Examination of Witnesses (Questions 100-119)
MR STUART
ROBERTS, MR
GERRY FINLEY
AND MR
ADRIAN DOWLING
13 OCTOBER 2008
Q100 Chairman: No, you said "put
the figures aside" and I thought that was the really interesting
bit so that is why I am coming back, to try and understand this.
Why are we doing all of this? Because we have to write a report
at the end of this exercise and I need to have a finger to point
at somebody to say that something here is not quite fair. We only
work on the information we get, and if I am a producer and I am
only seeing over that period of time 1.5p a kilo back and I have
seen the retail go up by 30p—if the retail price goes up
by 30p let us divide it by two to take out the margin, so that
is 15p of actual net cash to 1.5p back to the producer, so there
is 13.5p to account for. You would not like to hazard a guess
as to who has had it, would you?
Mr Dowling: I would say to you
that that has been spread across the trade. It is all about percentages
of percentages, so I would say, has our performance as a processor
improved? Yes, it has. Is there additional margin which has been
placed in percentage terms for retail? The answer is yes.
Chairman: Mr Drew, go on, take up this
line.
Q101 Mr Drew: You were sitting here
in the previous session and we went through this very similar
act of denial and lack of transparency with the milk industry
and we were hearing about that and I think we eventually got to
the stage where we thought we knew where it was but no-one would
ever admit to it, and partly that is the pressure that retailers
put on you and you subsequently put on the producers. It is a
bit different, as I say, because the manufacturers have more of
a role here than you would find with liquid milk, certainly. If
there is more money that could be a good thing but we are undertaking
this inquiry because the producers are saying, "We are going
out of business. We cannot carry on like this. We lose money every
year at the moment", so if it has been spread around to producers
either they are in an even more dire position and you have baled
them out temporarily or they have not had it and they are going
to be even angrier as a result of this inquiry. Can you elucidate?
Mr Dowling: Certainly. As an operator
of an integrated business, obviously, we are seeing the cost of
production of the pig. We are there, of course, experiencing the
cost of processing that pig and therefore, of course, we are selling
to retail, the wholesale market, the food service market, et cetera,
so we are right across the piste. As I say, the benefits of increase
in price have been spread across the trade. If you are asking
me who is taking the lion's share of that, it is all about percentages,
and the higher the figure—
Q102 Mr Gray: What do you mean? I
do not understand what that means.
Mr Dowling: If we say we are selling
something for a pound but our retail customer is selling something
for £1.30 but we are both looking for a 3% return, then,
of course, in pence per kilo terms the retailer would be gathering
more pence.
Q103 Chairman: Mr Dowling, I can
see that you want to reflect on what we are having to discuss
this afternoon. The Committee would like a little bit more of
some hard evidence and I will say this to the Association: I appreciate
that you do not want to be in what I call the difficulty of revealing
in public your contractual arrangements with any one of your customers,
I can respect that; that is a fair position, but perhaps you might
be able to reflect on at least giving us some indication as to
what percentage goes where in the cost chain so that we might
understand with greater clarity who is getting what out of this
particular process. I will not press you at this stage but it
would be helpful to us to have a bit more information in writing
because, as I say, we come back to why we are asking the question.
If somebody is disproportionately gaining from the price changes
that have occurred, and it is clearly in this case not the primary
producer, then we would like to know who, and if there are more
elements in the supply chain that we ought to know about your
guidance would be appreciated. There may be a need to prod and
poke a little bit and we need some facts to help us do that. I
will leave that one with you for further reflection, if I may.
Mr Dowling: I am sure that we
could provide you with some average industry information.
Chairman: That would be extremely helpful,
lovely. Let us move on to Anne McIntosh.
Q104 Miss McIntosh: Just on the costs
of production, do you think that the higher welfare standards
of this country puts UK big producers at a competitive disadvantage?
Mr Finley?
