Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 340 - 359)



  340. The value of sterling—you are saying that is the main reason why your incomes are falling—includes the price of diesel as a factor. You would say a rise in the value of sterling is an important factor.
  (Mr Gill) For our output prices the rise in the value of sterling is a major determinant factor. There are many other factors that I could go through in great detail, Chairman, if you want, but I will not do that. Certainly, in terms of fuel, the oil price is dollar determined and the dollar/pound value exchange rate has been much more stable, although the slight weakening in recent months has contributed to that price rise, obviously.

  341. Can I just ask you: are there any farm based operations which require you to use fully taxed diesel?
  (Mr Gill) Yes. For example, the farm vehicle I have runs on fully taxed diesel, even though a considerable proportion of its use is off road. We cannot change an engine over all the time. The only vehicles which use red diesel are tractors. There was the exemption during the fuel crisis. It is very dangerous to change from white to red diesel, if anybody tries it the dye stays in the system for a long time and so you risk a very heavy penalty. I do not believe there is any significant abuse of that privilege.

Mr Baldry

  342. It is difficult to think of a time when the fortunes of farming have been collectively more dark than they are at the present moment. I think the agricultural sector is something which might be described as approaching crisis level. Within the politics of the possible it is, however, unlikely that the Chancellor is going to make a dramatic reduction, indeed if any reduction at all, on petrol duty. I just wonder to what extent have the NFU, colleagues in the CLA and others, considered what sort of package the Chancellor might be able to put together that could, to a certain extent, be a ring fence for agriculture and help the farming and rural community?
  (Mr Gill) We have looked at a different package within the remit of the Ministry of Agriculture, Fisheries and Food. I am in dialogue at the moment on the issues of the currency value as you may have seen reported in certain parts of the media today. On the issue of fuel, it is very difficult to distinguish between farmers and the road hauliers that we depend upon. It is a very different business hauling for the farming community. They are rural, they are off the beaten track, you do not get the ability, as you do in mainstream haulage, of backloading, which is a way of mitigating costs. It is specialist in handling grain and sugar beet and other commodities, you need to know what you are doing. It requires the proper vehicles for it. The drivers need to know what they are doing in the loading. We find in terms of the lorries coming on my farm, to offload grain and other products, they are very often very small companies and rurally based and in many cases those companies are offshoots of farming businesses but they have diversified. What we seek to do is distinguish between the problems of fuel that are bearing down on our industry, making us uncompetitive, and particularly the impact of white diesel or derv on our total costs and road fund tax for the heavy goods vehicles.


  343. You have identified an area of the freight business which is almost agricultural specific.
  (Mr Gill) Yes.

  344. Do you think there is an argument there for extending the red diesel fuel to people like that? At the present moment the assumption is that you cease to be agricultural when you move out of the field on to the road, if I can put it that way. Given the notional perimeter of operation, do you think it would be sensible or would you be sympathetic to arguing that red diesel entitlement should extend to those activities which are exclusively agricultural in character in terms of freight? If these people can show that all they do is serve the agricultural community, they are not doing little homers on the side, would that be a way of addressing some of the costs?
  (Mr Gill) In our Budget submission we made to the Chancellor at the start of August, we made a clear case that there was an argument that supported the need for a rebate of the type that is available to passenger vehicle trade, the fare stage operators of transport, personal transport for commercial businesses, of which agriculture is a key element. I need to reiterate the point that we understand the need to be aware of climate change, more so than many, Chairman, with the vagaries of weather that we have seen in the last few days. The person who runs my farm rang me on Monday night to tell me he thought he had better start building an ark to get all the livestock in it was so dire up north. As I came down on Monday it was a sight that I had never seen with the logistical problems that we have there. We cannot use railways, it just does not lend itself to railways, we have to rely on road transport, it is specialised transport. The sugar beet industry as well, that is a specific example that I think you have had referred to earlier today, that requires transport on a concentrated period while the sugar beet factory operates on a seven day week, 24 hour a day processing, even through the Christmas period, it does not stop. That is a period of time from October through to February and then what do you do with transport the rest of the time? It is very different from transport for other parts of industry as such, and we feel there is a very strong case for addressing this issue. One final point, Chairman. I do not think there is an appreciation generally of how big a proportion in total that food transport makes up. I did suggest on a radio broadcast a year ago, a year last Easter, that a useful ploy for parents with bored children in the back of their car would be to stop them fighting and ask one to count lorries and the other to count how many food lorries. If you do that you will be quite amazed how much this is an effect on our cost of food to the consumer in Britain compared with, say, France, particularly when you look at the total figures. If you add up the cost of VAT plus an annual fuel duty we are running in the UK at about £24,500/£24,600. A comparable figure for France is £10,800 or for Germany a comparable figure is £11,700. That is a massive difference in overhead that we have to bear.

