Select Committee on Agriculture Minutes of Evidence

Examination of Witnesses (Questions 489 - 499)




  489. Gentlemen, thank you for accepting our invitation to meet us. We are obviously very pre-occupied by foot and mouth disease but we are also anxious to start pushing the agenda forward and to start looking at the other side of the hill, as it were. It is with that in mind that we really asked if we could have a conversation with you. You have landed yourself in it, Mr Barr, have you not?

  (Mr Barr) Yes. Either beautiful timing or . . . I think good timing. I would, with your permission, like to make a few opening remarks, if I may. If I can also introduce my colleagues: Gwyn Howells, who is the Director General of the MLC, and Bob Bansback, who is the Corporate Strategy Director of the MLC.

  490. Yes, he is one of the usual suspects here, if I may say. I have met him on a number of occasions.
  (Mr Barr) I have been Chairman of the MLC for all of four weeks now and, that said, something strikes me as being very clear so far as the way forward is concerned. The short-term priority for the MLC must be to rebuild consumer confidence in red meat and help recover the market. But that in itself will not be enough. The meat industry throughout the demand chain must not think that the future can simply be a case of "Back to business as usual" because that simply is not an option. There is a mood and an opportunity for change. In my view we must seize this opportunity to restructure the industry for the benefit of all the players. Vitally, we must complete the task of putting in place the safeguards and the reassurance that the consumer wants about the way meat is produced. May I add two further points, one on market recovery and another on structural issues. Chairman, meat consumption is currently down between 5 and 15 per cent. Our continuing consumer research tells us there has been a big impact about the way people feel about red meat. We know from our experience with BSE that it is possible to rebuild a market so long as this is founded on sound and justifiable reassurance to the consumer. Consumer promotion and marketing done properly does produce handsome rewards—and here we have our first issue. Our funding comes from levy payers, and the levy payers are flat on their backs at this moment in time. We have therefore submitted proposals to Government for a one-off, emergency package of £25 million to spend on the recovery campaign. We estimate this would lead to increased sales of £300 million in the first year. The benefit of such a campaign, not just to livestock farmers but to the wider rural community and business base, would be considerable and we await Government's response. But, as I said, we want this to be a one-off; we do not want to have to keep going back to Government for help. That is why the long-term restructuring of the industry, including the reform of some farm practices, is so important. In the paper we sent to you we have highlighted some of the steps which we believe should be taken. In short, this has been a terrible time for farming and for many of those working in the meat industry but, dreadful as it may have been, there is also now an opportunity, an opportunity to listen carefully to the consumer and match the consumer's changing lifestyle, and I believe that the consumer must come first, second and third. Thank you for allowing me to make those opening remarks.

  491. Thank you for that. This is a £25 million grant you are talking about, is it? It is not a loan, it is a grant.
  (Mr Barr) A grant.

  492. The British Tourist Authority has only been given £2 million-plus in order to attract visitors. What makes you think you have got the faintest chance in hell of getting a £25 million grant out of Government?
  (Mr Barr) I believe it will achieve a number of things. One is that it will prime the pump of the industry again. If we get the industry going, that means that the levy income will kick in again more rapidly and that will allow us to get on with the other major reforms that need to be taken. I think that the industry is in such a critical way that quick action will actually save a lot of money in the longer term. This is a perspective from just coming into the industry and very new, but I see farming as part of the food chain, not something outside it. So we could say that farming is 1.5 per cent of GDP, but the food chain is 14 to 16 per cent of GDP and the biggest employer in this country, and I see farming as an integral part of that food chain and we must look at it that way; I mean, it should not be outside it and away from it. So I say it is important to the whole food chain and also very important to the rural economy. Living in the country, I had only realised this week what was missing each day going to work and that was the cows and sheep in field. What a difference it made, just seeing them again. Even the children mentioned this, that it was lovely to see them out again. I believe it is a big, big question and it would be money well spent.

  493. The MLC levy has often been contested by farmers. They have always paid it extremely grudgingly, with a lot of grumbles about, "Does generic advertising work in any case?" You come from a business background, so you will no doubt be able to form a view on that. There is also the demand, if you like, that when people take over an organisation they are expected to show some sort of dramatic initiative and have a view on how that should be shaped. (I think of BT, just out of interest.) When you took over this job, was your analysis that MLC was fine, that it was jogging along quite nicely, or did you say, "We need to make changes here"? Leave aside foot and mouth for the time being. Having looked at it, somebody coming from business and bringing, perhaps, a different perspective from that of the previous Chairman to it, what was your analysis of what was right and what was wrong about it?
  (Mr Barr) I think what was certainly very right about it was the previous Chairman. He is a very hard act to follow, in that he was incredibly committed to the industry and has left a very, very good heritage of goodwill towards an organisation. At the end of it, as you say, no levy payer ever loves paying a levy, but I think Don left a wonderful heritage. My skills, as I am sure you will very quickly find out, are not those of a farmer or a farming expert. My skills are: the consumer, building markets, reviving markets, and supply chain logistics. When I joined Hazlewood's (my previous company) 28 years ago, we employed 20 people in a run-down factory, and we seemed to produce enough paper to keep an average paper mill going. At the end of that, we were operating in eight countries with world class plants, with very, very little paper and a very, very modern industry. So one has seen a lot of changes, not least being in our attitude to the consumer. We constantly talk about the supply chain, particularly in farming, but to my mind it should be the demand chain, because we should identify that which the consumer wants. It might be we cannot give them everything it wants, but we actually have to bring it into this century and say, "What does the consumer want?" and create that demand right through the chain. Certainly my mission is to help the industry move on.

