Examination of Witnesses (Questions 81-99)
MR STUART
ROBERTS, MR
GERRY FINLEY
AND MR
ADRIAN DOWLING
13 OCTOBER 2008
Q81 Chairman: Gentlemen, I am almost
tempted to allow you a few moments' discussion with our earlier
witnesses so you can negotiate a few lucrative contracts but you
probably would tell me that you have done that already, so we
will move on from that great commercial opportunity. Can I formally
welcome Mr Stuart Roberts from the British Meat Processors Association?
Mr Roberts, what is your position with the organisation?
Mr Roberts: I am the Director
of the British Meat Processors Association.
Q82 Chairman: Mr Gerry Finley comes
from Tulip Ltd, but what do you do there, Mr Finley?
Mr Finley: I am Divisional Managing
Director for Tulip in the UK.
Q83 Chairman: And finally Mr Adrian
Dowling is the Chief Executive Officer of Bowes of Norfolk. Gentlemen,
you are all very welcome, and again I reiterate to you our thanks
for your written evidence. Can we just pick up on a point? You
were kind enough to be sitting in for our earlier evidence and
we were talking about supply chain relationships and some of the
difficulties that exist there. Our previous witnesses referred,
as did Waitrose in their written submission, to the fact that
they seem to enjoy at least what I would describe as vertical
conversations with producers, but the impression that we gained
from our previous witnesses was that as far as the bulk of retailers
was concerned there was an apprehension about having the kind
of dialogue which might enable some of the problems that we heard
from our previous witnesses to be thoroughly discussed because
there does seem to be a disconnect between the efforts the supply
side are making to meet customer demand and the rewards that they
are getting from it. In fact, one of the points made was the big
difference between the rise in the retail price of the product
and the amount of that additional price which is coming back to
the production side. Perhaps you would like to tell us why from
your standpoint you believe that the English industry has not
in fact developed those long-term contracts between producers,
processors and retailers that would give you a knowledgeable supply
chain.
Mr Dowling: Good afternoon, Chairman.
I would like to answer that one for you. I think supply chain
relations are good up to the end of the processing sector. We
in the processing sector are as good as our last order. There
are no formal contracts and in history I know of very few formal
contracts with any customer in the processing sector, so I will
cover not just the retailer but also the food service industry
and, of course, the public sector, and their tendering systems
which you are probably aware of. Going back down the chain, I
believe we have a very good supply chain relationship particularly
with regard to our suppliers and producers, but I think it has
to be pointed out that our suppliers can either be a marketing
group or they can be an individual producer whereas we will commit
ourselves generally to a 12-monthly contractual arrangement with
a notice period. What that basically develops is a processing
industry that is taking all the risk because we do not have a
guaranteed outlet for our product.
Q84 Mr Gray: Why not?
Mr Dowling: I think it is in history.
Particularly with retail, if we go back, probably the very first
multiple retailer being Mr Sainsbury, everything was dealt with
on a handshake, a gentlemen's agreement, and I think that has
continued on.
Q85 Chairman: Mr Dowling, I understand
that one of your major customers is Tesco; is that right?
Mr Dowling: Correct.
Q86 Chairman: I do appreciate that
in the supermarket sector you do not get a formal contract that
says, "I will guarantee to supply and they will guarantee
to buy X", but, given the knowledge which retailers have
of the pattern of their consumer demand, they must at least give
you some programme indication as to their likely offtake of product;
otherwise you would not have a clue what to supply. Surely the
dialogue is not a sort of week-by-week relationship, is it?
Mr Dowling: It can be. We know
more about their business and plans sometimes than they do and
we build that up over a period of time, i.e., their performance
history. In terms of them saying, "We are committed to you
for X amount of years forward", no.
Q87 Chairman: No, that bit I do understand,
but in terms of enabling you to plan, because you quite rightly
drew the Committee's attention to the relationship you have, if
you like, going down the supply chain as you see it in terms of
being able to give information to the primary producer about the
lack of trends in the industry, you will do that firstly from
your knowledge of your own business but you cannot have that knowledge
without some indication from your major supermarket and food service
customers as to their likely patterns of offtake.
Mr Dowling: I think that is something
that is in general agreement but, of course, what the processing
industry has historically been asked to do has been to commit
to a source of supply, as the pig farmer needs to commit to his
feed, without a written contract at the customer end with regard
to the end customer of the processing industry.
Chairman: Things must have changed since
I was a supermarket buyer. Anyway, at least I was able to give
the primary producer some indication as to likely future demand
without entering into a hard and fast contractual arrangement,
but I guess what you are saying to me is that it is a bit more
cut-and-thrust today than it was when I was there. It was a long
time ago.
