Memorandum submitted by the Department
for Environment, Food and Rural Affairs (Pigs 19)
INTRODUCTION
1. This Memorandum sets out Defra's responses
to the questions identified by the Committee for its inquiry into
the English pig industry. They are considered from an England
perspective although many factors are relevant across the UK and
this is reflected in the response (England accounts for about
82% of the UK's breeding pigs; Scotland 9.4%, Northern Ireland
8.5% and Wales under 1%).
Q1. What is wrong with the pig industry in
England? Are present problems more than just a cyclical imbalance
between supply and demand?
2. The overriding challenges facing the
English pig industry in the past couple of years have been the
impact of increased global feed prices and the failure of market
returns to keep pace with increases in production costs. These
challenges have to some extent been compounded by other factors
which, on their own, may have had less impact than perhaps they
did (for example, the cost of new EU legislation, or necessary
limitations imposed on livestock movement during animal disease
outbreaks). In common with the other livestock sectors, the pig
industry also has concerns about general macro-economic issues
and international trading conditions and competitiveness. The
pig sector has long been largely unsupported by CAP, so this sector
has been relatively little affected by CAP Reform measures.
3. Defra estimates of incomes for pig farms
in England published at the end of January 2008 indicate average
commercial pig farm losses of £4,100 in year to end of February.
This compares with an average income of £24,400 in the same
period in 2006-07.) Provisional figures from the June 2008 Agricultural
and Horticultural Surveys of the UK Agriculture Departments show
a decrease in the UK female pig breeding herd of 6.7% overall
from June 2007, and a decline in the total pig population of 3.6%.
Further statistics on UK pigmeat production and breeding pigs
can be accessed on the Defra statistical website. Relatively high
sow slaughtering levels reported for the first months of 2008
indicate some contraction in the breeding herd as producers leave
the industry (although the cull sow level will in part follow
the FMD movement restrictions of last Autumn, and improved prices
in the EU for sow meat). The increase in feed costs has of course
had a global impact upon pig production: throughout the EU reported
estimates are of an overall decline in production of 2% in 2008.
Rising EU prices may now be helped by some tightening in supply.
4. Feed costs account for over half the
costs of producing a pig. Feed prices rose globally following
two successive lower wheat harvests, nearly doubling in the twelve
months between March 2007 and 2008. Since March 2008, cereal prices
and hence feed costs have started to fall from their peak, and
prospects for the global 2008 harvest are generally favourable
for both maize and wheat. The UK wheat harvest is still weather
dependant but UK feed wheat futures have been falling and are
currently (September) around £70/t less than the highs recorded
in late February. Clean pig prices have meanwhile shown some increases
in 2008, and producers will have benefited to some extent from
the fall of sterling against the euro. If these price trends are
sustained through to next February then a partial recovery in
profitability in 2008-09 should be seen, although the 2008 harvest
and its impact on feed prices remains central.
5. Animal disease outbreaks of classical
swine fever and FMD (Foot and Mouth) have impacted significantly
on the industry in the last few years. Last year's FMD outbreaks
and necessary restrictions came at a time when producer margins
were already squeezed. The impacts included the loss of third
country exports, particularly to China which traditionally provided
an outlet for the "fifth quarter": this added to production
costs, because of lack of alternative outlets.
6. Lowering animal disease risks is the
main objective of the current Defra work looking at how responsibility
and cost sharing for animal health can be re-balanced between
government and the livestock sector. Improved decision making
and incentives to livestock farmers delivered through a different
balance of the costs should help reduce the incidence and severity
of disease outbreaks. Such an outcome would contribute to strengthening
the longer term viability of the pig industry (and all livestock
sectors).
