Examination of Witnesses (Questions 160-179)
MR DON THOMAS, MS LYNDA JAMES, MR REES ROBERTS AND MR BOB BANSBACK
TUESDAY 11 DECEMBER 2001
160. How does this marketing strategy link in with other agencies, such as the Agri-Food Partnership, Taste of Wales?
(Mr Thomas) As Rees mentioned, it is very important that we are working in a degree of harmony. We, as Welsh Lamb & Beef Promotions, have the desire, this is our remit, to differentiate our brands nationally, obviously, working with the Meat and Livestock Commission; we tend to think our promotions are complementary to the Meat and Livestock, but also supplementary, that we actually take what we have as a regional attribute and promote that. With regard to the WDA Food Directorate, they are promoting the food products of Wales, which we are fully aware, with Welsh Lamb, is probably the most well-known and the most emotive; so we would like to believe that Welsh Lamb should be the flagship product of the Welsh food industry, and, consequently, has a reputation both in the UK and overseas that possibly the rest of the food industry in Wales can benefit from.
161. I understand the Agri-Food Partnership, or the WDA, are going to launch a programme of promotions based on the True Taste of Food from Wales; are you linking in with that as well?
(Mr Thomas) We believe that, obviously, taste is a subjective issue. We actually believe that if it can be made to be objective then that is all well and good. Our slight apprehension at the moment is due to the subjectivity of taste, in the eye of the recipient or the consumer. But, yes, we will play our part in any sort of issue we have. We find it very difficult to have objectivity in the taste of Welsh lamb, and we would not like to have it compared and contrasted to, would we be able to prove it tastes different from lamb from, say, Scotland.
162. Scotland promote their lamb pretty vigorously, do they not?
(Ms James) They do.
(Mr Thomas) They do, but we tend to try to promote it on the imagery of Wales and on the production and what we believe is our unique selling proposition, and that, as I said, is our landscape and the attributes that are clearly there, that are well received by consumers.
(Ms James) Can I add. You mentioned the Taste of Wales scheme; as part of many sponsors of that scheme, we target the service food sector, the restaurants, the hotels, not just in Wales but outside of Wales, in the UK and in Europe, and we support that particular scheme, as a business. We would encourage restaurants and hoteliers in Wales very much to put Welsh Lamb and Welsh Beef on the menu, so we are in support of that. With regard to, where Don mentioned, the taste, we do work with the Welsh Development Food Directorate, and particularly in export markets, where, for example, we have just come back from Anuga, in Germany, which is a big food exhibition; we could not take the product with us because the ban was in place, the export ban was very much in place then, but we were in the meat hall, under the Wales umbrella. Because, ultimately, we promote Welsh Lamb, Welsh Beef, but Wales has to be promoted, and in a huge exhibition it is important that the voice for Wales is shouted very loudly; so, in certain instances, we do work under the umbrella. We differentiate under that umbrella; so, for example, the taste concept that the WDA is launching, that would be branding very strongly on their Wales pavilion, but, within that, we would differentiate our brands, our imagery, very much with the green grass and with our own strap-lines that are focused primarily on the brands Welsh Lamb, Welsh Beef.
163. Coming from Wales, I think we always think that the concept of Welsh lamb is very powerful, but, objectively, how powerful is Welsh lamb and beef compared with British lamb and beef, or Scots lamb and beef?
(Mr Thomas) At the moment, we are not allowed to call it "the best." If we attain a status, under European food legislation, the Protected Geographical Indication, then we will be entitled to call it "the best." And that is something that we are pursuing very, very aggressively, and I think that is a very important status for Wales's potential flagship food products. So, yes, we believe that Welsh lamb does have, and many of our customers say it does have, a reputation that puts it probably amongst the best.
