Examination of Witnesses (Questions 1020-1036)
MR MARK THOMASIN-FOSTER, PROFESSOR ALLAN BUCKWELL, MR BEN GILL CBE, MR MARTIN HAWORTH, MR REG HAYDON AND MR GEORGE DUNN
WEDNESDAY 8 MAY 2002
1020. It has been this way for a long time.
(Mr Dunn) If you look at the figures which we put in the submission which we made to the Committee, we are not talking about people making mega amounts of money from this scheme. We are looking at an amount of money which will only be attractive to people who are on their uppers already because they are in such financial difficulties. I would hope that the politicians, when they put these things into their manifestos, have thought about the morality of the scheme and so on.
1021. I am asking you, what is your response to the morality of it?
(Mr Dunn) From our perspective, we have been, of the three organisations here, the one that has been most fervently in support of this. We believe that there is a moral argument that these people have been led by the nose since the 1970s by the CAP. The CAP has left them high and dry. They are now in a position where they cannot make a choice for themselves because of the financial position they are in. There is a question about restructuring for the whole of the industry and for the benefit of the whole of the public that these people need to get out, therefore there is a wider public good as well as the moral good for the provision to get these people out. Are you saying that tenant farmer families should not have housing?
1022. I am just asking why, in the scheme, we are taking this particular group of people who have been in an activity, self employed like many other people in small businesses up and down the country. I am asking why we should do that.
(Mr Dunn) If they were to leave the industry now, forced out because of their financial circumstances, they would fall on the local housing lists and be a drain there.
1023. But so are many others.
(Mr Dunn) We have put in our submission a scheme which would encourage the landowner—the landlord in this instance—to let them have somewhere to live in return for a capital gains tax kickback. That is something which we have put in our paper to solve that issue on the housing side, and we think that is very important.
1024. Very quickly, could we have a view from the other two organisations of the CLA and the NFU?
(Professor Buckwell) Can I say that we were very much in favour of this a year or two ago. We did not persuade our partners that the way to handle it is modulation and getting our money into Pillar II and therefore we stopped pushing. Although we are not against it, it is interesting how many farmers took the opportunity of a huge amount of cash in their pockets post FMD to retire. The answer is, remarkably few. I do not get the signal that there really is a massive demand for this out there, but if there are a few and it could help them, then we should look at it, but we have put our emphasis on trying to help them with the housing problem.
1025. What about the NFU?
(Mr Haworth) I would not disagree with what has been said about the need to help new entrants, but let us get this into perspective. The main thing to help new entrants is to have a profitable industry. It is no use attracting people into an industry which is not offering them anything.
Mr Jack
1026. For as long as I can remember in discussion with farmers and farming organisations the question of producing for the market place is always cited as the way forward. I wonder why, 20 or 30 years since I heard that question asked, we are still asking it. Food chain developments have become, if you like, flavour of the month in the light of the Curry Report. What are each of your organisations doing to improve links in terms of your membership who are part of the food chain, to ensure that production is very much focussed on what the customer wants? What are you doing to get customer feedback to the primary producers, so that they might know what customers actually do want, bearing in mind that there are some powerful intermediaries between you as representatives of primary production and the final consumer?
(Mr Gill) I regret it is a common subject, and I regret it has been going on for too long, and I regret the message has not been picked up by many until recently. It is the pressure of adversity which can be used to push it through. If we go back far enough, Mr Jack will remember in the late 1980s and early 1990s there was a similar big push. The pressures were enormous at that time, when the interest rates shot up, even for a few hours, to 15 per cent. Many thought they would be leaving the industry then when the pressures for change were enormous. That was removed when we came out of the exchange rate mechanism, the pound went down to a low of 2.17 DM and people thought they could market. We were told in the NFU by many people that the days we were predicting in the early and mid-1990s of wheat at £60, £80 a tonne were pure scaremongering, that we were totally out of touch with reality. In fact we have been proved to be correct. That does not give me any sort of comfort at all. The fact is the pound disguised those figures as it is disguising things the other way now. The need is greater and we will continue to push it. What have we done? We created an additional category nine or ten years ago called NFU Corporate, to bring together the co-operative sector, to encourage the co-operative sector, we have sought to promote that by encouraging co-operation and market focus. We persuaded the current Government in the previous Parliament to re-introduce the market and development grant schemes, to try and get money there. Unfortunately far too much of that money still goes to consultants and to politically correct projects rather than actual projects which are needed. I think the Government would be better focused, although Treasury and the auditors will get cold feet I am sure, in putting a few, relatively large amounts of money into big projects which are pathfinders, centres of excellence for the industry, to take the industry forward. We put a project in during the last round and it was turned down because it was too big and for other reasons which I still find difficult to properly comprehend. We have also sought to push forward farm assurance. It is not easy. You know that very well. There are members who do not understand the need for farm assurance. We are trying to connect the producer and grower with the customer, so there is that food chain there so we can see the thing through. We are making steps forward. We have developed the little red tractor which goes on products. Unfortunately, the eye was off the ball last year and we have not been able to push it forward as we would have done because there were other pressures but we are going ahead with vigour at this time to develop it further. Finally, we have been instrumental in forcing forward the suggestion in the Curry Commission for the English Collaborative Board. That has already had a steering group meeting and there will be two more and hopefully it will come to a conclusion and recommendations, because I think the structure is correct, which can push the whole sector forward and become focused through employing what is critically important in the collaborative structure, the best people in the job who are paid salaries commensurate with their skills and not, as all too often has been the case in the past, who are paid peanuts because you will get monkeys.