7. Regulation in livestock sectors, including
pigs, is essential to protect public and animal health and welfare
and the environment. Many England regulations follow common EU
standards and requirements and in negotiating these it has been
a priority for the UK to ensure that controls are proportionate
and avoid unnecessary burdens on industry. Understandably, especially
at the present time, pig operators are concerned about meeting
regulatory costs such as the environmental controls under the
Integrated Pollution Prevention and Control (IPPC) Directive,
although the sector has had over 10 years since the IPPC Directive
was agreed to come to terms with it and its costs.
Q2. Are domestic pig welfare standards a principal
reason that English producers have problems competing with those
outside the UK? Are there other reasons?
8. The vast majority of pig meat imports
into the UK are from EU countries. UK market demand for bacon
in particular has meant that there has always been a need to supplement
UK production, but in recent years there has been growth in imports,
particularly from Denmark and the Netherlands. In terms of animal
welfare, there are few areas in which UK law goes beyond the requirements
of EU minimum standards, and in those areas Defra has worked to
secure a more level playing field in the future. This Government's
approach is to seek future improvements in welfare standards at
an EU level. Certain other Member States have also introduced
national requirements that exceed the minimum specified by EU
Directives, for example, Sweden, the Netherlands (hygiene standards)
and Germany (increased space requirements for rearers and finishers).
Castration of males is commonly in use in other EU countries but
not in the UK where, although not illegal, the practice is not
permitted by the farm assurance schemes which cover most UK pig
producers.
9. The principal difference currently between
the UK and other Member States' pig welfare legal requirements
is that in the UK, tethers and close-confinement stalls for breeding
sows have been banned on a unilateral basis since 1999. In the
EU, tethers have been banned from 2006 and sow stalls will be
largely banned from 2013 (keeping sows in close-confinement stalls
for the first four weeks after service will still be allowed).
In 1991, when the unilateral ban by 1 January 1999 was agreed,
the cost to the UK pig industry over that period was estimated
at about £9 million. The initial cost of conversion may have
caused some difficulties for the UK pig industry, although new
systems would be completed by 1999. Defra has no analyses of the
current impact of the UK ban on close-confinement stalls and tethers
for breeding sows on production costs. An InterPIG study in 2006
showed 12% higher production costs in the UK than the EU average,
but it is likely that other factors will have a significant role
in in relative costs—physical performance of the herd, feed
costs, land and labour costs etc. We note that the Farm Animal
Welfare Council (FAWC) recently considered pig welfare standards
in relation to production costs and concluded that both legislated
and voluntary welfare standards will have increased UK costs of
production, although non-welfare production costs "also differ
considerably between countries" (reference FAWC letter of
7 July 2008 to Richard Lochhead, Scottish Government—www.fawc.org.uk).
10. Defra has encouraged the industry to
use high welfare standards as a marketing advantage. More than
90% of UK pig meat production comes under farm assurance schemes
with audited and inspected welfare standards. Ultimately of course
the success of such a strategy will be down to market forces.
The industry would like improved country of origin labelling,
so that consumers can be assured that they are buying products
produced to certain standards. EU proposals for Food Information
include measures which should be helpful to this.
11. Some non-EU countries have lower welfare
standards than apply in the EU but their pig meat exports to the
UK make up only a small fraction of the UK market. We have no
evidence that global variations in standards have a significant
impact on relative competitiveness when compared to other factors
in the costs of production. Production in South America benefits
from self-sufficiency in grain production and the low cost of
its facilities, labour and land. Similarly, production costs in
the US are significantly lower than in the EU but benefit from
economies of scale and good disease prevention and quality management.
We would be naive to think that we can impose our welfare standards
on others—WTO rules do not allow members to restrict trade
in products based solely on the method of production (e.g. on
animal welfare grounds) and the UK adheres to the principle that
developing countries should be granted equal access to our markets
without having processing standards imposed. Developing countries
in particular fear that animal welfare production standards will
be used as an excuse for protectionism.