164. Have you done any marketing tests in England; how is Welsh lamb perceived there?
(Mr Thomas) The feedback we get is from distributors, in the main, and this year we have distributed extensively through the multiple retailers, and, I think, to be fair to the multiple retailer sector, they have responded admirably to the challenge that faced the industry without having any exports, because, predominantly, we do export an awful lot of Welsh lamb, and this year we have had to market it at home. The feedback, particularly, this year, from the multiple sector and the independent sector, on Welsh lamb, and particularly Welsh light lamb, which we have not really put onto the home market quite as aggressively in the past, because it has been a traditional export product, has been extremely favourable, and many consumers have tried lamb, possibly for the first time, tried the light lamb possibly for the first time, and a lot of that has been because it may be within their price bracket this year, and they have given extremely positive feedback on its quality, taste and flavour. So that is quite good; and that is actually coming from a live consumer rather than from a focus group.
(Ms James) And can I add, you asked about consumers outside of Wales, we distributed an awful lot of Welsh lamb into the South East of England, and it is very popular, through particular retailers, in that area, and it is extremely popular in that particular geographical area of the UK.
165. On that point, in your marketing strategy, do you try to pinpoint Welsh consumers who live beyond the borders of Wales, do you use, like the private company, (Espirium ?), I think, looks at statistics, do you use the census statistics, do you do a trawl of the Internet for Welsh names, to find out where Welsh populations are beyond the Welsh border, the ex-pats, because they will be far more receptive to your message?
(Mr Thomas) Actually, we find that, generally, consumers in the South East of England do actually appreciate and buy Welsh Lamb on the brand. Naturally, if they are an ex-pat, and we do not actually physically do what you say, but we would expect Welsh people to have an affinity towards it, in any event, but we find there are regions of the UK where there is a very strong affinity, particularly to Wales and Welsh farmers; there are some regions where there is not such a strong affinity. We find one of our most difficult regions to market Welsh brands, Welsh Lamb and Welsh Beef, into is Bristol, we believe because of its relatively close proximity to Wales; we find Manchester, Birmingham, as being exceptionally good markets, we find the South East of England particularly good markets. So our main target markets tend to be the South East of England, tend to be the Midlands, tend to be round Manchester and the North East, in particular; whereas Bristol and the West Country are notoriously difficult. Scotland is a bit of a problem as well.
(Ms James) You mentioned research, or statistical information, in an ideal world, if we had the financial resource to do that, we rely upon other partners to do the statistics and research for the UK-wide, and the Welsh Development Agency, when they actually conduct research, because the money that we have, the small amount of funding that we get, we have to put it all into the promotion of the product; so we are reliant upon other organisations in actually providing us with that information. But it is a very valid point.
166. You mentioned the development of the domestic market for light lambs, which in some ways helped the industry to weather what could have been an even more difficult period. With the re-opening of the export market, where, of course, there are premium prices, and obviously it has already had a significant effect, will that recently opened domestic market for light lambs be allowed simply to kind of wither away, or are there developmental opportunities that you see there?
(Mr Thomas) Fortunately, before the foot and mouth outbreak, we did actually position Welsh mountain lamb into two multiple retailers, last year, so there was a foothold already. I can name the supermarket groups, Safeway and Sainbury's were taking Welsh mountain lamb as a product, as a niche market product, and it was very successful. After foot and mouth, obviously, many more retailers came in and took lighter lambs, and many of them increased their specification range. A typical supermarket specification weight range for lamb would have been 16.5, or 16 kilos, to 19.5 kilos; many retailers, this year, reduced their specification down to as low as 12 kilos, and one actually went as low as 8 kilos. So to get a supermarket to change their specification was quite a challenge, and it was not just dealt with by Welsh Lamb & Beef Promotions, there was a national campaign to do that, and I must compliment the Meat and Livestock Commission for doing that nationally on behalf of the entire industry in the UK. But we were obviously particularly relevant to Wales, because we produce a disproportionate number of light lambs, so anything we can do to increase the marketability of a light lamb is going to be of significant benefit to Wales. Now I would imagine that many of the supermarkets will possibly tolerate an increased specification. On the two in particular that are taking the niche product, the branded, almost niche, Welsh mountain lamb, I think, those will be sustainable and will continue. The export market has opened, and it has opened with some significant consequence, as we have seen, the effect on it on prices being fairly dramatic. We hope that we can consolidate the gains in the UK whilst at the same time recover some beneficial export markets for all types of lamb, be they lightweight or be they standard weight. So I think next year will pose an interesting challenge. What we do not want to do, of course, is to spread ourselves somewhat too thinly. Yes, I think that the summary to your question was that we hope that we will gain some of the benefits from this year's expanded market in the UK, whilst at the same time recover some of our traditional, very beneficial markets in southern Europe, in particular, for light lambs.