(Mr Haydon) It is very difficult to persuade farmers that they should be taking a clear interest in the food chain and in co-operation. For many of them their attitude is that when the tanker leaves the yard in the morning, they wave goodbye to it. Obviously we have to get away from that.
1027. But why? That has been there for years. Why should they?
(Mr Haydon) Yes. We have to get away from it. What we are trying to say to our members is, you have to look beyond that. I do not want to take you back through the chaos of the Milk Marque situation where a large, successful organisation was broken up into three bits and then broken up again and there has been all sorts of fall-out from the industry. I am a milk producer and I form part a very large co-op which stretches across the South of England. That is not necessarily the be all and end all, as you well know. There is a worldwide glut of milk and we are having a terrible time, but co-operation in the main sectors is the thing we have to go forward on. Ben has mentioned the farm assured schemes, they are now touching every aspect of the farming scene. I am a livestock markets man, I support them vehemently, but now cattle going through markets must be part of something like a FABBL scheme or the buyers will not even look at them. We are trying to educate our members that they have to go down this route. They have to take more interest in farm assurance, in co-operation, and take an interest through producer groups, whether it is a lamb market, a beef market or a milk market, in where their product goes at the final end.
(Professor Buckwell) Once you have accepted the policy change we have been discussing has to come about, in other words that we cannot in the future rely on production-related supports, then in a sense it turns the mind to, "You are going to get a return from the market, you had better understand the market". So the fact there are organisations which have promoted and pushed for that general line indicates our acceptance that it is their responsibility to raise quality and their returns. As others have said, there are a lot of things you can do to improve that. Just one other issue, and it follows the discussion we were having earlier with Gillian Shephard before she left, there are issues about the behaviour and the structure of food processing and food retailing. They have massive economic power and there are issues about how they use that power. Gillian Shephard was illustrating this by the intensive livestock sector, and it is the case that a huge proportion of intensive livestock products—chicken and pig products—are consumed through the catering sector and through prepared meals, convenience foods, where people are buying a recipe and are not asking about the origin of the food or the standards of animal welfare, environment and so on, which are attached to that food. There is something missing here and it is to do with the power of those chains, the fact they are driven to this massive concentration and huge size employing techniques of production which would not be acceptable in this country. There are problems about international standards, about import controls, there is a big agenda there where we feel domestic production is hampered by those considerations and the behaviour of those parts of the food chain, but I am opening up some big subjects here.
1028. I will not go into those, I want to go back to the point that Reg and Ben made about the English Collaborative Board. Co-operation has had a very rocky road in agriculture and indeed in horticulture in the UK, what do you think this Board's work agenda should be to address those issues? Why does, if you like, "co-operation" not seem to work as well here as it is said to work in other parts of mainland Europe?
(Mr Gill) I think it stems from the fact that we have always had a larger farming structure and it has tended to be significantly bigger than our European competitors who have no alternative but to work together and then see the benefits. Having said that, there is one very significant exception which has been an enormous success in the UK farming and ancillary industry in terms of mutuality, and that is our own insurance company, the NFU Mutual, which is a leading body and has been extremely successful in what it has done in terms of providing competitive insurance for the farming membership. What we want to do and what the English Collaborative Board needs to do—and I do not want to pre-empt what it will do- is set down guidelines of best practice and find out what incentives need to be put in place to ensure there is proper training, ensure there is a resource there, ensure we can bring in other outside skills. A lot of collaborative ventures need basic skills not specific to agriculture—marketing, office administration, finance, legal—there is a whole raft of people out there who have taken early retirement who are on good pensions who, I am sure if put into a central database, could be contacted and drawn in to advise in a mutual way for the benefit of rural communities. To start to establish best practice and codes of practice is actually very important, to stimulate and show to the average farmer the long-term benefits of belonging to collective membership.