Mr Morgan

  345. Can I just ask how practical it would be to give some kind of tax rebate to certain users? I think you have already said about the difficulty of your own vehicles, of changing from red to white diesel and back again. In my own constituency we have lots of rigid milk tankers going around which cannot be used for anything else. On the other hand, there are many milk tankers that are now drawn by tractor units. The tractor unit can pull anything so it would be possible to identify that tractor unit as specifically an agricultural vehicle.
  (Mr Gill) I think that is a fair challenge, Chairman. When we first looked at this I wondered how we might do it but when I became aware that it works for fare stage operated buses, and it does work I am told satisfactorily, then I do not think it is beyond the wit of man to address this issue. Perhaps a better way would be to use the white diesel as per normal because chopping and changing between white and red would be impractical and look for some rebate, a rebate as is operated elsewhere to the operator of the commercial vehicle.

  346. The other question, maybe you have answered it. You said in your latest submission, the one which covered red diesel that "... there is evidence to suggest that many oil companies in the UK are operating a differential fuel pricing regime against commercial users of fuel ...". Is that the factor that you have alluded to already?
  (Mr Gill) That is exactly the factor I have alluded to already, the two points of pump price that we see as we have driven around the country for white diesel and the fact there was a significant change in red diesel against that static price in white diesel at the pumps.

  347. You are not suggesting that the Government can do anything necessarily about the basic price of red diesel, but are you suggesting that there maybe something to investigate under the competition laws, for example?
  (Mr Gill) I am making the point that something peculiar happened in the market place that really did cause enormous concern for farmers who bore the brunt of it and the timing was such for the arable farmer at our bulk use time of the year when we are drying grain.

  348. Have you asked the DTI to investigate that?
  (Mr Gill) I wrote to all the fuel companies, as I said, and I thought the best thing to do was to see what they had to say. Once we have had that reply then we will reconsider what we need to do next.


  349. This is the kind of thing that in any conclusions and recommendations we make we may draw the attention of the Office of Fair Trading to. If there is an abuse then they are the people in the first instance who would be able to look at it. It may well be, if my colleagues decide, we might well nod in that direction in a report.
  (Mr Gill) If we can supply you with any statistical series I am only too willing to do so, Chairman.

  Chairman: That would be helpful.

Mr Chope

  350. This morning, Mr Handley from the Farmers for Fuel gave us quite a lot of evidence about the number of foreign trucks that he observed visiting his farm. Are you able to give us any figures for the number of your members who use foreign based hauliers to transport their goods?
  (Mr Gill) Because of the rural based element of the farming industry, if you take the bulk commodity element, this is cereals and sugar beet, that would be essentially done by locally based hauliers. What we have found though is some of those hauliers, to avoid punitive levels of duty, have changed the registration base of their vehicles. I have known one that has changed it to Ireland, others that have changed to Holland to abuse the tax. They also have other businesses which mean they have vehicle bases in that country that facilitate that and I am sure that it is all perfectly legal. On the other side of the industry that we have not touched on so far, Chairman, there is an involvement and that is on the livestock sector, and particularly the export of live animals. What we have seen is a significant move away from those involved in live export, and the only animal of significant export at the moment is live sheep—there are live pigs but they are minimal in number—where there is involvement of foreign companies coming in to Britain to pick up their stock to haul them in to some staging post across the channel somewhere, perhaps Belgium or Holland or Northern France, before they go on to their final destination.

  351. Have you got any figures for the growth of that trend?
  (Mr Gill) I have no specific figures today. We could try and elucidate them but I can tell you that one of the major live exporters of sheep, who was responsible for about 25 per cent of the market until less than a year ago, pulled out of the market completely. Talking to the company responsible for the ferry last week, that gap has been filled almost totally by a Dutch company.

  352. What happened to that hauliers' vehicles?
  (Mr Gill) They were sold on. They were sold on to other people in the business. They can be used internally but for export they are indeed very specialist vehicles and very expensive ones. He took the decision that he was going to concentrate on UK slaughter and exporting of carcass meat because of the costs of running the fuel and other problems.

  353. We had a lot of evidence this morning from Mr Handley. To what extent do you and your members support the views of Mr Handley?
  (Mr Gill) I am sorry, I do not know what views he articulated this morning, Chairman. What I can say is my members are concerned about all their costs. They are concerned that farmers are not unfairly discriminated against in the fuel markets along the basis of the views I have articulated and they wish to have some remedy to this. After all, from 1993 to 1997, if I remember correctly, the fuel escalator was in place and fuel duty rose by five per cent in real terms. In 1998 and 1999 it rose by six per cent in real terms. That has compounded that differential in operating costs between Britain's operators and our European counterparts with whom we have to compete.

