Examination of Witnesses (Questions 1
MONDAY 11 DECEMBER 2000
1. Gentlemen, welcome to the Committee. I am
sorry to keep you waiting, but the Prime Minister was reporting
on the Nice Summit, and I felt that colleagues and myself ought
at least to have the opportunity of hearing what were the initial
exchanges in that. We are constantly being told that the Chamber
of the House of Commons is no longer a forum, but it ought to
be, and if we do not turn up we are clearly helping it to cease
to be. Thank you for coming. We want to deal with two basic subjects:
first of all, the proposed restructuring programme, and secondly,
your thoughts on the swine fever epidemic. We would like to do
it quite briskly, so I would ask my colleagues to be brisk, and
I would ask you to be brisk, if you do not mind, in answering.
Perhaps when you answer your question for the first time you would
identify who you are for the record, to save us doing a preliminary
gallop round the course.
(Mr Black) You do not want us to introduce ourselves
2. No, not at this stage. When you answer questions,
just say who you are, and we will pick that up then. Perhaps I
may begin by simply asking you for your appreciation of the actual
economic situation of the pig industry at the moment. Before the
swine fever epidemic, things looked like they were improving a
little bit, and there is some indication that things might be
improving now. I would like your appreciation of where you think
(Mr Black) Chairman, I am James Black. I am Chairman
of the National Pig Association, as of last Thursday. Prior to
that I was Vice Chairman. The position has been that prices have
started to recover. That has been something that had been happening
over the last six to eight months, but clearly the onset of swine
fever within East Anglia set the industry in that part of the
country back significantly. Whilst we continue to talk about the
effects just being limited to East Anglia, it is worth remembering
that it has in actual fact affected the industry over a much wider
area than just the East Anglian impact.
3. Thank you very much. With regard to the restructuring
scheme, 17 per cent of people are supposed to go out.
(Mr Black) No, 16 per cent.
4. Yes, 16 per cent. Given that it is backdated,
is it your understanding that that particular target, in a sense,
has already been achieved, and that the requirements of this scheme
in terms of outgoers could be met without further farmers leaving
(Mr Black) That would be our contention. Yes, that
would be our contention.
5. You said in your evidence that you were reasonably
satisfied, I think, with the scheme once it was finally sorted
out. You commented particularly on the fact that many of your
own suggestions had been incorporated into the scheme. Let me
ask you, what are the things that you might have liked to have
seen that are no longer there?
(Mr Black) Chairman, Mike Sheldon, our Chief Executive,
has had the biggest part in the negotiations on putting this scheme
together, so perhaps I could ask him to field that.
(Mr Sheldon) Chairman, we have indeed worked hand
in hand with officials from MAFF putting the scheme together.
That has been every step of the way, and it has been largely a
function not of our specific request being incorporated, but a
number of different ideas being tested along the way and exploration
being carried out together as to whether they comply with the
guidelines. So we are satisfied that the scheme is as good as
it can be and incorporates as many positive features as it can,
according to the guidelines as they are. However, if we were to
have a clean piece of paper and describe a scheme in isolation
of the guidelines on state aid, then certainly, it would have
been significantly different to what it is.
6. In the context of the guidelines, were there
things that you would have liked to have seen in the scheme, that
still are not there?
7. (Mr Sheldon) With the outgoers part
of the scheme, one item that we did not agree with was that the
guidelines say that those who take aid under the outgoers section
should commit to stay out of pig production "for at least
five years" is the phrase used in the guidelines. The scheme
itself says ten years. That was written, we are told, because
of advice to MAFF officials from their counterparts in the Commission
that the Commission would accept a ten-year minimum, and we accepted
that view as relayed to us by the officials from MAFF. Certainly
it would have been much more advantageous if the scheme had been
written with the minimum period.
8. In terms of the long-term viability, then,
of the pig industry with less people, as the Chairman has indicated,
it sounds as if we are already there, but in terms of the size
that it is, or that it might reach, are you satisfied that that
represents a basis for future viability?
