Examination of Witnesses (Questions 288-299)
TUESDAY 29 APRIL 2003
MR JONATHAN
PEEL, MR
SIMON HARRIS,
MS RUTH
RAWLING AND
MR CHRIS
TYAS
Chairman: Thank you very much for coming
to give evidence, from the FDF. And, as I said to the supermarket
witnesses, really it is to help us understand the issues, because
we are conscious that these are reasonably complex, and we are
going to talk a bit about WTO, Sanitary and Phyto-Sanitary Standards,
setting standards, tariff escalation, coffee and sugar. And, John,
would you like to ask the first question.
Mr Battle
288. I think it is to focus... you sat in on
the last session, and I was given a strong impression that efforts
had been made to encourage consumers here to be socially responsible,
I think I want to go a lot further than that, and really I am
looking for a real shift in power and resources from north to
south, because I think there is such a fantastic imbalance; so
the world is going to look different. And part of that difference
will be the progress at the WTO, and I know that the Food and
Drink Federation welcome the commitment to world trade liberalisation
through the Doha round, and said that it must be equitable and
it is essential we compete in new markets opening up outside Europe,
and looks to the WTO agriculture negotiations to result in a fairer
and clearer set of trading rules, treating agricultural products
and value-added processes in balance. And I wonder what you meant
by that, and what actually you imagined. What do you think progress
at the WTO will mean for you, I want to know also what you think
it will mean for poor countries?
(Mr Peel) What we want to see is greater
trade liberalisation. Fundamentally, where we are coming from
is to look for continued investment in the food industry in Britain
and for the food industry in Britain to remain competitive. Therefore,
we are looking both to source what we can from the United Kingdom,
and nearby on the continent, of those products that we can best
source from there, but, there are a lot of other products we cannot
and tastes have become much more mature over the last generation
or so, so we look to sourcing things from outside Europe which
really we cannot grow in Europe, or if they can they can be grown
only in southern Europe, which is one of the reasons why we get
a lot of protectionism, although it is hidden, from some of our
sister federations in the south of Europe. So we are looking to
bring in more products, we are looking to open up markets in turn,
we are looking, as these markets open up, to be able to sell our
products to these new customers who are beginning to look for
a more diverse choice of things to eat and a diversity of choice,
and also a greater degree of convenience. Now, obviously, to supply
that market, we need to be able to source, and we accept totally
that it is a development round, that we need to work for greater
north-south trade, and therefore we would look to source from
the south some of these raw materials that you cannot source here
in northern Europe. Now a couple of things particularly come to
mind. One is that we have been threatened with two major trade
disputes with the United States, the first one over steel, which
has got nothing to do with food, the second one over foreign sales
corporations, which is a taxation matter, nothing to do with food.
Some of our key imports of commodities, currently coming from
America, are threatened with 100% import duties, and so automatically
our companies, and it will be a decision for individual companies,
will look round to see where else they can source. Now let me
give you a couple of examples. On both disputes we have had dried
onions attacked, where we use dried onions as a flavouring ingredient,
it goes into crisps, it goes into many other things; now at the
moment we source a lot from the United States, France produces
some but it does not produce enough for our needs. Countries like
Egypt and China do produce it but at the moment Egypt and China
use chicken manure on their onions, which means they are infected
with salmonella, and therefore there is no way we can source products
that do not meet food safety standards. We would hope that in
a post-Doha world there will be a great incentive for these countries
to see there is now a real opportunity, because the barriers have
been lowered, they have come down and we hope they will come down
in balance, that they can be more open-minded, that there are
potential markets in the north that they can sell to. So it is
going to be pressure from ourselves to say, "If you want
to sell us this, you have got to have it to such and such standards,
and these are the standards we want," and help them to meet
those standards; but I think a lot of the education is going to
come from governments and perhaps from DFID and those sorts of
areas. Another area, we had 12 months ago a major problem, we
still do, over Chinese honey and Chinese shell-fish, and things
like that. Now actually we did have one particular member of the
Federation who was sourcing in the People's Republic, who actually
set up a factory operating on European lines in the People's Republic.
