Memorandum submitted by the British Meat
Processors Association (Pigs 24)
INTRODUCTION
1. This submission to the EFRA Committee
is from the British Meat Processors Association (BMPA). The BMPA
is a trade association representing a wide range of red meat slaughtering
and meat manufacturing companies in the UK. In total our members
process in excess of 80% of the pigs slaughtered in England and
include all the major processing facilities, which process the
majority of imported pig meat. BMPA members are well positioned
to compare UK production and market performance as we trade in
both domestic and international markets.
2. The views expressed in this submission
are BMPA views but they do not necessarily reflect wholly, or
in part, the views of any individual company within the BMPA membership.
Question 1: What is wrong with the English
Pig Industry? Are the problems more than just a cyclical imbalance
between supply and demand?
3. We consider the problems with the English
Pig Industry are more than a cyclical imbalance between supply
and demand. The unprecedented increases that have been seen in
commodity prices and the knock-on effect on animal feed prices
have merely compounded existing problems that would not be sufficiently
solved by a worldwide reduction in feed costs. There are a number
of key issues that we believe have contributed over a long period
of time to the current problems within the industry.
PRODUCTION EFFICIENCY
4. UK pig production is significantly less
efficient than other key European and global competitors. For
example, a British Pig Executive report published in December
2007 highlighted that in many areas the UK still lags behind our
European competitors. In particular, we would like to draw attention
to the following observations:
— Great Britain remains the highest
cost country in the EU with production costs in 2006 of 108.2p/kg
compared with 91.3p for Denmark and 87.2p for the Netherlands.
— The number of pigs weaned per sow
per year in GB (21.4) is significantly lower than in key competitor
countries such as Denmark (25.9) and the Netherlands (25.1) although
it should also be noted that in other areas such as rearing mortality
the English industry compares very favourable with its competitors.
— Average daily live weight gain remains
in the lower half of the EU league table.
5. Unless English producers become as efficient
as their direct competitors there will continue to be commercial
pressures to source cheaper imported product. This is especially
true at a time when consumers are becoming increasingly price
sensitive. If the price of English pork is consistently higher
than imported products and we continue to see a decline in the
size of the English pig herd then it is highly likely that we
will see the closure of one or more processing facilities leading
to an additional loss of capacity within the industry.
6. A significant limiting factor to improving
production efficiency in the UK are the various regulatory controls.
These regulations, notably environmental regulations, prevent
pig units reaching their optimum production size. There has also
been a history of grant aid in other EU countries to help their
producers implement environmental regulations.
7. Whilst the entire world has seen increases
in feed prices many of our global competitors have had a number
of advantages over the English and European industry. Potential
feeds, such as GMOs or derivatives which are not approved here
are allowed in the feed rations of some of the key pig producing
countries.
LACK OF
VERTICAL INTEGRATION
8. The sector's current structure is fragmented
in comparison to other more efficient performing countries, which
is not sustainable. The industry needs to develop long term relationships,
between farmers and processors if it is to secure sustainability.
9. In using the existing model and economics
of the pig farming and processing sector, it is difficult to foresee
a scenario where sustainable levels of profit can be found for
both producers and processors. With the exception of a handful
of cases, the UK chain has been slow to embrace the integration
of farming and processing, an approach which would allow the chain
to focus on cost reduction and an approach that has been demonstrably
successful in other countries. Without more vertical integration,
producers will not be able to develop markets and move away from
being "price takers".
10. Directly linked to this, is the lack
of interest in long term contracts between farmers and processors.
This damages confidence in future business and reduces the chain's
resilience to both adverse events and cyclical market conditions.
The use of long term written contracts between retailers and processors
should also be encouraged for the same reasons.
LACK OF
INVESTMENT
11. The poor profitability experienced by
the pig sector over recent years has lead to a significant lack
of reinvestment. This has particularly limited the industry's
ability to improve efficiencies in the pig production sector,
but it has also damaged producer confidence to an extent that
cannot be underestimated.
MARKET FORCES
AND ARTIFICIAL
BARRIERS
12. The UK market is dominated by a relatively
small number of large retailers who have been very successful
at delivering competitively priced pork and pork products to UK
consumers. However, this marketplace price orientation demands
lowest cost raw materials. This inevitably comes at the expense
of loyalty to the pig meat chain subscribing to British welfare
standards—particularly for tertiary brands and "non-fresh"
products.
13. Moreover, many costs that would intuitively
be considered as retailer costs are actually borne by processors—for
example materials, labour, packaging and in particular, promotional
costs.
14. Whilst the UK consumer has demonstrated
a degree of loyalty to British pork, due to inter alia,
higher welfare standards, the retail marketplace does not always
cater for this loyalty, or at worst, offers the impression of
loyalty without adding value to the UK chain. At retail, a good
deal of fresh pork is heavily promoted as British but in most
cases, products that are not categorised as "fresh",
such as cooked meats and ready meals, are not produced from pork
that is produced to British standards yet the inference of backing
British produce remains. This issue is also a major contributory
factor in the problems of carcase imbalance (discussed later in
the document).
15. Similar parallels are found in the food
service sector, where products do not have the same degree of
loyalty to British welfare standards and as such give competing
products an advantage over English produced pork. Moreover, consumers
are not conditioned, nor have the tools in many cases to be more
discerning when purchasing non-fresh pork and pork products in
the food service sector.
16. In terms of domestic demand, UK consumers
have a preference for cuts that are derived from particular parts
of the pig carcase i.e. they do not buy the carcase in balance.
However, much of the remaining products, such as feet, tails and
fifth quarter residuals have no substantive market in the UK.