12. We note that the EU Community Action
Plan on the Protection and Welfare of Animals 2006-10 envisages
the introduction by 2009-10 of standardised welfare indicators
and an EU wide welfare labelling scheme. The aim is to facilitate
the choice of consumers between products obtained with basic welfare
standards or with higher standards. The Commission has been charged
by the Council of Ministers to assess further the issue of animal
welfare labelling and to submit a report to the Council in order
to allow an in-depth debate on this subject.
Q3. What could supermarkets and the hospitality
industry do to alleviate the pressure on the domestic pig industry?
13. The pig industry have been campaigning
for better economic returns on their products within the supply
chain, to restore profitability after higher production costs.
The setting of prices is of course a commercial matter to be resolved
by private negotiation which should take place within the parameters
set by competition law. The market must determine price levels.
However, in recognising long-term needs of their customers, supermarkets
have to consider how best to maintain a sustainable supply of
products demanded by those customers. Some UK supermarkets have
already pledged support for British pig producers in their product
sourcing policies.
14. In response to the Competition Commission's
2008 report into the groceries market BERR, which has responsibility
for Competition issues, has collectively agreed a government response
on recommendations. Additionally, although it was not an official
recommendation the Commission suggested that BERR and DEFRA should
consider extending the Code of Practice, or the introduction of
appropriate measures, including the extension of the GSCOP (Groceries
Supply Code of Practice) and the role of the Ombudsman or the
introduction of a similar, complementary code and arrangements
to cover the intermediaries and primary producers. In response
to the CC's suggestion, Government are grateful to the CC for
highlighting this issue but would want to see how any change impacts
on the operation of the supply chain before considering whether
any further action might be necessary.
Q4. Can the Government do more to support
the industry either directly or through its procurement policies?
15. UK Government is keen to ensure that
sustainably produced food is readily available in sufficient quantities,
but it is not—generally— the role of government to
manage food supply nor carry the risks associated with such private
enterprise. The pig sector has traditionally played an important
and significant role in a diverse food supply industry, and it
possesses many strengths from an effective and efficient structural
profile (with strong leadership) to high product standards and
quality control. Whilst sympathetic towards the sector's current
market challenges, the Government maintains the view that managing
these challenges is essentially a matter for the industry itself.
It is worth noting, too, that the England pig industry operates
in European and global markets, and is not alone in facing these
demanding challenges.
16. The pig sector's long term sustainability
will continue to depend upon its ability to compete successfully
upon market principles, including performance, quality and welfare
standards. The industry has achieved much in these areas in recent
years, while being largely unsupported by the CAP, and notwithstanding
the decline in production after 1997. Between 1997 and 2007 the
size of the UK pig herd decreased by some 40%, to 4.8 million
pigs, and import penetration increased, although by 2006-07 the
national herd size appeared more stable. (The sharpest decline
was in the five years following 1998, regarded generally as a
year of peaking production when consumers were substituting pork
for beef. The industry was also affected by outbreaks of animal
disease including Classic Swine Fever.) Continued investment by
the industry will be key, although the current priorities for
many producers may be re-establishing profitability and clearing
debts.
17. In 2000-01, the Government invested
directly to help secure the longer-term viability of the sector
by granting £37 million (over 3 years) restructuring finance.
That was a very significant, but one-off, grant to allow the sector
to take sole responsibility for its long-term economic future.
Further direct intervention in the sector would not be in accord
with broader Government policy or approach to CAP Reform aimed
at achieving a farming sector which is profitable without the
need for distorting and costly public subsidy. Nevertheless, the
Government has consistently assisted the pig industry, within
these parameters, as instanced below.