167. That is very heartening to hear. You mentioned as well the PGI bid that you have put together; could you just clarify for the Committee where exactly we are in terms of that application, and what have the problems been?
(Mr Thomas) I could go on for about an hour on this subject alone, which I do not think would be in the Committee's best interests, but it is a long event, it has become almost a saga. A bid has been put in to register Welsh Lamb and Welsh Beef as Protected Geographical Indication status products under EU labelling regulation. The bid actually went in to Brussels, into Europe, probably last January, January 2000, and it appeared in the official Journal of the European Union. Obviously, any nation is entitled to object; there was an objection, which actually came from the abattoir sector in Wales, and their objection was that they felt that the product should be slaughtered exclusively in Wales to benefit from the PGI status. Our view was that it is animals that are born, bred and reared in Wales that should benefit, irrespective of where necessarily they are processed; although we do see a great benefit from having economic activity of having them processed in Wales, we do not, as yet, have the capacity to process entirely all our production. So we felt that if the definition was restricting the processing to be in Wales we would actually deny many farmers having the ability to benefit from producing technically Welsh Lamb, which would be the brand. The objection was dealt with in Brussels, and the issue was referred back to MAFF, as it was then, which, in fact, referred it back then to the National Assembly, which undertook a consultation exercise actually to ascertain what the views of the industry were. We believe that consultation exercise concluded approximately in December last year, this is December 2000, and subsequently the applications were resubmitted to Brussels, where I believe they still are.
(Ms James) Yes; it is very frustrating.
168. Yes, I can imagine.
(Mr Thomas) We actually understand that there may have been some slight redrafting amendments to the definition of Welsh Lamb, which has caused some issue whether it is, in fact, now, a reapplication, or whether the original application can stand. So our latest view from Brussels was that Welsh Lamb may have to reappear in the official Journal again for six months; but we understand Welsh Beef was about to be registered, this was a 'phone call I had from Brussels last June. So, as we stand, of today, we do not really know what the status of the application is.
(Mr Roberts) Perhaps, Chairman, I could just supplement that with the information that I have written to the Minister requesting further information, and had a communication from the National Assembly saying that it is held up basically because of the change of the status of PGI within the European definition, and that our application has been held up within that. So the problem is in Europe, and we are pursuing it as strongly as we can.
169. Obviously, it is a particular responsibility of this Committee to scrutinise the actions of the UK Government. Is there anything that the UK Government could do to facilitate the process, or expedite it?
(Mr Thomas) We rely on the UK Government to be our route for the application. As a producer co-operative, we were the applicant, but we have to go through the correct channels of application. And whilst we were undertaking the application, the UK Government and the offices were extremely helpful; it is just that it has got lost in this last phase, or the last hurdle, and, frankly, we do not know why, well, obviously, there may be some bureaucratic changes to the system in Brussels, which we were sucked into. But the frustration from us, as a producer co-operative, is the lack of knowledge and lack of feedback as to exactly what has happened. We do appreciate foot and mouth sort of came and has gone, hopefully, and got in the way slightly, because that obviously took some eyes off the ball, possibly. But I think, post foot and mouth, we believe that this status would enhance the marketability of Welsh Lamb, in particular, and would protect, I believe, and that is an important issue, the farmers in Wales from somebody perhaps somewhat recklessly applying the label to lambs that, dare I say, may not have been born, bred and reared in Wales. And the same applies to beef, of course.