  354. Can I just ask about rail. Is rail a realistic operation as an alternative?
  (Mr Gill) I wish that it were, Chairman, because we, as I said earlier, are only too aware of the need to reduce carbon dioxide emissions and to look at the effects of climate change. The last time I remember being involved with agricultural products on the railways was when I was about seven, and that was a long time ago, Chairman. I would prefer not to divulge how long ago but it was a long time ago, and that was loading sugar beet on to a railway spur line which Dr Beeching axed.

Mr Morgan

  355. One of the things Mr Handley did say was that a lot of his members were NFU members but also he was getting a significant number of people leaving the NFU to join his particular organisation. Is he correct on that?
  (Mr Gill) All I can say, Chairman, is we have just come to the end of our year, yesterday, 31 October, and our membership is up year on year. That is for the public record if you want to examine the records.

Mr Laxton

  356. Notwithstanding the fact that you have already said, Mr Gill, specialist vehicles on farms are not interchangeable for other activities, but we did have some evidence from the road haulage industry that they operate an internet backload site, is that something which is feasible and something you would look at? Clearly, if it could be done, even perhaps to a relatively small degree, it could help and assist on the transportation costs into and out of the farming community.
  (Mr Gill) Indeed, we are all the time looking at that. It may be possible in certain circumstances. Take the sugar beet industry, I am a sugar beet grower, I am fortunate I am relatively close to the factory, I am 13 miles from the factory. Backloading is not an option there, obviously, you are back and forth. Indeed, for any haulier going in with sugar beet, with soil in the lorry, it is a problem, and you want to concentrate on sugar beet. The industry has moved on a lot in recent years. Through the Farm Assurance Schemes that we have put in place, we have tried to ensure customer confidence through clear standards. Lorry hygiene is a key element in that. You do not want to be putting soil based crops in a lorry and then wheat or barley. The same applies, you would not want to be putting other non agricultural products in to backload. It is not an open market in the main. There may be odd cases where you can do that and hauliers that I know try and do that wherever possible but it is not as open as with a flat deck lorry where you can do anything on it of that nature.


  357. Before you go, could you maybe give us a ballpark figure of what proportion of your costs are accounted for by fuel, your own costs in the farming industry? Does Mr Bratt have any figures?
  (Mr Gill) While he thinks, Chairman, can I put a caveat in immediately. There are direct fuel costs and then, of course, there are indirect, such as products that we buy based on fuel, nitrogen fertiliser is based on fuel, pesticides are based on fuel, and there are many other factors which come in. I just give those two examples. I do not know whether you would like to put a figure on it or we can try and give you one if you want.
  (Mr Bratt) It is exceptionally difficult, Chairman, and it does depend from sector to sector within the farming community. We can certainly go away and pull some figures out. To use Mr Gill's example of certain inputs being affected by fuel cost increases, an example you could use is fertiliser this year has been severely affected by the cost of fuel. We have done an estimate and fertiliser prices generally have gone up by 40 per cent since March 1999. A major factor in that is the cost of fuel. We have looked at individual imports and certainly we can submit some information on other areas as well.

  358. Is it not the case that for a long time when the price of a barrel of oil was very cheap the feed stock for the chemical processing industry was equally cheap?
  (Mr Gill) Yes.

  359. There is a volatility about this market which I suppose you guys have to live with really in the sense that the international oil price determines what the price of your fertiliser is, but by the same token there is the tax element on other things and because the tax is not levied on the feed stock, as I understand it, it will come down the chain into the chemical plant. It will not be quite the same impact.
  (Mr Gill) I think that is quite right, Chairman. I think there are lessons to be learnt here. It has been suggested to me, and I am not an expert in this field by any means, but one of the problems we have with the supply of fuel as opposed to oil is not so much the numbers of millions of barrels of oil available in the world market but the availability of the refining capacity to produce the product that we use. That is possibly a facet of an extended period of low oil prices which has led to under investment. That is a parallel that I hope people will look at with the sustained lack of profitability in the agricultural industry with farmers for successive years living off their depreciation which by its own definition cannot go on forever. Losing 22,000 jobs in our industry as we did in the last full year, for which we have official government statistics, that is June 1999, I cannot see the figures for the year 2000 will be any smaller and I suspect they will be even greater. That is a human tragedy that I think we ought to avoid and try and find the base cause of.

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