1029. The Food Chain Centre has been leapt on by the Government as one of the findings of Curry which is to be associated with putting some money up-front. Are any of you going to be involved in the Food Chain Centre? If so, how? How are you going to make certain the data it collects is of relevance and how is the information from it going to be pushed back down to the farming members of your respective organisations?
(Mr Gill) The key element of passing it down will be through to the Collaborative Board or through to the co-operatives who need to have this information. I personally will not be on the steering group, but the Director-General of the NFU, Richard Macdonald, will be on the steering group as indeed will my Deputy President, Tim Bennett. They will both sit on the steering group under the chairmanship of Deirdre Hutton and will do the guiding principles in that area. It is a matter of ensuring that the statistical information and general data is collected in a way which is proper and according to guidelines. What we need to know is what is best practice elsewhere in Europe. One major grain trader put it to me recently that he traded elsewhere in Europe and yet he, the trader, was paying more for British grain than he had to pay elsewhere yet he was acutely aware that the British farmer was getting less than elsewhere in Europe. Chopping out the unnecessary links in the chain is a critical part. Even though "Old Jim" may have been a faithful person in that chain for donkey's years, we cannot afford to have that luxury if he is just adding costs and no value to it.
(Mr Haworth) We are also seconding two members of our staff to work at the Food Chain Centre.
Mr Drew
1030. On the topic of insurance, we had a couple of representatives from Guy Carpenter last week and they gave us the figure that less than a third of farmers are now actively involved insurance—we were primarily talking about livestock insurance. Does this worry you? At the moment the Government picks up the bill, but that will not remain for ever the story.
(Mr Gill) I am somewhat confused by what you mean by "less than a third of farmers are involved in livestock insurance". It depends what category of insurance you are referring to.
1031. These were figures they gave us. I know we have all sorts of different diseases insured against but they gave us some stark figures.
(Mr Gill) There are a whole raft of ailments which you could opt into or not. For example, do you have a policy against lightning strike? Some people may deem that as a risk they want to cover, others not. Do you have a policy against stock getting out? I would be surprised if all farmers do not have public liability insurance against livestock getting out on public highways. If you are referring to the consequential losses from a disease outbreak, that is a very different thing altogether. The cost now to insure against disease outbreaks such as foot and mouth disease is horrendously high, and that insurance cost was only for consequential loss and was a top-up; it would not cover the totality of any compulsory purchase scheme.
1032. I should have said, we are talking about disease outbreaks. You are absolutely right to correct me there. I think the point they were talking about was that it is actually getting worse. Talking to friends of mine who are in farming, they are saying it is the immediate thing that gets cut, because the premium goes up and you think, "Well, if we're going to get hit, we're going to get hit, and it's outside of our control." I think that the two points I would make are that the whole premise of insurance is one that is about trying to prevent something happening, but if it does happen, you share the risks; but secondly, it is a relationship with Government, that if the Government is alway seen to be there picking up the tab, it does not necessarily change some of the people who I accept are an extreme minority, but some of the people who would take risks and clearly have to be persuaded not to do that.
(Mr Dunn) If you take the foot and mouth cover and the TB cover now, if you are not covered, it is very, very difficult to get cover if you are in a risk area. If you are looking into trying to move this into a system which would cover the whole of the compensation for a culled animal in a TB or an FMD area, the insurance industry has already said they just could not do it, and even if they did, the premiums would be so astronomic that no one could afford them. So the insurance facilities that are currently available are only for consequential loss and they normally are a percentage of the valuation that you get from the Government—25 per cent is typical. To get any more than that is just impossible.
1033. All I am keen to establish is that it is a mess; that it does not serve anybody's purpose that this mess continues, in as much as I know the Government is negotiating with you to talk to you about how you could look at insurance-based models. How do we move towards that, though, given that at the moment, you are quite right, no self-respecting insurer is going to want to touch some of those diseases with a bargepole?