Because, as it turns out, the Chinese do not have an effective
veterinary system, that company was told, and I was there, by
the Commission, when we went to meet the Commission on this, that,
"No, until the Chinese have a proper veterinary system, you
cannot source that product from the People's Republic of China."
Luckily, that company could do it from Hong Kong, but they could
not do it from the People's Republic. We would hope, in a post-Doha
world, that these countries would realise that the opportunities
were there, we would look, or individual companies would look,
to source where it was profitable, where there was reliability,
where there was general security of supply and where there was
traceability, to source from the south. So, yes, the opportunities
are there.
289. The opportunities are there, but also we
are only imagining that post-Doha results in subsidy reductions
in Europe and in the CAP, and there is a head of steam now saying
the CAP should be reformed, and that will mean reduce the subsidies.
What impact will that have on the geography of your suppliers?
(Mr Peel) It depends very much on how it is done.
Basically, if they remove the export subsidies alone, or as the
Harbinson paper suggests front-end loaded, so we would lose 50"
on day one of year two of implementation, therefore our own competitiveness
will be really under threat and we could lose the markets, so
the companies who have invested in countries like Canada might
be able to pick it up instead. If we can manage to reduce the
domestic support, which is what the CAP reform proposals are aimed
at doing, then that in tandem can bring down the market access
barriers, because Europe will have to give concessions on market
access to lower tariffs, and therefore, yes, things will have
to change. But there is a whole myriad of different duties, and
therefore it will be a question of how this works out in the fine
detail before I can give you any clear answer. I do not know if
any other member of the panel can answer.
(Mr Tyas) Perhaps I could come in there. Chris Tyas,
Supply Chain Director of Nestlé. We are very much in favour
of an agreement at Doha which creates a world economy without
high and discriminating tariffs, because that will be to the benefit
of both the developing and indeed the developed world. I think
though, as a manufacturer in the UK employing some 10-11,000 people,
the key to us is that our input costs and the support to input
costs are reduced at the same time so that our input costs come
down, and that we ensure the competitiveness of UK manufacturing,
otherwise we will see a wholesale loss of manufacturing jobs within
the UK and in many of the constituencies that you represent here
in this Committee.
(Ms Rawling) I just wanted to add a particular point,
which is, of course, that the CAP reform will affect crops that
are grown currently in the UK and in the EU. Currently, we source
produce from outside the EU, and a lot of that in its raw material
state already comes in at very low duty, because often those are
things which cannot be grown here; so that situation is unlikely
to change very much with CAP reform.
Chris McCafferty
290. Jonathan, on the issue of the development
agenda and export subsidies, recently you wrote in an article:
"A particular challenge will be to provide a coherent approach
to the three key areas—market access, export competition
and internal support—while maintaining sustainability."
Exactly what did you mean by that?
(Mr Peel) The three pillars, I think, are quite clear.
As I mentioned earlier,—
Chairman: What we really need, Jonathan,
is a translation of the shorthand.
Chris McCafferty
291. Yes; simple language.
(Mr Peel) Sustainable agriculture is a sine qua
non; like food safety, it is something that we would look
for. Sustainable agriculture is not only environmental, avoiding
things like soil erosion, which companies, such as Nestlé
here, have developed under the Sustainable Agriculture Initiative,
so there is a big initiative in the food industry on that, but
also deals with social aspects, and it deals with the economic
aspects. But what basically that means is that we cannot reduce
export subsidies, or we cannot reduce market access barriers,
on their own, they have all got to be done together; there must
be simultaneous reductions in market access barriers, in domestic
support and export support, so that basically we keep our heads
above water, we maintain our competitiveness, because if you lose
the export restitution, to start with, we could lose that competitiveness.
292. Can I ask you, how do you feel that this
process is going along so far?
