Examination of Witnesses (Questions 489
WEDNESDAY 2 MAY 2001
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 rewardsand 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.
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 meatas 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.
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
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 recoveredthat is partly a seasonal thing
at this time of the yearthe 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.
499. Why is that? I was fascinated by that in
(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 countrieswe are the main supplier of lamb to
other European countriesas 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.