Mr Jack

  494. Could I pick up a point following your opening statement, Mr Barr, when you were talking about the need for £25 million from the Government as a one-off package. Could you just say a bit about the state of the MLC's finances. Do you have some balances at the present time or are you bereft of funds altogether?
  (Mr Howells) May I answer that, Chairman. The reduction in slaughterings as a result of foot and mouth disease and the welfare disposal scheme will actually denude our income in the region of £8 million to £10 million at the current estimates. The situation within the industry over the last five years, since 1996 and BSE, is such that the MLC has actually had to dip into its reserves on a number of occasions to restore markets: particularly beef post 1996; sheep in latter years because of the over-hang into the new year; and pig meat—as everybody knows recently, pork particularly has been severely affected by the downturn in world markets. So actually our reserves are significantly depleted. There is not a question, Chairman, of us dipping into reserves to help that problem.

  495. But do you still have some cash left in the piggy bank?
  (Mr Howells) Nowhere near enough. I mean, just enough to manage the business on a day-to-day basis.
  (Mr Barr) I think, sir, the wages will be paid next week, but . . . .

  496. The Chairman asked a very sensible question in relation to the size of the tourism industry, which is billions of pounds. I take the point you made about the food chain, but I think he was probing on the basis that £25 million versus £2 million in relation to the size of the industry seems a disproportionate sum of money for a recovery programme. I was just interested to know the justification, as to whether in fact you were trying to preserve your balances or whether there was a genuine need for that injection of money.
  (Mr Barr) Absolutely.

Mr Drew

  497. If we can get into some of the detail now about the immediate impact in terms of foot and mouth on the market for meat. I am not quite clear what has happened to prices. Perhaps Bob would like to say something about that. I know you have said that you are up to 15 per cent down in terms of consumer demand, but what is happening to prices, Bob?
  (Mr Bansback) It has varied between the different species, so if I may I will tackle them in turn. In terms of the prices that the producer is getting, we have established a series since foot and mouth came up of dead-weight price information. For beef, beef prices are actually very similar on average to where they were immediately prior to foot and mouth disease, which is something of the order of five pence a kilo less than they were a year ago, when there was a reasonably strong market, but they have been sustained at that level. The situation for pigs is different.

  498. Can you give us a figure for that, Bob?
  (Mr Bansback) The figure for beef is round about 172 pence. These are dead-weight prices because we obviously do not get the more traditional auction price with which you will be more familiar. The pig price at the moment is about 95.5 pence. If I may put that in perspective, when we have spoken about the pig industry before, we have spoken about a break-even point for the pig industry of between 90 and 92 pence, so it is only just above that level. This is actually lower than it was immediately prior to the onset of foot and mouth disease and is actually significantly lower than where we would have expected it to be now, because there is a tightening of pig supplies domestically, and, with the loyalty that retailers and others have, we would have expected that to have put prices up. So prices are less than producers would have wanted. But the main impact has been on sheep prices. Immediately after foot and mouth disease, the sheep price actually declined very substantially and it went down to something like 180 pence per kilo dead-weight. (That was in the low 90s live weight, if you are measuring it on that scale.) Although since then the price has recovered—that is partly a seasonal thing at this time of the year—the price is about the same as it was a year ago, but it is very important to understand that we would have expected prices to be substantially higher than last year. Last year was a very weak price. This year we would have expected prices to be perhaps 10 to 15 pence up on a year ago and the particular frustration for the industry is that on the Continent, in France, prices are something of the order of 40 to 50 per cent higher than they were a year ago, so they are experiencing very high prices.

Mr Jack

  499. Why is that? I was fascinated by that in your evidence.
  (Mr Bansback) It is mainly because we have a two-tier market in the European Union. We having been the major exporters to other EU countries—we are the main supplier of lamb to other European countries—as soon as that volume of 100,000 tonnes or thereabouts is not available, they cannot immediately source additional supplies, and France was the major market, so France is where it has been most dramatic.

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