Examination of Witnesses (Questions 333
- 339)
WEDNESDAY 1 NOVEMBER 2000
MR BEN
GILL AND
MR MARK
BRATT
Chairman
333. Good afternoon, Mr Gill. Can I welcome
you and your colleague, Mr Bratt. I think you are aware that we
are trying to build up a picture of the impact of fuel charges
on the British economy. We are not necessarily experts on farming,
as anyone who was here this morning probably realised, but we
do recognise that your industry is one of the ones which is, you
might say, freight distribution dependent. We realise that you
use differing forms of fuel in differing ways. I think we could
maybe start by asking you if you could give us some specific examples
of how the current level of fuel taxation is hitting farmers?
Could we start off with some of the concerns which your membership
have expressed to you? If you have any quantifiable information
as well as anecdotal then it would be perhaps more helpful. If
you do not have it but can get it then we will be happy to receive
it in due course.
(Mr Gill) Thank you, Chairman. I should
introduce myself. I am Ben Gill, I am President of the National
Farmers' Union of England and Wales. On my right is Mr Mark Bratt,
who is our Transport Advisor for the NFU. I farm in North Yorkshire
on a mixed farm and have done so all my life. In answer to your
question, Chairman, the apparent effect of transport costs on
farming to the outsider is just the cost of transporting inputs
in and outputs out. In reality, because of the way the market
place works, and because farmers are at the small end of the SME
size description of companies, in fact almost all at the micro
level, the imbalance in power and the change in retailers up at
the top end means we have seen increasingly over the years all
intermediary costs passed down the chain, witness this is one
of the reasons that you have heard many times is there why such
a gap between farm gate price and retail price. The prices have
been passed down the chain. I could give you details of fiscal
evidence that shows farm gate prices falling steadily over the
years, way below inflation and way below the cost of food price
inflation. The consequence is, as I am trying to explain, that
every transport journey from inputs all the way through to the
retail price, as an intermediate cost, tends to get passed down
to the person at the end of the chain, the farmers. Two years
ago, an integrated pig complex in East Anglia did the exercise,
costed everything from feed on to the farm, moving the pigs around
between units and different weaning stations, etc, through to
moving them to the abattoir and he was in the position, as the
owner of that business, to compare it with the transport situation
in France at the time as his son-in-law happened to run a transport
fleet in Northern France. This was two years ago so it is slightly
out of date but it illustrates the point. At that stage the differential
cost was that every kilogram of pig meat, as it left the abattoir—so
I have not built in all the additional costs down the chain—the
differential transport cost accounted for three pence every kilogram
of pig meat. That does not sound a lot but it is two pounds a
pig or thereabouts and then you have to go down the chain. It
is significant and it has become a bigger differential as time
has gone on to the extent that it bears very heavily on the farming
community.
334. What percentage rise have you been able
to identify in your overall costs as a results of the fuel price
hike?
(Mr Gill) As you may know, I believe you have taken
evidence this morning, our fuel is made up of a number of elements.
We have derv, which we use for our road vehicles and some motor
vehicles, where we have seen the standard rise elsewhere. Although
in more recent times we have seen the most bizarre situation where
when we are buying derv in bulk—and remember many farms
are remote from the filling stations and so it is not a luxury
it is a necessity, rural filling stations have been squeezed very
hard in recent times, my own local village has gone from four
to two in the last four weeks, pressures are on them, they are
not open all the time so we have our own derv supply—we
have seen that the derv we buy in bulk exceeds significantly the
price we can buy at the filling stations, particularly of the
price setters, which are the retailers. That is a cost factor
that we take into account. What we have seen also is if you take
the period through the summer to this month, this year we have
had a particularly difficult harvest, a wet harvest. I run a grain
dryer on my farm, that dryer tank needs to be replenished about
every five days, it is using a lot of fuel. When I first filled
it up before the season started the price I was paying of red
diesel, which is the tax of 3.13 pence, was about 17 pence per
litre, this was net of VAT. I take the prices I recorded net of
VAT. Net of customs duty, fuel duty, that comes back to about
14 pence. By the time we got to the time of the fuel protests
that price had risen to 25, 26, 27, so we are talking then 22
to 24. What you are seeing is in that very short period of less
than two months the price of diesel that we were using had very
nearly doubled. This raised a lot of questions because what my
members were seeing as they drove past pumps was the price hardly
changed in that time and yet the price to us as farmers almost
doubled. It does raise questions that I was not in a position
to answer. So I wrote to all the fuel companies asking them to
answer and only one fuel company has had the courtesy to reply.
