Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witness (Questions 340-359)



  340. Do you believe that there is insufficient profit within the total food chain to provide these sorts of costs?
  (Sir Donald Curry) If the question is are the retailers making too much money and should that be more fairly spread?

  341. You may say that—that is exactly what I am saying! That is at the heart of what many people believe, that at the end of the day the farmers are getting insufficient profit for their normal activities, a poor return on their investment, an insufficient return for their labour and much of that is because it has been absorbed in other parts of the food chain, ie, the retailers.
  (Sir Donald Curry) It is certainly true that the farming and food processing sector is not achieving an appropriate share of the end retail price for the effort they are putting in.


  342. We are going to move on. Would you like to finish your sentence?
  (Sir Donald Curry) PLCs have to satisfy shareholders. It is essential, however, that within the food chain we drive down costs and improve the efficiency of the chain so that everyone benefits.

  Mr Breed: Not if at the end of the day we the public are putting money in at the bottom end to feed up to the shareholders at the top end, but that is another story.

  Mr Mitchell: I want to talk about competitiveness. I notice in your Report you recommend that Government should let farmers receive their direct support payments in euros. So you want to improve their situation by paying them in an appreciating currency!

  Mr Todd: Where is Bill Cash on this Committee?


  343. He has been using euros for the last two days and is still recovering from the trauma!
  (Sir Donald Curry) We recognise in the Report that the strength of sterling relative to the weakness of the euro, whichever way you want to view it, is a serious competitive handicap that the farming and food industry is facing at the present time. We have had that problem now for four or five years with the high value of sterling, and with European currencies, and now the euro, relatively weak compared to sterling. There is—and it came through in our consultation—a desire particularly on the part of larger farmers to have their support provided in euros so that they can take advantage, if there is an advantage, in purchasing inputs from wherever across Europe if they can do that at lower cost.

  344. From outside Britain?
  (Sir Donald Curry) Exactly. So they could set up bank accounts elsewhere, have them paid in and fund those imports in euros. They believe there is a commercial advantage to have that accessible and available to them.

  Mr Mitchell: You also say that it would be wrong for us to recommend an exchange rate policy to the Government. You say that just before you go on and recommend an exchange rate policy to the Government! The euro is not really the answer, is it? You infer that it is. The real problem is we have a Common Agricultural Policy but we do not have any longer a common currency. When we had the ecu sterling was it part of it and its fluctuations were taken into account in the payments farmers received. The answer is really to go back to the ecu rather than go over to the euro.

  Chairman: The fact it does not exist is an inconvenience!

Mr Mitchell

  345. Chairman, that is wrong, it does exist. It was always a theoretical calculation based on a basket of currencies and it can be that again.
  (Sir Donald Curry) Chairman, we believe in facing reality and I do not think it is realistic to assume that we are going to go back to that situation.

  346. You do not think the Common Agricultural Policy should have a common currency?
  (Sir Donald Curry) It has a common currency. We state quite clearly in the Report that the farming industry is operating in the euro zone but in a different currency and that is seen as a serious disadvantage. It is inappropriate for us to make a serious recommendation on euro membership. We clearly point out—


  347. Sir Donald, why is it inappropriate? You are doing a report on the future of farming and you are doing a section on profits and yet you say it is inappropriate. You make one sentence, you put your toe in the water and say, "Whoops, that is a bit hot", and you come out again. I would have thought this ought to be a central part of the future of farming.
  (Sir Donald Curry) We have gone as far as we believe we should in stating that at the appropriate rate it would be an advantage to participate in the euro. To go in today on the basis of the pound/euro relationship would clearly disadvantage the industry forever.

  Chairman: We are all agreed on that.

Mr Mitchell

  348. In fact you must not come to a recommendation, unless it is one that I agree with! On the issue of competitiveness, leaving aside the issue of currency fluctuations, how competitive is big-scale agriculture? It is always telling us it is well-invested, productive, well ahead of most of Europe.
  (Sir Donald Curry) Five years ago I think that statement was true. We were very competitive. We did have a highly efficient industry which was well-structured in terms of scale, but our competitiveness has seriously declined over the last five years and we have a graph in here.

  349. Is that because the others have improved or because we have gone downhill?
  (Sir Donald Curry) It is probably a bit of both. It has been significantly influenced by the pound/euro relationship which we have been talking about and the lack of funds to reinvest. Our competitiveness is declining, we are not making profit, we are not reinvesting, and indeed we are not applying efficiently the technology that we have available to us now, which is why we make the recommendations on R&D and technology transfer and demonstration farms, etcetera. We need to reverse this trend very quickly.

  350. You want to improve the efficiency particularly of the worst producers. I would imagine the worst producers are the smaller farms and yet you told us earlier the smaller farms are either run as a hobby or, if it is not an oxymoron, gentlemen farmers or by people who have other jobs on a part-time basis, and therefore they are bound to be less efficient, and it does not really matter.
  (Sir Donald Curry) We do not assume that the worst producers are the smaller farmers. What we are saying is if everyone achieved the performance of the best we would significantly raise the output and efficiency of our industry. We recommend that benchmarking knowledge and information should become standard practice and that we should improve the performance of our industry based on that sound knowledge, and there is no reason why we cannot. There will always be constraints in individual farms, whether it is geography or size or particular features of the farm, but within that there is no reason why we cannot apply sound benchmarking measures to improve the efficiency of the farms.