(Mr Peel) I think the WTO always lives on the edge
of its seat. I was speaking to somebody senior in DG Trade, who
said that they did not think the failure to meet the modalities
deadline was a disaster, he used the word, "farmageddon";
I would hope that we are still going to get some progress out
of Cancún. I think there is a real danger that the agenda
in Cancún could be overloaded. Every previous GATT trade
round has failed to meet its original deadline, every previous
GATT round has been successful. There is a concern that so many
of the current ministers will be leaving office within the next
two years that a major slippage could spell a really major delay;
but I think the fingers are crossed, but it is more in hope than
expectation that Cancún will be successful.
Alistair Burt
293. You were in for the discussion we had about
Sanitary and Phyto-Sanitary Standards, and you heard the exchange.
Do you have anything in particular to add to that particular part
of the debate, as to whether or not there is a risk that the standards
that we are imposing are that bit too high, and although there
must be no compromise on food safety, which we all understand,
pushing people just over that edge and making things supersafe
might be used as a way to make life more difficult for those in
developing countries to export to us? Do you have any concerns
about that?
(Ms Rawling) I think it is something that at least
we should be aware of. There are standards set internationally
in Codex which are broad food safety standards for the world.
In the EU, partly because of our recent history, there is a tendency
to go much further than Codex, and this can, I think, in some
cases cause some difficulty. We cannot compromise on food safety
standards for the consumers here, but, nevertheless, going to
the absolute limits of detection on some of these issues is a
problem. There was a recent study done about the aflatoxin case,
where pushing the EU standards to the limit was judged, in health
terms, possibly to save the lives of two people out of a billion,
I think it was, but, in effect, it stopped a trade flow, because
aflatoxin is a toxin that does appear on nut and cereal crops
grown in certain climatic conditions, and we have to work quite
hard to keep that level down, but to keep it to a non-existent
level almost automatically excludes some sources of supply.
(Mr Peel) And I can give you a specific example of
that; again, going back to the potential trade dispute with the
United States. Pistachio nuts we now source from the United States,
we could source them from Iran but the Iranian pistachio nuts
do not meet the current aflatoxin levels; what I cannot tell you
is how far short they are.
294. Just one on the same subject. Are you content
that the health and safety standards of chicken imported from
Pacific Rim countries, which has had a drastic effect on the British
market, satisfy proper health and safety standards, and animal
welfare standards, as an FDF?
(Ms Rawling) Obviously, it is the case that if you
are importing livestock products some of the risks in this area
are higher and more difficult to handle than importing vegetable
products. I think it is an issue where we have found, as a company,
that we need to have almost absolute control at origin, before
you are going to bring these kinds of products into the market,
to meet EU safety standards. We have found it extremely difficult
to source satisfactorily where we do not have full control of
that supply chain.
(Mr Harris) May I just add to this a bit, as a producer
in the UK of sugar, but also as a producer in Poland and China,
in other parts of the world as well. Currently, we are spending
something like between 15 and 20% of our operating costs on meeting
environmental and social standards in the UK, and something between
a fifth and a quarter of our capital expenditure is going in these
sorts of areas. This is just a statement of fact. The International
Sugar Organisation, which is part of the United Nations, has done
a survey of environmental legislation in both developed and developing
countries for the area of sugar, and, not surprisingly, they found
that environmental legislation is much less widely spread in the
developing world than it is in developed countries, and, more
importantly, what environmental legislation there is is enforced
much less rigorously. So that this issue of standards, and if
you are producing in the developed world you are having to meet
a set of standards, whereas third country suppliers may not be
meeting those same standards, is a very significant one. As Ruth
says, one way of meeting it may be actually you have to own your
production chain in that country.
Mr Colman
295. My question really follows up on Alistair's,
which is, what role does, or should, members of the Food and Drink
Federation play in setting the standards for food safety; you
have mentioned the Codex Alimentarius, are you involved in any
sense in the negotiations in setting those standards? You have
mentioned the EU setting much higher standards, are you consulted
or involved in those standards? We have got the Food Standards
Agency in the UK, which I hear often sort of gold-plates the EU
standards. To what extent are you sort of passive in all of this
and to what extent are you in there, if you like, saying, "Well,
hey, this is way beyond that which is needed for food standards",
on any of those three levels, UN, which is Codex, EU and UK?