18. More recent, and ongoing, Government
support has included:
— support for measures taken by the
European Commission to increase the supply of feed grains and
reduce prices. These include suspending the duty on imports of
third country cereals, re-selling the remaining intervention (public)
stocks of grain and removing the requirement for farmers to keep
land out of production for the 2008 and 2009 harvests. As a consequence
EU cereals production this year is forecast 16% higher than in
2007 and feed wheat prices have fallen around 32% since the start
of the year. We also support further reductions in market support
in the on-going CAP Healthcheck;
— aware of industry concern that feed
imports are affected by delays in the EU approval regime for GM
products, the Government have encouraged the European Commission
to find ways of speeding-up the approval regime without compromising
on safety;
— direct support in export promotion,
including re-opening markets closed as a result of EU/UK animal
disease outbreaks. Following the Foot and Mouth outbreaks last
year Defra has been working hard, with the industry, to reopen
profitable non-EU markets. Many key markets are now open—including
Japan, US, Canada, Philippines, Malaysia and Thailand. China lifted
FMD related import restrictions on 7 August 2008 (meaning that
the export of breeding pigs can resume) and have just agreed a
protocol on pigmeat which is a big step towards eventual acceptance
of our exports (estimated to have a potential value of more than
£10 million per annum). There is still some way to go on
more difficult markets like Russia and the Ukraine;
— also in the aftermath of the animal
disease outbreaks last year Defra gave a £12.5 million package
of aid to the livestock farming sector. While this mainly benefited
non-pig sectors it included £2 million to promote the marketing
of red meat, including pork;
— support for better product labelling.
Pig producers in England have long been concerned that pork products
such as bacon may not be labelled with the country of origin of
the pork. Defra is liaising closely with the Food Standards Agency
(who lead on such labelling matters) to support new food information
proposals issued by the EC which would require, when the country
of origin is identified against a product, the origin of the main/defining
ingredient to be declared also if different;
— significant investment in research
of interest to the pig sector, commissioning approximately £38
million on pig-specific projects with end-dates after January
2000;
— Defra contributes £1.5 million
per annum towards the costs of a scanning surveillance programme
to facilitate early detection of new pig disease threats and changes
in disease trends, to facilitate prompt intervention. Monthly
reports are published by the Veterinary Laboratories Agency and
are also made available on the BPEX website to enable easy access
to its members;
— Defra provides a representative on
the British Pig Health & Welfare Council subgroup which is
developing a strategy to improve the health of the national pig
herd, thereby enhancing performance, welfare and sustainability
of the industry.
19. The Public Sector Food Procurement Initiative
(PSFPI) was launched in 2003 to encourage public bodies in England
to use the £2 billion they spend on food and catering services
to help deliver a world-class sustainable farming and food sector.
Among the PSFPI objectives are ones to increase tenders from small
and local producers and promote higher standards of animal welfare.
In support of the objective to improve animal welfare we are encouraging
public bodies to specify higher animal welfare. For this purpose
we have produced a model specification clause that allows buyers
to give extra weighting to produce meeting higher level standards
such as those meeting the criteria of RSPCA's Freedom Foods or
equivalent, when awarding contracts.
20. We have also worked closely with the
Meat and Livestock Commission and now the Agriculture and Horticulture
Development Board (AHDB) to improve the supply of red meat into
the public sector, including pig meat. The AHDB recently produced
a DVD to promote less popular cuts of meat in the public sector
in support of full carcass utilisation. The Government Office
for West Midlands in collaboration with the Heart of England Fine
Foods and with Defra funding will also shortly launch a cook book
promoting recipes using less popular cuts. These are just as tasty
as more popular joints but less costly, which is good news for
public bodies.
21. Other examples include: the Defra funded
English Farming and Food Partnerships' "Share to Supply"
programme to encourage and help farmers and food producers cooperate
in supplying the public sector; sponsoring of events to raise
awareness of suppliers such as one put on by the Meat Trades Journal
in March 2008 and reported in their publication; and support for
British Food Fortnight that this year is promoting the PSFPI.
22. More information is given on the PSFPI
web site, which includes the publication "Putting it into
practice" that explains the issues to public bodies and what
they need to do. The web site also provides advice to producers
to help them to supply the public sector either directly or through
first tier suppliers. URL: http://www.defra.gov.uk/farm/policy/sustain/procurement/index.htm.
September 2008
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