Mr Finley: I think the basic answer
to that would be yes, but I think we need to understand where
we come from and why that is. We are asking consumers to pay a
premium for welfare. You have covered a little bit about consumer
research in the last session and a lot of people who purchase
these products will say, "Yes, we support the British pig
industry", so it is not quite 80 and 20 but 80% might say
yes but only 20% will vote with their pound in their pocket, so
research is fine, but if you watch behaviour in front of the retail
shelf, as Mr Taylor alluded to, it is what is cheapest on a lot
of the occasions. Where we focus on welfare and provenance, and
perhaps that is where pig farmers have been directed some years
ago, the distinguishing characteristic is the quality. I think
people want to know about the quality. Is a British pork chop
sufficiently different from a Danish or a Dutch pork chop to get
them going back and paying that price differential for that pork
chop? Rather than welfare being worthy of a premium, it would
be the quality differential in my view that would be more sustainable.
Q105 Miss McIntosh: Could I just
ask, particularly with your background, because you are from the
Tulip company,—and I perhaps ought to declare that I am
half Danish but I do tend to eat British pork, particularly that
produced in North Yorkshire—is there any evidence in terms
of applying EU directives that Britain is more enthusiastic in
the way that EU directives are implemented, whether they are on
nitrates, which we are not here to talk about, the waste framework,
habitats and birds, the water framework or the groundwater framework?
Do you think that we might goldplate or what?
Mr Finley: I do not know whether
goldplating is the right word. We certainly embrace it a lot more
seriously and I would like to comment on the levels of compliance,
or certainly the timing of compliance, but if I am interpreting
the direction of your question correctly, I think, yes, we go
to the letter of the law.
Q106 Miss McIntosh: Mr Roberts, you
say in your submission that UK pig production is less efficient
than EU and worldwide counterparts.
Mr Roberts: Yes, and I think that
comes back to one of the points Gerry was making, but I think
one of the reasons in our cost of production, if you wish to use
that as a measurement of efficiency, is welfare, but that is not
the only thing. You touched in the earlier session on pigs per
sow, kilos of meat per sow and a number of other factors. In the
past we have had a world-class efficient pig production. I think
a lot of that was down to genetics and I think probably what has
happened is that much of the rest of the world has caught up with
us. On the EU point, if I can pick that one up, and I think there
are some good examples here, what may happen is that it is how
laws are interpreted and how we do things rather than what we
do. If you look at something like the area of waste and you look
at the current direction that the Commission are going in in relation
to the burning of tallow, there are a number of countries that
have taken the direction of travel, the intention, and have effectively
allowed the burning of tallow, which saves an enormous amount
of money in relation to waste. Perhaps when we are interpreting
laws we need to look at the intention of the EU law, not just
the wording of that law.
Q107 Miss McIntosh: You argue in
your evidence that global competitors have an advantage over yourselves
because they are able to use GM crops and animal feed containing
bonemeal. In your experience is this something that UK producers
would want to use or that retailers or consumers would wish to
buy?
Mr Roberts: Let us separate the
two and let us take the GM one first. I find the GM issue quite
interesting because we wrap the whole thing up in terms of the
growing of GM crops here, whereas there are three distinct issues
in my view. One is the current zero tolerance in relation to imported
GM feed. The way that the world is developing genetically modified
crops and feedstuffs means that effectively any ship in future
that has had any GM product in it previously will not be able
to bring in food to the EU and comply with the zero tolerance
issue, and I think we need to address that and take a sensible
approach to it. That is the first tranche. The next would be the
speed at which the EU authorises GM products. Effectively, the
speed of authorisation is slower than the speed of development
so you end up being one generation behind, two generations behind
and so on. The third tranche is the growing and the acceptability
of GM crops in this country. I think you have to separate all
three. You can make good, fast progress in relation to the first
one. You can make slower but steady progress in relation to the
second one and you can make slower again progress on the last,
but we should not use consumer acceptability on the last point
to slow up progress on the first or second points; there is a
real issue there. One of the keys to that is that we can import
product into this country that has been fed on a diet but we cannot
import the ingredients of that diet into this country to feed
our production. On the meat and bonemeal point, I think this is
an interesting one and my gut feeling at the moment is that whilst
the science may say that this is acceptable, particularly in relation
to feeding pig protein to poultry and vice versa, consumer acceptance
of that, and therefore by definition retailer acceptance of that,
probably still has some way to go.