170. Have you been involved in any Objective One projects? Last week, we heard of a need for modern co-operative creameries and perhaps a network of small, local abattoirs, and today some of the issues you have mentioned, the need for industrial freezing, enhanced marketing and a need for additional research resources. Have you applied for any Objective One funding?
(Mr Thomas) We did apply, as a body, jointly with the Meat and Livestock Commission, September 2000, to Wales European Funding Office, WEFO, using the species promotional levy, as the statutory public funding, for the match funding; that application was, I think, subsumed within an application made by the WDA Food Directorate. So we are not, at the moment, as a body, in receipt of Objective One funding, although we believe that we have a great opportunity, in conjunction with the Meat and Livestock Commission in Wales, to use what is regarded as public sector funding in the form of species promotional levy to actually draw down European funding. And that, we believe, is not going to influence the Welsh budget at all, because this is incremental money that is collected from farmers, and a statutory instrument which is classed as public sector funding; so we actually think it is an ideal mechanism to utilise Objective One funding for what we would see as an additional and promotional marketing resource. But I do agree with you entirely that the infrastructure of Wales, in terms of freezing, processing and things of this sort, can also benefit; and I do believe that the WDA Food Directorate's Agri-Food Partnership does have an Objective One pot of money, which they are dedicating towards marketing and processing, on a project basis, to enable the private sector to actually draw that money down. So we think Objective One is a great potential for livestock farming in Wales.
171. Moving the focus to the Meat and Livestock Commission, can you describe how you have reacted to the weak position of farmers and local food processors in the supply chain since our report in 1998, and, in doing so, perhaps you can explain why the Welsh Council was set up?
(Mr Roberts) Yes; there are two strands, in answer to that. The response that the Meat and Livestock Commission has made since the report in 1998 has been varied and flexible, as one would imagine the responsibility of such an organisation would be, to be that. The creation of the Welsh Council coincidentally happened during the same period, but that was more of a political move, in response to the problems of 1998 and the BSE. So coming back to the responses, 1998, the Meat and Livestock Commission has, to a certain extent, adjusted its structure and adjusted its targets to meet the modern challenges, it is very much a strategic thing, it is directed in many ways, whether it is export, whether it is political, whether it is economic and whether it is technical, and the MLC has divisions within its organisation to deal with all of those. The challenges, very often, were more of a technical nature than political, and I can assure you that they were very active. I am sure we will come again to the relationship between the whole chain, with the supermarkets and the producers, in later questioning, but the MLC, as my colleague Bob Bansback will refer to later, I am sure, has been active in highlighting those issues as well. Now, in Wales, the Council, created in 1998, concentrated itself on strictly Welsh issues and was able to tap into the resources, obviously, of the UK organisation. Coincidentally, it had created a Welsh Sheep Strategy, using 5b money, and tomorrow there is the last conference of that organisation, when the 5b money comes to an end; we hope to move forward in the coming years, with all the genuine, valuable work that that organisation has done, with the breeding and development of the Welsh sheep industry, into Objective One status. It has concentrated its work in schools, in developing strategies for diet and moving meat in the food as a curriculum item, that has been a very important issue to us. Exports, again, so important to Wales, the reliance of Welsh lamb and beef for some parts of its work for the offices the MLC has in Europe to create demand for that product has been invaluable, market research, and the like. There have been those strands to it; but, overall, I think the MLC has developed a strategy that moves it forward to what are the challenges for now. And, again, we now have a new Chairman within the UK, who is looking again at forward strategies, and they again will be something that has to be appropriate to the challenges that the mission statement refers to, which is increasing the efficiency of the meat and livestock industry, but also having due concern for the desires and the wishes of the consumer. And more and more, as an industry, we need to be consumer-facing, and that is part of our challenge in the future.
172. Did you see, as part of that efficiency improvement, part of your role as to encourage and facilitate producers combining together in co-operatives, or collaborating more closely?
