Memorandum submitted by Richard Longthorp
(Pigs 12)
EXECUTIVE SUMMARY
— the UK pig industry is currently
in a spiral of decline;
— the reasons are multi factorial but
would include:
— unilateral legislation reducing competitiveness,
— the betrayal of the industry by retailers
and government in not being true to their word and ensuring that
the higher welfare standards imposed were rewarded by the market
place,
— three incursions of exotic disease
in eight years with direct and indirect consequences—the
latter having by far the greater impact.
— despite all these problems, herd
health and productivity are now increasing; and
— with concerted and continuing positive
action by government, retailers and processors this decline can
be halted and reversed.
— British consumers can continue to
enjoy high welfare, great tasting, locally produced pork, bacon,
sausages and ham.
I. What is wrong with the pig industry in
England? Are present problems more than just a cyclical imbalance
between supply and demand?
1. Pig industry fortunes have traditionally
followed a cyclical pattern. Unfortunately now due to globalisation
and the power of the retailers and processors, the troughs are
deeper and more long lasting and the "peaks" are lower
and shorter lasting meaning that the losses incurred in the troughs
are never recouped from the peaks.
This creates a classic spiral of decline. It
needs to be halted. With corrective action the decline can be
halted and indeed reversed. British consumers can continue to
enjoy high welfare, great tasting, locally produced pork, bacon,
sausages and ham.
The irony in the question posed by the committee,
however, is that despite there now being an imbalance between
supply and demand, with supply being less than demand, the price
at farm level has still not risen to the level required either
to put the industry back into a sustainable position nor to a
level that reflects the increase in retail prices.
With retail price having risen some 160p/kg
DW over the past 12 months and farm prices having risen only 26p/kg/DW
over the same period, there is a clear imbalance. Retailers look
like they have maintained, if not increased, their percentage
margins meaning that their absolute margins have most certainly
increased.
2. In my view it is fundamentally flawed
in a supposedly "mature and sophisticated" economy to
have a situation where a major food product, in this case pork,
is not in surplus yet the only tool apparently available to increase
price to cover unprecedented input cost inflation (feed), is for
supply to reduce below the level of demand to force the price
up.
Some tool. Some sophisticated economy!
This blunt tool might work for widgets but for
something as fundamental and essential as food this must be flawed.
3. It is very possible that those who formulated
the 1947 Agricultural Act might have had similar views. However,
I am not advocating a return to direct government market intervention.
The answer lies in fully functional integrated supply chains where
each part of the chain—primary producer, processor and retailer—gets
a fair and equitable slice of the value in relation to its input
and the customer gets a great product at a realistic cost. A problem
in one part of the chain should be seen as a problem for all and
a solution worked that involves all parties. Currently problems
in either the retail or processing sectors invariably pass down
to the primary producer. On the other hand the recent massive
and unprecedented increase in feed costs, whilst obviously impacting
directly on the production sector, have appeared to have had little
effect on the retail and processing sectors—other than to
give retailers the opportunity to increase their retail prices.
4. Retailers have undoubtedly been very
successful at growing their market share and returning value to
shareholders. They are now at such a size, however, where they
need to use the power that they have accumulated responsibly.
They have the capacity and ability to ensure that truly integrated
supply chains actually happen. They need to be "encouraged".
Such encouragement should not need to take the form of legislation.
We all know in business and politics that there are plenty of
alternate ways of oiling the wheels and encouraging things to
happen without having to resort to legal process or similar!
II. Are domestic pig welfare standards a principal
reason that English producers have problems competing with those
outside the UK? Are there other reasons?
5. Welfare standards are part, but a very
important part, of a complex mix of factors that have made UK
pig production uncompetitive. The unilateral imposition of the
stall and tether ban, together with the required investment to
comply with the legislation could not have come at a worse time
for the pig industry. The market was already depressed following
a collapse in the pig price during 1998. The industry was re-assured
by both government and retailers alike that high welfare was the
way forward and that the return would come from the market place.
The fact that both reneged on this commitment was a bitter pill
to swallow and affected confidence (to invest) significantly.
6. Extensively reared pigs (outdoor, straw
yards etc) convert feed far less efficiently than their intensively
reared counterparts. Consequently any increase in feed price has
a disproportionate impact on extensive systems.
7. In an already weakened position, the
industry was then hit by successive outbreaks of Classical Swine
Fever and Foot and Mouth Disease, both of these most probably
contributing to the onset of PMWS and PDNS or "wasting disease".
The incursion of exotic disease into the UK
has played havoc with the industry both directly and indirectly.
Exotic disease does not by definition inhabit the UK naturally.
It has to be brought in by vectors or infected meat. Being an
island gives us a unique potential advantage in the control of
exotic diseases. Unfortunately this potential has never been realised
over the past 10 years—in fact quite the opposite.
Within my own business risk management strategy
is a line that stares at me from off the page that in the UK,
on the experience of the past eight years, I can expect an outbreak
of an exotic disease approximately once every two and a half years.
Risk at this level is simply not manageable. Government has a
responsibility to keep exotic disease out of the UK. It needs
to take action to improve the unenviable record that it has created
over the past eight years.