Q108 Miss McIntosh: You believe the
UK has been slow to embrace the integration of farming and processing.
Do you think that by integrating that would make the industry
more efficient?
Mr Finley: It probably would make
it more efficient and we have certainly seen that around the world—Denmark,
for example, was mentioned in the previous session—that
is true. It would have the potential for enhancing efficiency.
Where I think it is also important, and we touched on it before
and we will bring the data back, is that profit margins are extremely
low in both producers and processors and effectively the simple
theory behind my argument is that there is not enough profit for
the farmer and the processor and if we continue that argument
forward effectively you cannot have the two sustaining alongside
each other in the long term.
Q109 Miss McIntosh: In terms of boosting
shopper loyalty to UK produce, whose responsibility do you think
it is to ensure that food is clearly labelled?
Mr Finley: The industry. We as
processors have to work in partnership with the retailer and the
producer because if we feel that that is what consumers want and
that is what we are driving then we should all get round the table
and decide is it working, how do we give clarity of labelling
and decide how we are going to go about it. I do not think it
is any one individual or business in the supply chain; it is all
of us. We are very integrated with our customers and we do talk
to the producers about overall direction. I think the debate has
gone on too long about labelling. In our zest to inform and educate
we have managed to muddle the thinking. What fundamentally are
we trying to tell the consumer?
Q110 Miss McIntosh: But if you take
Denmark as an example, if you look at a Danish food label at a
Danish meat counter I think it probably gives more information
than in any other country in the EU. There is presumably a limit
to how much information at a glance you are going to be able to
put on the label. How can you educate the shopper to distinguish
between meat that has been reared in the UK in accordance with
the higher UK welfare standards and meat that has not?
Mr Finley: First of all, the Danish
consumer might not be the same in terms of behaviour as the British
consumer or the English consumer—
Q111 Miss McIntosh: They do not eat
bacon butties.
Mr Finley: —so we just need
to be a little bit careful about one cap fits all because it quite
clearly does not. To get back to the research that we have done,
what do they fundamentally want to know about the product? They
want to know what the product is, what is in it and where it is
from. We can argue for quite a long time about the relevance of
the welfare and provenance of the animal and the gentlemen beforehand
stressed the importance of that, but we think the primary importance,
having got it moved off the shelf, is about the quality of the
product that will get the repeat purchase rather than whether
it was outdoor reared, outdoor bred, free range. In fact, there
is quite a lot of confusion with consumers about these different
production systems for pigs.
Q112 Miss McIntosh: Tulip presumably
produces more processed meat than other producers. What do you
believe that processors can do or are doing to help the consumer
make educated decisions on the food that they buy?
Mr Finley: It is about the labelling
and we have plenty of opinion but not much action and decision-making.
Retailers have a view, the FSA have a view, we would have a view,
but some of the packs and products that we process and package
are very complicated and very unclear, and you must see it every
day of the week yourselves, but we are taking too long to understand
what we are fundamentally trying to tell the consumer.
Mr Roberts: One of the issues
is that we always see the solution to this, whether it be on nutrients
or on fat or on origin, as adding extra information to a label,
which by definition means we are constantly getting more and more
information on the label and are not getting back to the heart
of what the key things are in relation to consumer decisions.