(Mr Roberts) Yes. In a Welsh context, particularly, the MLC have been at the forefront of trying to engender that feeling. I am sure we are all aware that co-operation and collaboration is something that is very close to the hearts of Welsh farmers, and all the chain, but very difficult to achieve. And we were at the forefront, with the Agri-Food Partnership of trying to push forward the idea of an integrated Welsh meat co-operative. That organisation is now up and running, the Welsh Meat Company, and a previous Welsh manager, Mr Huw Thomas, was very involved with that and was seconded from the MLC to help set it up; so that organisation is set up, it will be operating. I cannot pretend that it has been easy, within the industry, to engender enthusiasm for co-operation, many farmers feel that there are perhaps too many stories of failure, that they find it difficult to accept the principles. But I think, if you scratch behind the surface, many of the farmers do believe that the historical desire to collaborate is something that is the only way that we can have counter-balancing power to all the other sectors that are in our chain.
(Mr Bansback) May I just add a word, in terms of MLC's role, in trying to encourage this. We act as the secretariat for the body Countrywide Primestock, which brings together all the livestock marketing groups throughout Great Britain, and part of our role there is to try to see what economies of scale we can actually bring to the totality of that sector, and the recent initiative has reduced insurance payments, and indemnity procedures, which has been much appreciated by the group. So we are trying all the time to see ways in which we can actually improve the situation for these groups that are set up, so that they can play a bigger role in the future of the economy.
(Mr Roberts) And, to finish, the example of Welsh Lamb & Beef as being the co-operative that helps farmers promote their product, is a shining example. Although we have round about 7,000 members, which is not quite half the farmers in Wales, and I heard the statistic, as yet, but the target is to get not only to half of the farmers in Wales but to three-quarters and 100 per cent, eventually. And that surely is the way forward.
173. What sort of particular funding and assistance do you give in Wales, and who do you target it at?
(Mr Roberts) The funding is based, if I can explain, on the basis of a statutory levy; there are two strands to that. There is a general levy, which is paid 50 per cent by the farmers and 50 per cent by the slaughter sector, it is all collected at slaughter. Now the other strand of it is a promotional levy, which is 100 per cent funded by the farmers as a statutory levy. Now, in Wales, coming back to the general levy, that is used as a generic source of funding to drive many of the initiatives I referred to in terms of political and economic research, and all the rest of it, that is something more generic. But the promotional levy, it was decided by the industry some years ago that they wanted something specific to promotion, and out of that Wales gets a pro rata amount of that, according to a formula that was agreed to in both Scotland and Wales, the Webb Committee formulated that and it amounts to 9 per cent in terms of sheep, of the promotional levy, and 5 per cent of the total of beef levy. And, of course, there is, on top of that, an allocation to run the Welsh Office, as it were, in Aberystwyth, a number of staff in there that are working specifically on Welsh issues.
(Mr Bansback) Just to add to what Rees was saying, in a normal year, that would be just over £700,000. Obviously, this year has not been a normal year, we have been severely affected by the foot and mouth situationthat is from the promotion side. Then there would be an additional £150,000 from the general levy, which is specifically designated to Welsh activity.
(Mr Roberts) The other strand of it, to answer that question, is, the MLC currently is making attempts to get support from the Government, in a wider sense, support for the new strategy, moving forward; and if the Government does agree to that, obviously, we will have a pro rata share of that additional funding.
174. And then how do your two bodies work together?
(Mr Roberts) In answer, I think that most people would agree that the MLC has a more strategic role, in terms of the industry as a whole, up and down the chain, in terms of the political and economic information that the industry does need, and one of its roles it to act as the knowledge house for the whole industry, and hopefully the information that is fed into many organisations, WLBP included, originates from the MLC. The work of the Welsh Lamb & Beef is more specifically promotion and marketing; the MLC, I believe, works well with that organisation, in terms of providing funds but also in terms of expertise and everything else. So that part of the success of Welsh brand, our brand, which we would all agree, I hope, is the lead brand in terms of sheep meat, and hopefully one day will even overtake Scotch beef, in a beef brand, is due to the efforts of the many people, over the years, that have been involved in that, originating, of course, from the efforts of farmers to start up the organisation. I want to emphasise that this is a shining example of farmers doing things for themselves.
