Memorandum by The Meat and Livestock Commission
The Meat and Livestock Commission is an executive
Non Departmental Public Body set up under the 1967 Agriculture
Act. Its remit is to work with the British meat and livestock
industry (cattle, sheep and pigs) to improve its efficiency and
competitive position; and to maintain and stimulate markets for
red meat at home and British meat abroad, with due regard for
the consumer. It is funded through the collection of levies on
sheep, pigs and cattle slaughtered for human consumption or exported
live.
The bodies that comprise federal MLC are: British
Pig Executive (BPEX), English Beef and Lamb Executive (EBLEX),
Hybu Cig Cymru-Meat Promotion Wales (HCC) and Quality Meat Scotland
(QMS).
GENERAL COMMENTS
1. The Meat and Livestock Commission (MLC)
welcomes the opportunity to respond to the Sub-Committee's Inquiry
into the future of the CAP.
2. Our perspective on the CAP—whether
the current CAP as reformed under the 2003 agreement or a post-2013
CAP—is conditioned by our assessment of the extent to which
it enables the British meat and livestock industry to meet the
challenges that face the industry now and into the future.
3. Our vision is a modern livestock and
processing industry that is both competitive and sustainable,
and which produces consistent quality products that meet exacting
market requirements, while at the same time caring for and protecting
our natural resources. It is only with economic success that our
producers and processors can deliver true sustainable development.
4. The British livestock industry has only
recently emerged from a decade of hardship brought about by animal
disease and poor profitability. CAP reform has posed, and continues
to pose, a huge challenge to what are essentially small- and medium-sized
businesses. This is particularly the case for beef and sheep producers
in adapting to the ending of production-linked subsidies and to
a free market business environment. Global competition from lower
cost producers—who are often unhindered by the level of
regulation and the high labour, environmental and animal welfare
standards that exist in this country—is increasing. Such
global competition will intensify with the further trade liberalisation
that would follow a WTO agreement in the Doha Round were an agreement
to be reached.
5. On the demand side, red meat consumption
and demand are robust, yet the British industry is unable to meet
this demand, largely due to the historic decline in production
during the second half of the 1990s and early 2000s due to BSE
and FMD in the cattle and sheep sectors, the impact of milk quotas
and financial pressures on milk producers, investment in high
welfare production systems and disease problems in the pig sector,
and, for all three species, poor returns and low business confidence
leading to inadequate investment and training. The result has
been growing import penetration, sometimes involving the importation
of meat—notably pig meat—that is produced under welfare
conditions that would be illegal in this country.[24]
6. In passing, we should also like to register
our welcome for the Competition Commission's market investigation
into the supply of groceries by retailers in the UK. The operations
and practices of the large multiple retailers directly affect
the competitiveness of our livestock producers and the extent
to which efficient, sustainable and fair supply chains can be
built.
7. As we discuss below, the Common Agricultural
Policy is now very far from "common". This has led to
the differential treatment of producers across the EU, with consequences
for competitiveness across the EU. This issue needs to be addressed
by policy makers.
CAP REFORM
8. Under the classical form of the CAP (ie
pre-2005) production-linked subsidies tended to incentivise farmers
to produce indiscriminately without adequate regard to the real
quantitative and quality needs of the marketplace. Within the
livestock industry this was particularly notable in the beef and
sheep sectors. Subsidy receipts came to account for a substantial
proportion of most producers' incomes. Indeed, for the poorer
performing producers, without subsidies, their net margins would
be negative.[25]
As a result, many producers came to regard themselves as independent
primary producers, rather than as food producers or as partners
with other producers, processors and retailers in a food supply
chain seeking to meet the needs of modern consumers.[26]
9. CAP reform was, therefore, a radical
paradigm shift to a "real" world, and took place in
a way that gave what are relatively small businesses comparatively
little time to adapt to an entirely new business environment.
10. As stated earlier, the reformed CAP
is now, of course, far from "common". In the livestock
sector, the 2003 agreement provided considerable scope for member
states to retain a variety of production-linked measures. Indeed
a number of member states have chosen to maintain partial decoupling,
while the UK Government opted for total decoupling. In our view,
these inconsistencies and anomalies distort or have the potential
to distort competition across the EU. We therefore welcome EU
Commissioner Fischer Boel's commitment to review the existing
derogations from full decoupling as part of the European Commission's
forthcoming "Health Check" exercise.
11. We also welcome the Commissioner's statements
on the need to simplify CAP legislation, and to review the practicality
of some aspects of the cross-compliance requirements.
12. A further consequence of the less than
common nature of the reformed CAP arises from the current rules
regarding modulation. These rules allow member states to implement
"voluntary modulation"—top slicing from the Single
Payment and its transfer into rural development funding—over
and above the 5% rate of compulsory modulation that all member
states are required to implement. Only the UK and Portugal are
applying voluntary modulation. In the UK, the rates of voluntary
modulation will vary across the home countries.[27]
UK farmers will therefore face cuts in their Single Payment that
(a) they may or may not recoup in payments under the new rural
development programmes, and (b) they will be disadvantaged vis-a"-vis
farmers in other EU countries who will receive higher levels of
direct payments. It remains to be seen to what extent UK livestock
producers are able to offset some of the loss of Single Payment
by participating in the agri-environment schemes under the UK's
four new rural development programmes. In this connection, there
is some concern that livestock producers may not be the main beneficiaries
of these schemes and, that, therefore, they will face a net loss
in payments.
