Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 333 - 339)




  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.


  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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