(Mr Peel) Certainly in Codex, I think other industries
find it easier to be part of their delegations on Codex than we
do; certainly the United States industry, I believe. And this
is not an area that I deal with regularly but I will come back
to the Committee if I am wrong on this, but my understanding is
that we have more trouble getting our voice heard at an EU level,
or at a UK level, in Codex than our American industry counterparts.
But, having said that, we certainly feed in, our European Federation
is extremely active on Codex matters; one of my colleagues is
Chairman of our European Federation Food and Consumer Policy Committee,
which is active in this area, and our European Federation attends
most of the relevant Codex meetings, so we are in there very seriously.
When it comes to European activity, yes, we are actively involved,
both as a UK Federation and as part of our European Federation,
and we are very heavily involved also with the various departments
here in the United Kingdom. Certainly, we are regularly getting
amendments put down in the European Parliament on areas of concern
to us, but, as in all these things, you are just one voice among
many.
296. You will have to use us as a voice to back
you up. But if you are being listened to and these standards are
taking account, one hopes that is what you are saying, to what
extent do you then work with developing country suppliers to ensure
they have the capacity to meet these standards; and that is really
not just for yourself?
(Mr Peel) Yes; that is up to the individual companies.
(Mr Tyas) Perhaps if I pick that one up, on behalf
of Nestlé, certainly. We have something like 1,800 different
agricultural advisers who work with farmers in the developing
world on things like training, technical standards, and so on,
to be able to meet those standards once they have been set. I
think you have touched on the important point though as to what
is the standard, or what are the many different standards, and
that is the difficult point for many growers in developing countries
to be able to match.
297. And I think an ex-Board Director of Cargill
is now involved in Iraq on sustainability of agriculture; to what
extent is Cargill involved, if you like, in ensuring that these
food safety standards are met, and capacity-building?
(Ms Rawling) First of all, I should make it clear
that Cargill has no ongoing connection with Dan Amstutz at all.
Chairman: I think he was just teasing
you.
Mr Colman
298. I was teasing, but Cargill is the biggest
player in its field, Chair, it would be interesting to hear their
views on capacity-building?
(Ms Rawling) Obviously, we do source, including sourcing
for the UK market, from developing countries, but the focus of
our operation really is in the first-stage processing of agricultural
products, and therefore obviously we are looking for raw material
supplies where they are grown. For example, we do have a very
important supply chain coming into the UK from Argentina of a
very special kind of maize and because we have a major customer
for this; that supply chain has to meet extremely high standards,
in terms of quality, in terms of food safety and in terms of other
issues, such as the GMO issue. And, in that case, we have an ongoing
programme, we are working with a number of farmers at origin to
ensure that they understand exactly what we need them to produce
and how they need to produce it, in order that we get the quality
of the product we want here in the UK. And I would say we are
very committed to doing that kind of work, where we have a customer
who really needs that and wants that, and, of course, is willing
to pay for it, because, at the end of the day, we will source
whatever our customers want, and it is a variety of things, it
is never to one particular standard, it is a whole variety of
things.
Tony Worthington: Every time we go abroad,
we have the strange experience in coffee-growing countries of
drinking Nescafé, and one says to oneself, "There's
something very, very odd about it, about producing a good which
doesn't give much income to the farmers and then having to buy
it back at a much higher price." Now is it not a fact that
escalating tariffs, where the processed good has got a barrier
against it, is very helpful for many of your members, including
Nestlé?
Chairman
299. Jonathan, do you want to start with just
the whole question of tariff escalation generally and then Chris
do the coffee position?
(Mr Peel) It is not a huge issue for us yet. Certainly,
and I know Ruth probably will want to say one or two things more,
there is initial processing carried out in many countries, questions
of logistics, of getting what you transport back to Britain is
particularly important, and I think Ruth has got a good example
there. But certainly I think probably it is up to Chris.
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