  351. Do you think farmers have access to sufficient information to do this benchmarking?
  (Sir Donald Curry) Not at the moment which is why we need to initiate substantial research, not just here at home but internationally in terms of what production costs are with different commodities and at different stages in the chain.

  352. What role would the removal of subsidies and support have in stimulating competitiveness? To a cold-hearted monetarist, which I am not, if the big farms are efficient and the small farms are run for other reasons by people with other jobs, other sources of income, or gentlemen farmers, or something on the side or whatever, then why should either be subsidised?
  (Sir Donald Curry) We are saying that they should not be subsidised for food production. Our long-term vision —

  353. Long term, yes.
  (Sir Donald Curry) We have discussed that.

  354. You are recommending transition from the British Government as well as subsidies from Europe in the last analysis.
  (Sir Donald Curry) We are recommending that the industry is supported, as I said before, for other reasons but not for the production of food. I am not suggesting that this is a perfect model but those of us, including I am sure some of yourselves who have been to New Zealand, would have great difficulty in finding a New Zealand farmer who wanted to go back to a subsidised food production system.

  Mr Mitchell: I agree absolutely. We were told by politicians in the late 1970s and early 1980s that British manufacturing, British industry would be greatly improved by the cold shower of competition, the removal of protection and subsidy and support. It was as if British industry were a recalcitrant public school child and you just shoved it in the showers and it became competitive.

  Mr Simpson: Happy days!

  Chairman: This is not a commentary on what goes on in the showers.

Mr Mitchell

  355. It is a question of effect. Would agriculture be stimulated by removal quickly of subsidy and support?
  (Sir Donald Curry) I do not believe that process should take place quickly.

  356. That was done in New Zealand.
  (Sir Donald Curry) Yes it was, but they have a very different farm structure in New Zealand and did have then, and they have a much more favourable climate, and they do not have a public that has the expectations in New Zealand of their countryside and animals and animal welfare standards that we have here. We have serious regulatory costs. We have the demand to deliver very good animal welfare standards and good environmental standards. We have 58 million people; they have 3.5 million in New Zealand on a land mass the same size, so we have different circumstances.

  Mr Mitchell: On the question of animal welfare, I think the happiest sheep grow up in New Zealand.

  Chairman: We have had "bit on the side", what goes on in the shower and I am not going on to the ways of measuring the happiness of sheep!

Mr Drew

  357. If I could look at the obverse of the competitiveness angle which is one of the fundamental differences between farming here and mainland Europe and the rest of world which is lack of co-operation, both within farmers and other parts of the food chain. Why do you talk about "collaboration" and not "co-operation"?
  (Sir Donald Curry) Because we believe that business structure is not crucial to achieving the objective.

  358. Yet every other part of the world has much larger co-operatives. I am not saying we do not have agricultural co-operatives in this country but we do it implicitly rather than explicitly and that is a fundamental weakness in the way in which farmers inter-react with the market-place. I am sure you would agree with that.
  (Sir Donald Curry) Yes, of course, but you are talking about a principle here rather than a business structure. The composition of the business itself is fairly irrelevant provided we achieve the benefits of farmers co-operating together. You are speaking to someone who has set up a co-operative and continues to chair a co-operative. Provided co-operatives are well-managed and they are well-funded and they operate on purely commercial business lines with the same disciplines as any other structure, there is no reason why they cannot provide the benefits and deliver the goods we expect. It is possible to achieve that through other structures, which is why we do not want to and we think it is appropriate to confine our recommendations to co-operatives only. It is crucial to the improvement of our efficiency. Having farmers focused on the market and accepting the disciplines that are necessary has proved to be one of the difficulties many co-operatives have faced in the past and they should not be seen as having a continuing social role in supporting inefficient farming businesses. They must be able to impose the disciplines necessary to focus on the market and it is very important that we look at this not only as farmers collectively getting together in a co-operative way, but also integrating with the next stage, the first stage processing, and collaborating fully in that whatever form that business structure takes. The two in my view and in the view of the Commission should be welded together.

  359. I do not disagree with what you say about getting hidebound on structural change, but unless farmers understand co-operative principles—and many farmers are co-operators but, as I say, they do it implicitly rather than explicitly—what you should be calling for, surely, is a way in which farmers are encouraged to co-operate both in terms of understanding what the benefits are but more particularly how they can do it in practical ways. To have come up with the idea of collaboration you must have come up with some working examples. Can you fill us in on how you see that happening.
  (Sir Donald Curry) There are some very good examples of co-operative ventures succeeding, but they are too often the exception rather than the rule, and scale is an important factor here. You will know that we are making a recommendation to the Competition Commission and the attitude they have taken to the scale of co-operation, particularly with the milk industry in mind. Our recommendation on the establishment of a collaborative board is a very important recommendation in this respect. We hear all the noises at the moment and lots of organisations, indeed, even the major retailers were encouraging us through our consultation to have farmers collaborating together/co-operating together much more than they have done historically. They want strong suppliers able to supply them 52 weeks of the year on given products consistently. The messages are all there, everyone is saying this, but we are not getting sufficient energy around this area, and the efforts at the moment are fragmented. A number of organisations have an interest in this. There is not sufficient resource and we are not seeing it happening to any large extent. So we want to really drive this very hard and get everyone working together through this collaborative board which is properly resourced with additional government grant to encourage it, with venture capital available to fund, where necessary, collaborative ventures. We really do see this as a crucial area.

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