Examination of Witnesses (Questions 670-679)
MS JOANNE DENNEY, MR JON WOOLVEN AND DR RICHARD HUTCHINS
WEDNESDAY 10 APRIL 2002
Chairman
670. Good morning. You know what our inquiry is about so I am not going to do any preliminaries on that but can I ask you, if we are talking about the manufacture of aircraft, nobody grinds on about the supply chain, if we talk about manufacture of motor vehicles, everybody seems to assume that components are delivered just in time or earlier and the car is put together and, if we are talking about construction projects, everything seems to go on almost at the time the roof is supposed to go on so why, when we are talking about the food industry, does everybody go into a tizzy about the food chain, the distribution of the food chain and the non-operation of the food chain, so we have food chain centres being set up? What is it that causes this problem in this sector which does not exist in any other known part of human activity in the liberal democratic economic system?
(Ms Denney) Firstly, and probably we "would say this, wouldn't we", is we believe that food is special and is different from some other industries. I think the first point I would make is that food touches everybody's lives every day so everybody has a vested interest. Secondly, the food industry is one of the biggest industries in this country: it is a big employer and a big contributor to GDP: we employ something like just over 3 million people and in GDP terms it is just over 11 per cent, so it is a big powerful industry where everybody has a vested interest, so I think it will always be No 1 on people's agenda. Next, people are focused on the supply chain because the first point, which is often lost, is that contrary to what people say we have one of the finest supply chains, comparatively speaking, in the world for a food industry. That does not mean to say there are not problems but comparatively speaking, if you go to Europe or America, the way in which the food industry in this country is leading in terms of innovation for fresh and chilled products is world class, and secondly, the logistics that we provide in this country are also regarded as world class. That is on the positive side. On the negative side, we have to be mindful that, having set the top level points, if you take any supply chain within the food industry, some supply chains work better than others. In some of the supply chains for particular products, for particular categories, there is good collaboration and they function well; others do not. I think there is a lot of focus on those elements of the supply chain which are not working, and if I can just cite one or two examples there will be some supply chains in particular where the information flows up and down the chain—which is important in terms of doing good business and delivering good value for the consumer—others do not function well, and I think it is particularly important to recognise that, if we look at the farming community in particular, there is a cultural divide which is historic between UK farming—or at least some sectors, particularly those where there are strong subsidies—and the rest of the food chain. I say that because retailing, manufacturing, processing and the food service sector are driven very much by the market place and they try very hard to focus on the consumer; whereas if we look at the farming community, particularly some sectors supported by CAP, they have traditionally been production-led, and they are very remote from the market place and I think some of the chains are quite complex so that the market signals, frankly, are being distorted and they have been disenfranchised. So there is some good and some bad and it is always at the top of the agenda, because it is food.
671. What is a market signal?
(Ms Denney) A market signal from my perspective would be where the consumer is, so it is about what the consumer wants and what he needs.
672. But I am the farmer, and whether or not I am sitting on a thousand acres of cereals in Ely in East Anglia or 500 or 600 acres of low quality boggy moorland in North Yorkshire, how do I know about signals? What do I do? How do I interpret these things? Do I have a satellite dish? What do I do to find out about these things to produce and give you what you want?
(Ms Denney) I think that is the question that we all need to focus on because that is the very point: if you are producing something and you want to produce something, then you need to know whether there is a market for that and I do not think the farmers, to be honest, have been able to access that information.
673. We are probably going to ask you in a minute how you think they should do it but let us just try and crystallise the points you are making. You are saying that at one end of the chain you have this very highly competitive, innovatory sector and I say, "What do we think of supermarkets", which at the moment seem to be falling over themselves to offer me air miles—that seems to be the latest particular thing—and at the other end of chain you have a largely state run or state dominated semi nationalised industry, which is farming. If there were not subsidies, what difference would it make? What would your world be like if there were not any farming subsidies?
(Ms Denney) I think if you were going to do that overnight—
674. Just tell us what the world would be like. Would it be easier to operate in? Would it be more successful? Would farmers get more reward?
(Ms Denney) If it was through an evolutionary process then it would be more positive for everyone because then people would be very focused on supply and demand and on the opportunities that are out there, and it would be driven by the market place.