175. Could I just turn to prices now. Our report concentrated on the price differences between farm-gate prices and the price paid by the consumer in the supermarket. Are exceptional profits being made somewhere along the food chain; and, if so, could you tell us where, and who do you think is profiteering, and at what levels?
(Mr Roberts) That is a very difficult question. First of all, we have to define profit, of course, and the 1998 report did refer to the burden of cost; now whether you equate cost with profit is something that we could debate for a long time. I am going to refer to my colleague, Bob, who has more specific information on that question.
(Mr Bansback) Firstly, we have provided some tables showing what we have called the "price spread", that is the difference between the average retail price and the average producer price. We have updated some information that we provided to you three and a half years ago and that does indicate that there has been a widening of the gap between the producer and retail price. However, to interpret that as meaning automatically excessive profiteering, I think, is not necessarily the case. If you start to look at what happens in-between the producer and the retail sector, and there have been additional costs that the abattoir and the processor has had to incur, particularly in the last few months, in terms of cleaning and disinfection costs, blood disposal costs, the situation for hides and skins, the fact that lower throughputs add to the overhead costs of actually running a plant, and these suggest that the actual indicative margin at the retail sector, while it has not reduced when you take account of these costs, it has not significantly increased more than inflation over the last three years. So, whereas MLC's position would be that we would like to see returns in some ways redistributed throughout the chain, so that the producer and the abattoir get better returns, there is no evidence from the data that we have collected, in the meat sector, and I emphasise that, because you referred to all food, but we can talk for meat, there is no evidence that they are making excessive margins.
176. So can you elaborate and explain to us then, surely, the widening gap does not account just for the abattoir costs, does it, somebody must be profiteering, benefiting, somewhere along the line; surely, you agree with that point?
(Mr Bansback) I could show you a table that indicates the substantially increased costs that the industry at the abattoir processing level has had to bear, and although, you are right, they do not account for every element of the increase, I think you would be surprised how much
177. Can we concentrate on the other elements then?
(Mr Bansback) The other elements being what?
178. Whatever you would like to tell us. You have just talked about the processing and the abattoir costs. I am just trying to find out why there is so much difference between the farm-gate price and the price the consumer pays; that is really what we are after?
(Mr Bansback) I could give you a lot of information afterwards, but I have got a table here that lists about ten points where there has been an additional cost element in this particular sector, and it is to do with the way that abattoirs are run and the reduced returns that they get from some of their waste products and rendered materials, which has changed significantly. And if I just tell you that, in terms of the additional costs over the last 12 months, in terms of pounds per head, between £12 and £20 pounds on cattle and between £4 to £5 per head on sheep, are the additional elements that they have actually had to bear during this time. So they have had to absorb those costs, and therefore that has been an element of the actual increase in margin. And I think MLC's role in this is to present these facts, to make them clear, to let everyone understand that, although, yes, it is true that the multiple retailers have preserved their margins, at a time when the industry has been going through dire, difficult circumstances, these are the actual facts of the situation.
179. We had the Farmers' Union of Wales and the NFU in front of us last week; do you believe that they accept the arguments you have just put to us, bearing in mind that 50 per cent of all Welsh farmers are members with yourselves?
(Mr Bansback) I think they, like us, would like to see a more equitable sharing between the different sectors in the supply chain; but, equally, if the supermarkets were to reduce their margins significantly, and the margins on meat, we know, are lower than the margins for any other food products, if they were to reduce those margins, we would see reduced shelf space for our product, and that is something that we do not want to see, and would not be in the interests of the industry. So there is a balance to be struck here. And I think MLC's approach to this is to encourage some of the best practice examples that we see, of abattoirs and producers down the line working more closely with multiple retailers. We are writing up some case studies at the moment of where this best practice produces actually a win-win situation, it is not different sectors arguing against each other, but it is a benefit through better co-operation, better understanding. And it is not happening everywhere, I accept this, but we want to see this developing so that the farming sector, in particular, but the abattoirs as well, are getting a better share of the return.