Examination of Witnesses (Questions 280-284)
8 MARCH 2004
MR ALAN
HINTON, MR
JIM BEGG
AND MR
PETER DAWSON
Q280 Mr Jack: Just to
go back to the point you were talking about in relation to innovation.
The perceived wisdom is that continental dairy producers are better
at value added products than producers in the United Kingdom.
Is that correct? If it is correct, what are we not doing that
we should be?
Mr Hinton: There
is a very good point that should be made that we are ending up
virtually with four major brands in this country and the majority
of them are not British based. Having said that, from these big
brands will grow opportunities. Once you have created these big
mass brands there will be opportunities for smaller players, indeed
farmers possibly, to come in on a localised basis with regional
products and brands and start up. I think we are going to get
to a point where there are going to be only four or five large
brands that will probably come from the continent but that in
itself will create opportunity, an opportunity we need to grasp
and encourage in the industry, be it small processors, as DIAL
represents small members as well, or farmers who may well see
this as an opportunity to move out of the mass, if I can use that
term, 650 cows or whatever, and into an area or product which
could be sold locally very successfully.
Q281 Mr Jack: Just give
me some examples because on a national scale the question I asked
in terms of dairy products was what are our continental competitors
doing that we are not and you have just put the proposal forward
that there may be opportunities for a farmer, or a group of farmers
locally, to do something distinctive. Just flesh that out a bit
more. Clearly if there is more value to be added in the types
of products to which the question refers then the ownership of
the added value part of it is very important. If it is a big branded
manufacturer then there is not the same responsibility, if they
are adding the value, to pass it back necessarily to the farmer,
but if the farmer is doing it then has got control of the value
chain up until the point of sale. Just help us to understand a
little bit more how these two scenarios work?
Mr Hinton: One
of our colleagues who, unfortunately, got called away today is
an ideal representative for that, a representative from Müller,
which is now a British organisation which spent a huge amount
of money in building a very successful brand. As he was very keen
to point out, that is a British organisation. It may have roots
elsewhere but the success depends totally on having the product
and if you want to have that sort of brand the monies need to
be spent. I am thinking now of dairy deserts rather than cheeses
and things like that and if you pick out the major ones it is
a very high capital spend on branding initiatives and building
a brand. I think that is our problem in this country, we started
very late in building brands due, unfortunately, to the Milk Marketing
Scheme which stifled the growth of brands because there was a
Q282 Mr Jack: Just to
be specific; am I right in saying that the problem is not so much
the catalogue but the ownership of the value added chain? In other
words, you are saying that it is continental companies like Muller
who effectively are repatriating money back to their centre and
it is not necessarily available for UK-owned and UK-based companies.
I am still trying to get to the bottom of this because all of
the evidence we have had says that continental dairy producers
are much better at innovative, novel products, making more money
because they are adding more value and the poor old Brits are
late to the game not having any access to this value chain.
Mr Begg: You put
it in very stark terms. As Mr Hinton has said, we have a little
bit of history there in terms of our approach to the Milk Marketing
Scheme which we have spent some considerable time trying to move
on from. The crucial thing now is that we get as much of our product
and as much milk as possible utilised in the added value sector.
Who gets the benefit of that is what I think you are asking.
Q283 Mr Jack: No. Let
us be very specific. I am sorry to labour the point. I go back
to the evidence we have received. The evidence is that continental
companies are doing better in this field, so in other words they
are extracting more value out of the milk they are processing.
Brits are not in the game, therefore we do not seem to have access
to that better value chain that our continental counterparts do.
Muller is a German company and they have put a fantastic
amount of money into their Shropshire plant but, if you like,
that is going back to the centre, to Muller HQ, and not
somewhere in Brit dairyland.
Mr Begg: Muller
in the UK is a British dairy company using British milk and employing
British people to produce British products but there are many
other examples in the industry where our members are doing the
same. There is new, you might call it Johnny-come-lately stuff,
a new focus, a real interest and a real desire to develop added
value products, branded products, in our marketplace as the way
to the future. It is not a new thing in the sense that it has
happened today, it has been happening for a couple of years now
and we are moving forward positively in that sense. Ultimately,
and indeed currently, that will deliver better returns for milk
producers and that must be the right way.
Q284 Chairman: Just to
finish with that, give us a notion of what sort of products we
are talking about? I can understand about Muller and their
yoghurts, I can understand about Dairy Crest and FRijj, but what
is out there that nobody else has thought of? This is really putting
you on the spot but what is the sort of thing where Mr Farmer
can think "We are in with something here; this is worth hanging
in there"? There must be something we can do with milk. Mr
Hinton: Certainly if there was a product out there that
was ground breaking I would not tell anybody else, I would be
doing it myself. One of the things Jim touched on was we have
a very basic product called milk, which we do fantastic things
about and we, as an organisation, start with the cow and go right
through to cheddar cheese and everything in between. One of the
things we have not been able to do is to brand things very well.
If you take cheddar cheese, there is about 300,000 tonnes a year
and only about 50,000 tonnes of that is branded, the rest is sold
as "me too". That is a great step forward if we can
move away from the commodity, even on the cheese, because as a
commodity, and the Committee mentioned it earlier on, we are inviting
imports into the country to fulfil a commodity product. Brands
on old products are important and the initiatives on new products
are very important. I look at the two or three brands coming out
in cheese this year already and it is very important to move away
from the commodity side. New developments are not easy even on
liquid milk. One of our members has just launched a different
type of milk to take a different edge and spin on these things.
There is an awful lot of initiative out there but as a nation
we are quite conservative when it comes to dairy products. I have
seen some terrific products which have failed because the British
consumer does not quite understand them at this minute in time
but they will keep coming back until we have a mature market and
that is exciting. There is a lot of work going on in relation
to branding and new products. People feel that is the real way
of putting value back into the industry.
Chairman: Gentlemen, thank
you very much for giving evidence. Certainly as Mr Begg has heard
me say before, what is said cannot be unsaid but if there is additional
material that you wish to give us to supplement your evidence
then feel free to do that. Thank you.
|
