Examination of Witness (Questions 340-359)|
WEDNESDAY 13 FEBRUARY 2002
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 thatthat 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
(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
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
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 isand it came
through in our consultationa 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
Chairman: The fact it does not exist is an inconvenience!
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
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.
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
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
(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
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.
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!
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
(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 principlesand many farmers are co-operators
but, as I say, they do it implicitly rather than explicitlywhat
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.