and
a collapse in the Russian market for lamb skins.

However, DANI pointed out that the majority of Northern Ireland sheep are exported to the Republic of Ireland for slaughter and, as a consequence, prices in Northern Ireland, while typically lower on average than those elsewhere in the United Kingdom, were less closely linked to those in Great Britain.

36. The Government has taken some steps to assist sheep farmers by persuading the Commission to open a private storage aid scheme[72] for sheepmeat. The maximum tonnage eligible for the scheme was 2,350 tonnes. In the event, this was fully taken up and 53 tonnes, some 2.3% of the total and representing 3,289 carcases, was offered and accepted from Northern Ireland.[73]

37. The area of particular concern to the unions, though, was the method of determining the level of Sheep Annual Premium. Both unions considered that the method of calculation, based on the European Union average market price, militated against exporters in both Northern Ireland and the Republic of Ireland. NIAPA maintained that the price of lamb to the producer in Northern Ireland is significantly lower than in France and Spain, yet the Premium paid is the same[74] and the Ulster Farmers' Union emphasised that it did not reflect the heavier carcases produced in the United Kingdom. NIAPA was also concerned that a decline in sheep farming might result in a loss in the genetics bred into hill ewes to adapt them to less favoured areas. The UFU drew attention to the likely downward pressure on sheepmeat prices as a result in falls in prices of competing meats as a result of the Agenda 2000 package.[75]

38. UFU considered that the medium and long term future of sheep production in Northern Ireland depended on achieving a satisfactory outcome to the forthcoming review of the European Union's sheepmeat régime. We hope that the Government will take full account of the criticisms made of the present sheepmeat régime in its participation in the review and any subsequent re-negotiation of that régime.

Beef

39. The beef sector in Northern Ireland was particularly hard hit by the BSE crisis, and the subsequent export ban. Prior to the BSE crisis, producer prices were higher than in Great Britain, but they are now lower.[76] DANI commented that about 55% of Northern Ireland beef, prior to the ban, had been exported outside the United Kingdom.[77] The strength of sterling has also had an adverse effect in this sector, as it has made beef imports more competitive.

40. According to the Northern Ireland Meat Exporters' Association,[78] Northern Ireland had a much lower incidence of BSE per million head of adult cattle population than other parts of the United Kingdom, and also a significantly lower level than the Republic of Ireland, in the twelve months ended September 1999. As the UFU put it:[79]

".... On science and on fact we qualify as a low incidence region and that would bring us into line as a region with other parts of the European Union, including the Republic of Ireland ....".

DANI reported that, in 1999, there were just six cases of BSE in Northern Ireland.[80]

41. There was considerable criticism of the restrictive arrangements under which Northern Ireland producers were permitted to export beef. The first scheme, the Export Certified Herd Scheme, led to a small amount of exports,[81] but they were described by DANI as 'insignificant' compared to the level of exports before the ban. NIAPA[82] and the Ulster Farmers' Union[83] both cited heavy financial losses incurred by processors who sought to take advantage of the Scheme.

42. The Export Certified Herd Scheme has now been succeeded by the Date Based Export Scheme. To date there have been no exports from Northern Ireland under this Scheme, no Northern Ireland plant having yet applied for approval.[84] According to the Ulster Farmers' Union,[85] this is because one of the requirements is that the plant is totally dedicated to exports and "clearly that would be commercial suicide because there is no way you can come from nothing today to exporting 2000 cattle [a week] tomorrow ...". The Northern Ireland Meat Exporters' Association identified[86] a range of practical difficulties with this new scheme, which militate against its take-up in Northern Ireland. These include a shortage of available steers of the appropriate quality and export status, and shortcomings in farmers' documentation in the context of the very strict rules of the Scheme. The Association described the controls and restrictions of the Scheme as "totally inappropriate to any perceived risk involved" with exports from Northern Ireland[87] and called for a scheme relevant to the BSE status of Northern Ireland and to any perceived risk involved.

43. We have noted the recent announcement[88] by the Welsh Agriculture Secretary of the successful negotiation of arrangements to export Welsh beef to the Netherlands, formerly an important market for beef from Northern Ireland. There are at present just two establishments in the United Kingdom approved to export beef. We note that some Northern Ireland producers have been exporting live beef cattle to Scotland, where one of these plants is situated.[89]

44. It appears anomalous that the region of the United Kingdom with the lowest rate of BSE incidence cannot in practice take advantage of the arrangements to export beef. There is clearly a need for the Government, beef producers and processors to work together to seek to devise appropriate arrangements. This may involve changes to the current arrangements for slaughtering and processing cattle in the Province to make it economically viable to handle cattle in smaller batches. The Government should in its negotiations with the Commission and fellow Member States seek to ensure that restrictions disproportionate to the risk inherent in exports of beef from Northern Ireland are removed at the earliest opportunity.

Dairy

45. Because of the greater concern about sectors in crisis, we received very little evidence about the dairy sector. Although milk prices have dropped since 1997, DANI commented[90] that milk production remains consistently the most profitable enterprise on Northern Ireland farms. The Northern Ireland Dairy Association pointed out the importance of the export sector to the dairy industry in Northern Ireland[91] and that milk production is increasing there, with quota being purchased by Northern Ireland producers from Great Britain. It also pointed out that, recently, milk prices in Northern Ireland had been higher than in other parts of the United Kingdom.[92]

Poultrymeat and eggs

46. The poultrymeat sector, according to DANI, [93] has expanded substantially in recent years, through production and processing efficiencies and product innovation and development. The Northern Ireland Poultry Federation[94] commented that the structure of the industry tended to protect farmers from the financial risks of the market. As DANI also recorded, the Federation stated that the industry was under continuing financial pressure. Given the domination of the Northern Ireland broiler and turkey industry by just three vertically integrated groups, there might be serious employment consequences from any reduction in capacity.[95]

47. The egg sector, on the other hand, has been in slow decline for a substantial period of time.[96] Prices continue to be below the cost of production, with the result that producers are withdrawing from the market. Part of the problem is a long term decline in egg consumption[97] although there is also an additional cost in feed imports, as Northern Ireland is a grain deficient area.[98] The Federation expressed concern about the potential impact on farmers of failure of their poultry enterprises, given the difficult conditions in other sectors.[99]

43 Ev. p. 4. Back

45 DARD is the successor to DANI and came into being with the establishment of the devolved Administration in Northern Ireland. Back

46 Appendix 14, p 106. Back

47 Appendix 14, p. 106. The relationship between the number of pigs available for slaughter and the size of the breeding herd is affected by a range of factors, as this Appendix demonstrates, including the productivity of the sows and the levels of imports and exports. Back

48 Executive Information Service (Department of Enterprise, Trade and Investment) Press Release of 7 February 2000. Back

49 Appendix 14, p 106. Back

50 Letter of 22 March 1999 from Lord Donoughue to Eddie McGrady M.P. (not reported). See also Q 260. Back

51 Q 192. Back

52 Q 43. Back

53 The decline in the female pig breeding herd in the Republic of Ireland has been much less marked than in Northern Ireland. According to the December 1999 Livestock Survey, the herd size fell from 192,400 in December 1997 to 187,800 in December 1998 and 186,300 in December 1999. Pig numbers overall fell in the year by 2.1%. (Source: Central Statistical Office) Back

54 Ev. p. 4. In December 1998, the latest date for which comparable figures are understood to be available, the United Kingdom had the seventh largest total pig herd in the European Union. This comprised about 6% of the overall total. Back

55 Q 42. Back