Mr Drew: You are showing your age.
Q88 Chairman: I agree with you, I
am.
Mr Dowling: As I will come back
and reiterate, that effectively is an agreement as per a gentlemen's
agreement that we intend to take supplies of meat from this business.
Q89 Chairman: I am sorry to pin you
down on this but we are not that far away from Christmas and one
hopes and prays that there will still be some people out there
who will want to enjoy it. The sale of ham joints, for example,
I would guess—and tell me, Mr Dowling, if I am wrong—forms
an important part of your back end of the year trade. Is that
right?
Mr Dowling: It will not this year,
unfortunately.
Q90 Chairman: Oh, dear, I have obviously
picked the wrong example to ask you about.
Mr Dowling: I am sorry, but I
suppose you are referring to is there a plan in place for Christmas?
Q91 Chairman: Yes.
Mr Dowling: I would imagine with
regard to producers of cured product and processed product there
is. From a fresh pork point of view, apart from one or two selected
cuts of meat, no, there is no plan.
Q92 Chairman: This is a pretty dire
picture you are giving us about the relationships in the supply
chain. If you had a free hand how would you improve it?
Mr Dowling: I would prefer, of
course, to have the same commitment in terms of volume, not the
total volume as we would not contract all of our pigs in total
volume because we must allow for variability in demand, but for
the majority we would certainly like to see a firm contract and
commitment in place that would then give us a level of comfort
to then further commit to our supply base.
Q93 Chairman: But would you say that
if you had the model that you have just described to us that would
also enable a sensible dialogue to take place about the costs
of production? For example, in certain aspects of the horticultural
trade people have gone to cost of production contractual arrangements
unless I have been misinformed, so in some aspects of the supermarket
business there is obviously a closer relationship than the one
that you are describing because our earlier witnesses identified
for us a number of aspects of the realities of doing business
in England, which are not the same necessarily as on the continent,
and particularly in the context of welfare they would argue that
that should be reflected properly in the price, just as the price
should have reflected some of the recent very high increases in
the cost of grain, for example. Would the improved chain relationships
that you have described in your judgment and experience address
those issues in a meaningful way so that the producer would recognise
that at last they were being listened to?
Mr Dowling: Absolutely. For example,
I spent 22 years supplying McDonald's in the United Kingdom in
a previous life, and our business was based on a cost of production
arrangement with a solid, robust contract.
Q94 Chairman: Do you think you could
give us a best guess—and do, gentlemen, feel free to join
in this one because our colleagues from the production side were
anxious to identify the significant differences between what they
got as a price increase and what the cost at retail was—as
to where the money has gone? Mr Roberts, you are anxious to come
in.
Mr Roberts: Yes. There was something
that you touched on in the previous session about transparency
in the supply chain and transparency of costs. You touched on
the Scottish Pig Task Force. One of the areas that it would also
be worth looking at, and it is not in relation to pigs, is the
Northern Ireland Red Meat Task Force, which carried out an exceptionally
useful piece of work looking at anonymous data but some really
in-depth analysis (you have probably seen it) in relation to costs
and margins at retail/processor/farmer level, and maybe that is
something that you might consider for your report.
Q95 Chairman: That is very good for
Northern Ireland. It slightly dodges the question I was asking,
which is, where has the money gone in England?
Mr Dowling: I am quite happy to
answer the question.
Q96 Chairman: Come on then, Mr Dowling.
You have volunteered for the difficult question.
Mr Dowling: Let us put the numbers
to one side. There is no question at the end of the day that both
the producer and ourselves have been playing catch-up. There is
always a lag factor in a rising market, so there will be an element
of that. There is evidence, of course, that retail prices have
been pushed up considerably. In terms of where has some of that
money gone to, I imagine that that has been spread across the
trade, I think is the honest answer.
Q97 Chairman: It is a hell of a lot
of spreading. The evidence that the Committee has received is
that between August 2007 and February 2008 the prices went up
by 30p a kilo retail and only 1.5p was passed back to the producer.
That is an awful lot of spreading that has been going on. There
are retailers, processors and producers. Is anybody else joining
the party that we have missed out?
Mr Dowling: Of course, you have
always got the traders or the marketers.
Q98 Chairman: You supply the supermarkets,
right? You know how much you pay for the product because those
are the people you deal with, and you know how much you sell it
for. Is there somebody creaming something off between you and
the supermarket?
Mr Dowling: No, not at all.
Q99 Chairman: Therefore we have only
got three people to discuss with here, so if the producers have
only got 1.5p in 30p either you are taking one hell of a slug
or the supermarkets are copping the lot. Which is it?
Mr Dowling: Sorry—I thought
I had answered the question.
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