675. What would you be doing in that world?
(Mr Woolven) To add to that, when you look at the different sectors of agriculture, there are obviously very different subsidy arrangements so you have some sectors of agriculture which have very low subsidies, for example, producers of pig meat, and if you want to get a feel for what it would be like in the other sectors, then clearly what has been happening in those sectors does give an indication. I would say that there are some special characteristics of farming which we are fully aware of, one of which is it is also a great public amenity in that it is about land management in the countryside, and that very important element needs to be taken into account. As the Curry Commission report recognises, there is a public good element about land management that really ought to be reflected if you look at it from the basis of economics. Also, there is an issue within farming—(a) it is very strategic industry so I think people feel vulnerable if you do not have a capability at least to feed your population to a certain extent, not necessarily one hundred per cent, but have a reasonable level of food production within your country—there is a strategic risk if you do not have that; and (b) there is a danger that, because of the commodity nature of farming, prices may fluctuate and exchange rates may fluctuate, and therefore in the short term, if you do not have some sort of safety net, then there could be severe damage to your farming sector which in the long term you may not wish to achieve. So I do not think we would say "Fantastic" if you just swept away all subsidies: what we would say is that without subsidies you would get more market focus, but you may need to have some sort of safety measures and you may also need to reflect the other role of farming which is being steward of the countryside and arrange payment for that.
676. I do not know whether you are asking whether we should have environmental payments which are the equivalent of production payments, and what do you mean by safety net? For example, if you take poultry production, which after all is non-subsidised, we have received evidence which shows that most of it has migrated already and the rest is on its way. That is a non- subsidised sector which is not flourishing. So what do you mean by safety net? What is the mechanism which provides a safety net?
(Mr Woolven) This is not my area of expertise and I would not like to recommend specific policy instruments because that is not the role of IGD: we are a research and education body. I would just take an economist's view of it and say that if you had no safety net then a period of high exchange rate such as we have at the moment by comparison with Europe, and these are special conditions because of the introduction of the euro, could cause very severe damage which, if you take a longer term view over 20/30 years, you may grow to regret. So some form of safety net may need to be factored into agricultural strategy if you take a logical economic view. I really could not advise on precisely the form that that might take.
Mr Jack
677. The Institute of Grocery Distribution has a very good reputation, as you were saying in your introductory remarks about the food chain. Given that you seem to have all the elements of the Food Chain Centre, why was it necessary for the government to create another one?
(Ms Denney) Firstly, what we are being asked to do in the Food Chain Centre really does build on our heritage and you are absolutely right: because IGD is a research and education body, it is totally chain focused. We are there to bring people together; to resolve issues; to identify opportunities for improvement and to develop and share practice. That is our day job. The fundamental differences between this in terms of our day job and the Food Chain Centre is that we get a chance with some funding to work with people, first of all, outside IGD's membership, so we can get to a much wider audience, but I think we have an opportunity to go narrow and deep in a way we have not done before because this time we will get a chance to look at individual sectors, and indeed particular products or particular categories as specified by all of the stakeholders. So there are two subtle differences.
678. So how are farmers going to be drawn into this process?
(Ms Denney) First of all, we will have to have representation of the farming community on the steering group, whether it be a farmer or whether it be some of their representative bodies, and in some of the specific project groups, where we look at some of the supply chains and put them under the microscope, we would expect there to be the broadest range of stakeholders taking place.
679. If you are talking about this broader group of people on the steering group, can you just tell us a bit more about who they would be? According to the press release put out after the great Downing Street summit, the work in this organisation has already started. You selected red meat supply chain, horticulture and grain as three areas to work on, possibly without having all of these people on the steering group, so I am a bit confused.
(Ms Denney) If we just take the first bit, we have agreed to look at red meat and at fresh produce, and we have put together just a small briefing paper about what we might do there for discussion with the steering group, and that is very much about following the letter of Curry because that is the directional guidance we have been given. Clearly, if the steering group feel that is not right and appropriate or we receive representations from other sectors then we will have to review that, but if we think just about red meat where the livestock sector faces enormous hardship and challenges at the moment, most people agree that has to be one of the priorities. We are also in a positive position there, because you will be aware that the Meat and Livestock Commission, DEFRA, NFU and the IGD have been working on the red meat sectors for six months because we have been concerned about the plight of the livestock sector, and we have been very successful in bidding for some money—notwithstanding all that was going on in the Food Chain Centre which we did not know at the time—through the DTI for their industry forum adaptation scheme, and the DTI have given the food industry, in particular the red meat sector, £1.5 million over three years to have a look at some of the meat supply chains to help us set up some benchmarking, but most importantly to do value chain analysis. Given that we have that money and that we have been working with the whole industry across the chain on red meat, it seems there is an opportunity here to get a head start.
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