335. They gave you the answer?
(Mr Gill) They have not given me the answer but they
have arranged a meeting which has yet to happen but is arranged
for a couple of weeks' time.
336. There is this ratchet effect that is caused
by VAT.
(Mr Gill) Yes.
Chairman: It is the last bite, as it were, and
it is the one which is pro rata. I have views about this but we
are not producing a report which will advise the Chancellor before
next week but we may come out with options that he might consider.
On the fiscal side of it the facts speak for themselves, but I
understand the problem.
Mr Morgan
337. What you are saying is the price of red
diesel to yourselves has gone up by a much higher percentage over
what period of time compared with the price of ordinary road diesel?
(Mr Gill) Over that period I am talking about I cannot
remember the exact date, mid July, when the price we paid, inclusive
of duty of about three pence, was about 17, so 14 net. By the
time we got to the fuel protests the price had escalated, just
before the fuel protest started to 25 pence, so 22 net. Some fuel
that came in during the protests we were charged at 27 pence.
If you want to ignore the 27 as a peculiarity of the situation,
still at 25, that is 22 net, 14 to 22 is an eight pence increase
on 14 while at the same time we had seen the pump prices virtually
static, I cannot say they were exactly the same because, as you
know, they vary with local competition. That is the point. That
is what my members are saying: "What is going on here?".
From indications, this was not just attacking farmers because,
as you know, red diesel does not affect farmers.
Chairman
338. One other point before we move on. Does
this affect your competitiveness as against your foreign counterparts?
(Mr Gill) Enormously. If you take the example I used
to start with of pig meat, three pence a kilogram is the difference
between failure and success in many cases. If we carried the exercise
through, and add in today, I could conjecture that figure is probably
double that amount. We are in a highly competitive market which
has become even more global than ever before, particularly in
sectors such as poultry meat where we are now subject to ever
lower tariff barriers and, therefore, ever greater access of chicken
meat from Thailand, for example. We import vast amounts of chicken
meat from Thailand and from South America, from Brazil, where
their costs are a fraction of ours. Indeed, the fuel policy of
the United States, if you look at their fuel policy, that has
a direct bearing. If they taxed their fuel for the agricultural
producing areas in the centre of America, the wheat producers,
at the same rate as we do, their agricultural business would be
driven out completely but, by virtue of their fuel being a fraction
of ours, they can use that as a direct subsidy—if you want
to use that word—that maintains their ability to produce.
It goes even further than that because we are finding now, take
an egg, you would think a fresh egg—No, you are not going
to have globalisation but the fresh egg market is moving into
the catering sector where they separate the egg out into yolk
and white and you can buy it and it can be transported very great
distances, so it has a material effect on our market. Chairman,
to sum up, there are two elements. One, there is the internal
market within the European Union where there are clear differentials
and the two aspects of fuel duty and road vehicle tax which in
the extreme, British tax, even after the reductions of the last
Budget, can be over ten times the level of road fund tax in some
of our other European competitors and there is also the differential
outside Europe of the world market.
Ms Perham
339. You have touched on the cost and use of
red diesel, in fact your submission also goes into more detail,
but is the main problem you are facing not a drop in income rather
than a rise in the price of diesel?
(Mr Gill) Certainly we have a major problem with the
drop in income on the back of the value of sterling. I am not
an expert in what the value should be. I tend to use two indicators.
The Irish punt, with which you will be well aware we used to be
pegged for many years, is in the euro at about 78 pence to the
euro. The World Bank, in January of this year, suggested a proper
value for sterling should be 81 pence to the euro against, and
I have not seen today's rate, Chairman—I apologise for that—last
night it was around 58 pence. That has a dramatic and immediate
effect directly through the price we receive from the market place
and indirectly through the comparable support mechanisms. That
has led to the collapse in farm incomes, incomes which have been
running at around a billion pounds now or just above for about
three years. The clearing banks have estimated that just to maintain
the status quo we need to be approximately three billion pounds.
I am sorry, these are big figures but there are a lot of people
involved and the figures add up. The Deloitte Touche Report, only
a few weeks ago, for arable farmers principally, suggested there
had been a collapse of 90 per cent in income over the last three
years and predicted the average income of their clients for next
year would be a loss of £4,000. One of those ingredients
is the squeeze from the reduced output prices as against input
prices rising up, over which we have no control, and we have to
look at every price we can do. Fuel has been a major inconsistency
with our European colleagues and the broader field over a long
period, which has become accentuated this summer.
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