Therefore, the return on a pig carcase is critically dependant
on reaching foreign markets, which can provide a premium or at
least avoid the imposition of disposal costs. Maximising carcase
usage in this way is vital to maintain competitiveness but the
"carcase imbalance" is a major issue that has been growing
over a long period of time as consumer preferences have changed
and export markets have contracted.
ANIMAL DISEASES
17. Animal disease issues also play an important
role in the international trade dynamic. Outbreaks of disease
in this country lead to the immediate closure of export markets
which have a direct effect on our industry with the loss of sales
for many parts of the carcase compounded by the fact that these
once valuable products must then be disposed of at a not insignificant
cost due to the lack of a domestic market for the products.
18. A further consequential effect of this
market closure is that our competitors further exploit our lost
export opportunity and their own carcase balance improves meaning
they can then sell prime cuts on the UK market at further reduced
prices.
19. The time required to obtain access to
lost export markets and develop market share is very considerable
and does enormous damage to the UK industry in the meantime.
20. It should be noted that this is not
just related to diseases of pigs. For example disease outbreaks
in other species can have large knock on effect such as the ban
on meat and bone meal which has had an effect on the pig industry
but was a consequence of a disease in bovines.
Question 2: Are domestic pig welfare standards
a principal reason that English producers have problems competing
with those outside the UK? Are there other reasons?
21. We are confident that the general welfare
standards of pig production in the UK are amongst the highest
in the world and that these standards represent a cost that affects
competitiveness. Whilst we do not accept that this is the principle
reason for poor competitiveness in the UK (see section 1.1) the
costs of maintaining higher welfare standards than those implemented
in the rest of Europe, cannot be ignored.
Question 3: What could supermarkets and the
hospitality industry do to alleviate the pressure on the domestic
pig industry?
22. We feel that there are a number of areas
where retailers and the food service sector could help in the
development of a sustainable future for British pig farmers.
23. The key areas where retailers and the
food service sector could help are:
— To help explain the value of purchasing
English product and provide clear and transparent tools to help
consumers to differentiate between England and imported product.
— The food service and hospitality
sector could make greater use of lower value cuts in a wider range
of products (for instance, pizza toppings, pies etc). This would
make a significant contribution to the carcase balance issue and
increase the sector's resilience to export pressures.
— Place less focus on the promotion
of raw materials already in short supply (such as loin), which
exacerbates the carcase balance problem.
— Incentivise and encourage farmers
and processors to develop truly sustainable long term relationships
through the wider use of long term contracts. This should lead
to more stable pricing and provide a stronger incentive for investment.
— Reduce the costs associated with
promotions as the chain is too vulnerable to withstand these costs
in the short to medium term. Furthermore, the longer term benefits
of this investment are not adequately realised by the production
and processing sector.
— Apply British Standards to all product
including secondary and value products and tertiary brands.
— Make a clear statement accepting
that both producers and processors need to reinvest if there is
to be a continued and sustainable supply of English pig meat.
Question 4: Can the Government do more to
support the industry either directly or through its public procurement
policies?
24. There are a number of areas where Government
can do more to support the industry either in a proactive way
or by the removal of artificial barriers which are currently imposing
inefficiencies or costs on the industry. The following proposals
are recommended:
— Fundamentally review environmental
regulations and influence Europe to ensure that the barriers to
efficient production which are presented by the Integrated Pollution,
Prevention and Control (IPPC) framework and other environmental
regulations are removed. The key issue for any review would be
to look at the outcomes which the regulations are seeking to achieve
and ensure that the onus is placed on the business to deliver
the outcomes without imposing draconian limits which set artificial
barriers to scale.
— Consider the introduction of a system
of grant aid, as other EU countries have done in the past, to
help producers meet the challenges posed by environmental regulation.
This is needed by the UK industry to `catch up' with our competitors
who have already received taxpayer support in this area.
— The application of domestic regulatory
standards should not go beyond EU requirements. Whilst the industry
should be continually looking to improve standards, these improvements
should not be imposed ahead of the market's ability to sustain
them. The focus of Government efforts should be with European
Regulators to ensure the UK chain is not disadvantaged by cost
of production and undermined by cheaper—and freely tradable—imports.
— The Government procurement policy
ought to be aligned to the standards set by Government and all
pig meat should be sourced in conformity with UK standards.
— Urge that those responsible for targeting
levy funds use their resources to address the cost of production
problems rather than marketing because marketing will achieve
very little if English production continues to be uncompetitive
in a price sensitive market.
— Address the long term decline in
food preparation teaching in schools which is contributing to
a narrowing skills base and a reduced market for a wider range
of meat cuts.
— Lead EU discussions on the issue
of zero tolerance of GM in animal feed and the issue of the time
taken to authorise GM feed for use in the European Union.
— Support a proportionate, science
based approach to the issue of non ruminant meat and bone meal
as a protein source for pigs.
— Review disease control policies and
preparedness to ensure that the wider economic consequences feature
more heavily in the decision making process.
— Carry out research to look at how
vertical co-operation works in other countries and whether such
a model could be used to benefit the UK production and processing
sector.
— Under the auspices of food chain
resilience planning, the encouragement of forward buying of raw
materials and stimulation of Industry emergency planning to cope
with volatile world market prices. Part of this planning could
be the consideration of alternative protein sources by Industry
and risk based thinking on alternatives by regulators.
SUMMARY
25. We believe that urgent action is needed
to stop the decline in the UK pig industry and welcome this inquiry
as a step towards this.
26. We believe the only sustainable way
for the pig industry to halt the current decline is to address
the production inefficiencies which are at the heart of the decline.
However it is also vital that the myriad of other issues such
as environmental, welfare and animal disease problems are also
addressed because whilst their impact individually may not be
enormous the cumulative effect of these issues is extremely important.
September 2008
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