(Mr Gill) There are a number of elements involved in that, and this is where it gets very complex, involving a lot of discussion. It started when we had the outbreak of classical swine fever, and we saw this also with foot and mouth. The persons who perhaps suffer the most severely are not the people who get the disease but the ones who do not get the disease, who suffer severely because they are tied up. To have some scheme which was equitable to buy up their stock would help, because animals keep on producing, with the exception of sheep that are seasonal, but most of the other two species keep producing all the year round, and this causes great logjams of problems on the farms. How you get round that problem is something that we are discussing with Government, but that is separate from the actual business of compulsory purchase of animals for destruction, some of which inevitably, in the case of foot and mouth, would have to be healthy because you cannot identify the animal until it is actually showing the symptoms.
1034. It is the same with TB, is it not?
(Mr Gill) Yes, TB as well. So you need to have that element of the compulsory purchase in there. Other countries around the world, even, for example, the most free-trading minded ones such as Australia, have compulsory purchase mechanisms in there. We can discuss the methodologies which are different and we can discuss the procedures to avert another point you have referred to en passant, which was those who might not be doing things properly. Part of that is the requirement to ensure that farmers are properly informed as to what it is they are supposed to be doing, because bio-security is not a simplistic subject, and the bio-security measures that I need to take on my farm will be very different to those which Reg has to take on his and which Mark has to take on his properties as well, because of the layout, the topography, the climate, the features of woodland and rivers, the proximity of roads, buildings in relation to other buildings that might be there and, indeed, the relation of one farm to another, with arable and a mix of grassland. All of those things need to be taken into account to ensure that people are doing things properly, and we need to have that point addressed.
(Professor Buckwell) Can I just answer that by saying that we are slightly worried about the speed with which the Government is trying to push this issue. It is absolutely correct that the issue needs addressing and must be addressed, but there are big problems about the coverage of risk that Ben is talking about, as Ben has already said, and how far beyond farming do you take this. The big question is about how the risks are shared between farmers, the insurance industry and the public who all benefit potentially from the absence of disease. There is a lot more discussion about that. You mentioned the possible malpractice on the part of farmers and moral hazard there, but there are problems the other way too that if the farmer is bearing all the risk and the Government gets a lot more cavalier about how many animals it kills in clearing up a disease, but it is not bearing the costs of dealing with those, there are some problems there too which need to be addressed rather carefully.
1035. Is that being addressed now?
(Professor Buckwell) There is a consultation, and we are certainly making these points rather forcefully. Can I say that it is also, I think, smart to put this in a wider safety-net context, that the volatility that our industry has faced in the last few years has certainly come from animal diseases but has also come from currency markets, climate. We are expecting more extreme climatic events. There is an issue here about again the sharing of the risks between farmers, who of course must take some of the risk, and the public and other interested parties. Again, we have referred to the fact that the US has put so much emphasis on risk management as a main plank of their policy. So we do not want to hurry this discussion.
Chairman: We are not going to stretch it out either. One final question from Austin Mitchell.
Mr Mitchell
1036. My question is not meant to be emotive in any way, but it has always seemed to me that subsidies go eventually into the land price which seems too high in this country. One of the interesting things about our visit to New Zealand was that cold turkey actually slashes land prices, along with the cost of other inputs, and that therefore makes the industry potentially more profitable. What are the potentials for a fall in the land price in this country?
(Professor Buckwell) I thought we would get through this session without mentioning the New Zealand example which we find is not at all illustrative. It is a country that is 11,000 miles away, it is export orientated, with a population density a fraction of ours and a completely different situation, plus the fact that the New Zealand cold turkey was accompanied by a 30 per cent depreciation in the currency. If you could engineer that here, we would be very happy. Land prices are an extremely complex topic and they are, in fairness, not very closely related to the farming profitability. It is to do with the pressure of the demand for land from people who want it for a variety of reasons other than, and in addition to, farming. So of course there will be some impacts on land prices from the policy changes we are talking about, but in fact we suspect not as great as many people suppose, if the policy we are advocating were to happen.
(Mr Gill) I agree with Professor Buckwell.
(Mr Dunn) It very much depends where you are. Certainly in some parts of the country agriculture does drive land values, and in other parts it does not. I think we will see the peripheral land values outside the main building areas suffer by a reduction in subsidies.
(Mr Haydon) We do not want to see any more changes, Chairman, to area-based payments, because area-based payments filter back eventually to the land value, and the CLA are doing well enough at the moment.
Chairman: Anybody who has ever tried to buy a bit of land from a neighbouring farmer to extend their garden realises that land prices can reach an astronomic level. Gentlemen, thank you very much indeed for coming to speak to us today. If you want to add anything to what you said, then get in touch with us. We may want to be in touch with you for some clarification and perhaps to take up some matters in greater detail. We have had a very useful session and we are very grateful to you.
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