It is rarely the direct impact of exotic disease
that so compromises the pig industry rather the indirect or consequential
losses:
— The lost export markets that reduce
the value of the carcase as much of the "fifth quarter"
such as head, guts etc. has to be paid for to get rid of rather
than receive value from export.
— Also the lost value in cull sows
not only effects profitability directly but also means that normal
breeding herd replacement policies are ditched with subsequent
drops in herd performance.
— Movement restrictions mean that disease
rapidly builds up on farms that are designed for an optimal number
of pigs.
— Movement restrictions also means
that replacement breeding stock availability becomes a major issue.
— Reduced fertility due to increase
in disease and disruption of breeding herd replacement.
I estimate that the most recent outbreak of
FMD cost the industry in the order of 25p/kg[10]
in additional cost and lost output. Much of this loss probably
lasted for at least six months and this was a relatively "small
and well controlled" outbreak.
8. Retailer and government pledges about
supporting UK farmers on their unlevel playing field were soon
proved to be empty with neither group backing up their rhetoric
with action. Retailers continue to insist that UK producers adhere
to UK welfare standards whilst importing from countries that cannot
or will not produce to the UK specification. Similarly government
continues to uphold its legislation whilst as a purchaser of pigmeat
and pigmeat products it continues to procure product that was
produced using systems of production that are illegal in the UK.
9. Danish pig producers are offered a premium
of about 6p/kg DW to produce to UK welfare standards. The number
of producers taking up this option is reducing as they find it
uneconomic to do so.
III. What could supermarkets and the hospitality
industry do to alleviate the pressure on the domestic pig industry?
10. Operate to a single standard—UK
welfare standard.
11. Retailers to do more work with processors
to achieve better carcase balance.
12. UK retailers have been referred to as
the "most sophisticated in the world". They are far
from that when it comes to sales strategy. Currently it would
appear that the main if not the only tool to increase sales volume
is to reduce price or offer "BOGOFs" etc. Hardly sophisticated
and something a London barrow boy of 100 years ago could have
come up with!
13. Above all else though we have heard
retailers and processors talk the talk on integrated supply chains,
what we need is to see them walk the walk.
— Problems and rewards need to be shared
equitably amongst all in the chain.
— Retailers need to work to a timescale
similar to producers. Rather than have a procurement strategy
that would appear to have a lifespan of all of four weeks we need
the whole supply chain to be working to a much longer timescale—at
least 12 months and preferably 24. Farming in general, with pig
production being no exception, is necessarily a long term activity.
From taking a decision to produce bacon pigs to actually selling
the first pig takes typically 12-16 months dependent on the availability
of resource particularly breeding stock. With reasonable market
conditions it might take five years to get into positive cashflow.
— There needs to be more transparency
showing just where the value resides.
IV. Can the Government do more to support
the industry either directly or through its public procurement
policies?
14. The fact that government and its agencies
etc continue to procure pigmeat reared in conditions that would
be illegal in the UK is an absolute disgrace. This should be corrected
without any further delay.
15. Recent WTO proposals by Peter Mandelson
freeing up the EU market to imports from countries with lower
welfare and environmental standards threatened to put the whole
EU at a competitive disadvantage as regards pig production. If
these proposals had gone through then high welfare pig production
would reduce dramatically and welfare and environmental management
across the piece globally would effectively be reduced.
16. The current GM situation is having a
similar effect with UK and EU not able to effectively compete
with countries that have unfettered access to GM feed ingredients.
17. Reinstate the Agricultural Buildings
Allowance. To become more competitive the UK industry needs to
invest and catch up on investment that has simply not taken place
over the past eight years. To remove tax relief (and effectively
retrospectively) is a small minded and petty action that will
bring little extra into Treasury coffers but has and will continue
to have a significant impact on investment decisions by pig producers.
18. Government need to move more quickly
to a risk based approach to farm inspection and compliance. The
industry already has Farm Assurance schemes and also a Continuing
Professional Development Scheme—The Pig Industry Professional
Register (PIPR) that demonstrates and records competence. These
need to be used more widely in reaching the risk based goal.
19. Recent EU proposals to change from a
risk based to hazard based approach to pesticide approval will
potentially mean the loss of many of the arable farmers most important
and effective yield protecting pesticides. This will lead to reduced
production and higher prices for cereals, oilseeds etc. with the
pig producer suffering yet again.
20. The pig industry needs to be able have
constructive discussions with retailers without being hamstrung
by OFT regulations. This may often be more of an "excuse"
used by the retailers than a real issue but whatever, the end
result is the same—insufficient constructive dialogue. At
the end of the day the pig industry simply does not have the capacity
to "fix" the market!
September 2008
10 Cost of an outbreak of exotic disease (p/kg deadweight
of slaughter pig):
Loss of Exports:
Sow value 2.5p
Fifth Quarter 8.0p
Consequential Production Loss due to increased disease resulting
from movement restrictions:
Mortality and Feed Conversion Efficiency 4.0p
Breeding Herd Health/Productivity 1.5p
Additional Costs:
Labour looking after additional pigs in less than ideal circumstances
0.5p
Administration dealing with licences etc 0.5p
Haulage 0.5p
Market Distortion:
Imports booked to cover supplies whilst movements halted
Backlog of pigs took 6 months to clear
Therefore domestic price fall accordingly 7.5p
Total 25.00p. Back
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