I was talking to someone the other day, and unfortunately I have
not got evidence to substantiate it but certainly from my own
shopping habits it probably is right, who told me that we spend
a matter of a few seconds in general looking at a label. We can
put reams and reams of information on a label. If we are only
going to spend a few seconds looking at it what are the key bits
of information on there and how do you present them in a clear
form? That is the key to it.
Mr Finley: I think we are in danger
of having too many vested interests. The FSA want to highlight
the healthy side of the product or the unhealthy side of the product.
The producers want to focus on the provenance. The retailers want
to sell the product. It is their responsibility to see it move
off the shelf and they are the ones who understand consumers better
than we do. We have an input into that but at the end of the day,
yes, it is in particular to educate consumers but we have almost
got too many vested interests and in the end we do not get a decision
and we carry on regardless with the same confusion on the pack.
Q113 Miss McIntosh: Finally, why
do you think Denmark has been so strong in developing co-operation
and co-operatives between farmers? They must have the equivalent
of the Office of Fair Trading.
Mr Finley: The structure of the
industry goes back 100 years. It is a co-operative movement, as
you are aware. Farmers therefore have a say in the direction of
their industry, slaughtering and butchering and where their markets
are, so there is quite a unified approach to where their industry
goes, but they have had 100 years of this—for whatever reason
we are not in that position—and therefore they have a more
co-ordinated approach to markets and, like I say, their farmers
have a vested interest in the success of that business and where
it should go.
Q114 David Taylor: There is a Tulip
plant in Coalville, Leicestershire, round the corner from my own
office. We have seen a label—"Tesco Unsmoked 8 Back
Bacon Rashers", and embedded in the detail, if you have very
sharp eyesight and you are under 30, you would find, "Produced
using pork from the UK"—or "Denmark", or
"Holland", or "Sweden"—"and packed
in the UK for Tesco Stores Ltd", and that is proudly stamped,
"Produce of Britain". It may be legal but surely morally
that is misleading to the ninth degree. I am not saying Tulip
has packed it but you are involved in things of this kind.
Mr Finley: Yes. I do not doubt
what you are saying is right. We come across it all the time,
and there is evidence of confusion here, but let me give you an
example which I think is the best way of answering your question.
What is driving it is that you will get quite a lot of clarity
with individual products and individual sources and origin. If
we enter into some promotional activity we may want to source
from different countries to ensure we have got guaranteed supply.
I am not saying this is; you have sprung this on me, but invariably,
if we want a guaranteed supply, we would say to the customer,
"Look: we cannot give you it all from the UK", or, "We
cannot give you it all from Denmark. We need some options".
Q115 David Taylor: The customer being
the retailer in this context or the customer being the ultimate
consumer?
Mr Finley: The customer would
be the retailer, but we do not get any complaints about, "What's
all this?".
Q116 David Taylor: I am sure you
do not because what Mr Roberts said just a moment or two ago was
that, quite rightly, the typical consumer would spend, he said,
seconds and I would say fractions of a second, looking at the
label and if they took in anything on this label you would see,
"8 Back Bacon Rashers, Produce of Britain". That is
all you would take in and into the basket it goes. You would not,
unless you were unusual, at a later date then unpick all of this
but it is deeply misleading.
Mr Finley: In this individual
case, but I do not believe this is representative of the majority
of the market. We would not support that. We would want to clarify
that.
Q117 David Taylor: Do you typically
both wrap and label for your retailer customers?
Mr Finley: Yes.
Q118 David Taylor: So it would go
out as Asda back bacon rashers or whatever?
Mr Finley: Yes. We are in favour
of greater clarification of that. We are not negative towards
that. We do not want to misinform. That is not a good place for
us to be.
Q119 Mr Gray: So if we send our spies
out to supermarkets and look at Tulip products you would be confident
that we would not find a similar thing like this? Is that what
you are saying?
Mr Finley: I am not saying in
every individual case. If you look at the amount of trade we do
with retailers and you count the amount of business we do with
this sort of example, I think it would be absolutely minimal.
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