(Mr Sheldon) Chairman, if the 16 per cent target is
largely or wholly met from those who have already gone out of
pig production, then we do believe that the rump of pig producers
who are left todayapproximately 600,000 sows across the
UKdoes represent a viable size.
9. The reason I asked that is that in your evidence,
in paragraph 1.3, you say "The scheme therefore is designed
to subsidise the small and less efficient at the expense of the
large and more efficient. This is unfair, illogical and discriminatory."
That does not quite line up with what you have just told us, that
you are really quite happy with the scheme as currently constituted.
(Mr Sheldon) The portion with which we are reasonably
comfortable is the outgoers scheme, the first part of the scheme.
The portion which we consider discriminatory in that respect,
in respect of favouring the small over the large, is the ongoers
scheme which has not yet been launched. We would make that distinction
between the two parts of the scheme. We are comfortable with the
bit that has been launched last week. We are less comfortable
with the ongoers part which should be launched next month.
10. Did you tell MAFF about this line of inquiry?
If so, what kind of response did you get from them?
(Mr Sheldon) We relayed to MAFF immediately our dissatisfaction
with that part of the ongoers scheme. This was a late addition
to the scheme. When the ongoers scheme was being talked about
even as recently as a month ago, it was likely that any producer
could apply for aid under the ongoers scheme, without having to
reduce his business at all. The stipulation that the producers
who do not qualify as small agricultural enterprises will have
to contribute a 16 per cent reduction in their own businesses
was a new and late addition and one with which we were immediately
unhappy. We relayed that unhappiness to our colleagues immediately.
11. Can you give me a little feel about this
question as to the business of ten employees and more? You again
make mention of this in your evidence, I think. How could these
businesses have been included without those particular enterprises
receiving an unduly large proportion of the available money?
(Mr Sheldon) I am sorry, could you repeat the question,
12. Yes. It would be quite useful to have your
comment in the first instance about the exclusion, for the restructuring
element of the business, of those businesses which have more than
(Mr Sheldon) We think it is extremely unhelpful that
this has been introduced as a stipulation. MAFF's own estimate
is that 25 per cent of the herd will fall outside the small agricultural
enterprise limit. We do not have a particular estimate in mind
ourselves, but we do think it would be at least 25 per cent and
probably more. The particular companies which would be affected
are those where there are networks of contracts between farmers
who own the site and the contractor who owns the pigs. With those
companies there are going to be a large number who will find it
very difficult to comply with the requirements of the scheme now.
13. I would like to conclude this area of questioning
by asking you about the critical mass, the size of the industry.
I was struck by some evidence which was sent to us by the Royal
Agricultural College who produced a table showing the cost of
production per kilo deadweight. There is the UK at about £1.08
and there is Brazil at 45p. I wonder, if, in terms of the long-term
viability, we are in a global world, even with restructuring and
less people in the industry, what is the future against a background
of relative costs of production like that? I chose two extreme
examples just to make the point.
(Mr Godfrey) Perhaps I can answer that. I am John
Godfrey, immediate past Chairman of the National Pig Association.
I think there are certain things that you have to realise; that
the difference in cost of production between Brazil or countries
outside the EU and countries inside the EU is that the countries
outside the EU, of course, have access to a lot cheaper food,
they do not have to buy feed that has gone through the Common
Agricultural Policy mechanism, which means that their feed will
be much cheaper. As feed is something like 70 per cent of the
cost of production, of course, that makes a considerable difference.
We also have the advantage in the UK of producing pigs for our
major retailers. Most of our major retailers at this stage, when
they can find supplies, are actually buying British pork. They
like to buy British pork because they can guarantee the supply,
they can guarantee the quality and they can guarantee the traceability.
The problem we have is that we are now producing much less pork
and even less bacon, and we are finding that the trade gap is
increasing quite considerably, even on a weekly basis, now.
14. Because we are still facing a lot of imports
to the United Kingdom, in a way the line of argument which says
"Cut UK capacity" could be said to be simply opening
up a further opportunity for imported supplies. Would you like
to comment on that?
(Mr Godfrey) Yes. I think it is totally illogical
to cut production, but we were assured that the Government wanted
to give some aid to the British pig industry, that this was the
only scheme they could find that would give aid, and they believed
that the 16 per cent or the 120,000 sows that had to be cut would
come from existing people who had cut or who had already gone
out, rather than from producers who are in business at the moment.
15. So what is left, in your view, will be sufficiently
viable, in terms of size of the industry and efficiency, to fight
imported meat on even terms?
(Mr Godfrey) Yes, I think that is right, we will be
able to compete for certain segments in the market. We will not
be able to compete for all segments in the market, but we will
be able to compete for certain segments in the market.
(Mr Black) I think it is also pertinent to add that
that will also be the case so long as we do not discriminate in
the way in which this aid is paid out. If we exclude larger, more
efficient units by the way in which the ongoers part of this scheme
has been set up, then we have a big problem with that in terms
of the way in which that will assist the future for the industry.
It is important that as every part of this industry has suffered
as a result of the price problems over the last two years, and
therefore they will need to be able to receive the same aid.
16. The Chairman has very kindly allowed me
to have one supplementary about one of the things you said. One
of the things that concerns me is that talking to my own pig producers
in the Fylde, I get the distinct impression when they come to
dealing with what I call the wholesale meat trade that there is
still a dog eat dog attitude, that the price rules supreme, that
if the wholesalers can buy from a producer at a couple of pence
a kilo less, they will go with that. There does not seem to be
much support, is the message I am getting back, from some people
in the wholesale meat business for the producers who are doing
a good job. You are telling us that the industry will be more
competitive after all the mechanisms are put in place. Do you
think you are going to get the right support from the meat trade
as well as the supermarkets, in the light of the efforts you are
making to survive?
(Mr Houston) Chairman, I am Stewart Houston. In addressing
that question and emphasising some of the points from your previous
questions, it has been the intention of the pig industry to differentiate
the British product, and we are using our marketing levy to do
so. We already have a differentiation in price between ourselves
and the European market of some 15 to 20 per cent. For that reason,
we think we can push forward with our better standards. That relates
also to your quotation of 40-something pence per kilo production
costs in Brazil. If the Brazilians were producing to our welfare
and feed inclusion standards and the assurance scheme that James
alluded to, then their costs of production would be higher. Certainly
I agree that they would not be as high as ours, but we need to
balance the two.
17. The question I asked was are you going to
get support for all the endeavours you are making to survive,
be efficient and produce in exactly the way you say, from a wholesale
trade that still seems to be obsessed by the odd penny either
(Mr Houston) My answer was intended to address that,
in that the wholesale trade is paying a premium now, albeit there
is an argument between producers as to who pays an odd penny or
two more. In the round, we are 15 to 20 pence better than we would
be if we were not differentiating the product.
(Mr Sheldon) Chairman, if I may add to that, the future
very much depends in that regard on whether we can identify our
product at the point of sale to the consumer. If we can safely
and consistently identify our product, then we believe that there
is sufficient depth of feeling amongst consumers who choose our
product quality that they will continue to do so. If we are able
to identify the product, whether it is through labelling legislation
or the practice amongst retailers, then it will be sought out
by consumers. If it is sought out by consumers, then our wholesalers
will continue to support our product, but only in those circumstances.
If we are prevented from labelling our product correctly, then
there is a danger that consumers will simply be forced to resort
to the lowest common denominator of production standards.
18. When the Government announced this aid scheme,
it said that it was going to seek an aid scheme in March of this
year. When did you think that the scheme might actually be available
to pig producers?
(Mr Black) By June.
19. What has been the cost to the industry of
the additional six months? It is not actually available yet, of
(Mr Sheldon) If the total value of the scheme was
£66 million, then a six-month delay would have cost at least
£3 million to the industry in terms of absence of cash over