13. The most recent survey of the costs
of production in a range of production systems on cattle and sheep
farms in England shows that, in respect of 2005-06, only the top
third performing "intensive cattle finishers" and the
top third of "store lamb finishers" made a profit after
all costs and excluding all support payments.[28]
This picture is broadly similar in other parts of the UK. In reality,
many cattle and sheep producers have relied on production-linked
subsidies to bolster farm incomes.
14. While it is not unreasonable for these
producers to use the Single Payment as a cushion and to contribute
to investment as they seek to adjust during the transitional period
from production-based subsidies to the decoupled world, this is
not a viable long term approach. Ultimately, cattle and sheep
producers must secure their incomes from the marketplace, as is
already the reality for pig producers.
15. It is often difficult to identify clear
direct economic causes and effects in the agriculture industry.
Nevertheless, it is clear to us that in the grazing livestock
sector, CAP reform is leading to a contraction of the cattle breeding
herd and the sheep breeding flock and, thus, to an overall decrease
in the size of the industry as producers either choose to retain
fewer animals or to leave the industry. At the same time, it should
be said that many of those livestock producers that have a long
term commitment to the industry will seek to exploit the considerable
scope for technical and business improvement and for building
more effective supply chains in response to market signals.[29]
16. In summary, full decoupling in the UK
as a result of CAP was implemented—in agricultural policy
terms—quickly. The process of adjustment is far from easy,
involving both positive and negative consequences.
THE SINGLE
PAYMENT SCHEME
17. Whatever the merits or otherwise of
the Single Payment system, it is vital that while it exists it
is administered efficiently. It is clear that in respect of England
its administration has been unacceptably inefficient, with profound
adverse consequences and hardship for many farmers.
18. We have already highlighted the desirability
of harmonising what are uncommon rules regarding voluntary modulation.
19. Cross-compliance is a reasonable condition
for receipt of the Single Payment. At the same time, cross-compliance
should be implemented in a way that encourages good farming practice.
It should not be used as a heavy-handed punitive weapon. Breaches
of cross-compliance rules can result in serious penalties for
farmers, often arising from innocent or unintended infractions,
and give rise to great personal anxiety.
MARKET MECHANISMS
20. The forthcoming Health Check provides
a valuable opportunity to review and, if necessary, simplify,
amend or end existing rules on a wide range of market mechanisms.
In this connection our only comment is to restate a view that
we have put to Defra in the course of a recent consultation on
the European Commission's proposals for a single Common Market
Organisation for Agricultural Products; that is, any proposals
that alter the scope and substance of existing measures or change
the way decisions are made should be clear and transparent in
order to allow proper scrutiny and discussion, and to maintain
confidence in both the institutions involved and in procedures.
RURAL DEVELOPMENT
21. In principle the creation of the European
Agricultural Fund for Rural Development (EAFRD) is a useful exercise
in simplifying funding streams and their administration.
22. We have commented earlier on the undesirability
of uncommon rules regarding voluntary modulation, and the possible
impact on producers.
23. With regard to compulsory modulation,
we would not be in favour of changes that raised the level of
compulsory modulation while leaving, as now, member states with
discretion in respect of voluntary modulation. Rather, we would
favour a common, perhaps higher, level of compulsory modulation
and the ending of voluntary modulation.
24. The ending of production-linked support
and the need for farmers to become market-focussed highlights
the important role that the competitiveness axis (axis 1) of the
new rural development programmes can play in supporting information,
training and supply chain initiatives aimed at improving the technical
and business skills of producers.[30]
WORLD TRADE
25. MLC strongly supports the maintenance
and strengthening of a multilateral international trade system
and rules under the auspices of the WTO. This is conducive to
transparent, consistent and orderly behaviour by and treatment
of trading nations on a global basis. It is also likely to maximise
the economic and social benefits of freer global trade. A complex
and opaque system of regional and bilateral arrangements is, in
principle, undesirable.
26. At this stage, the prospects for an
agreement on the Doha Round of trade negotiations are unclear.
On agriculture, the 2003 CAP reform agreement, by dismantling
trade-distorting production-linked support (so-called "amber
box" support), ensured that the EU would have little or no
difficulty in meeting the likely terms of a WTO agreement in respect
of cuts in domestic support. On export assistance, developed countries
have agreed to phase out export subsidies by 2013, with a "substantial
part" of this to be achieved by the mid-point of the implementation
period. The challenge for the EU relates to market access since
EU levels of import protection are comparatively high. Indeed,
they are very high in some key products (eg fresh and chilled
boneless beef cuts).
27. For the UK livestock industry, it is
the possible challenge in respect of certain key meat cuts that
is a cause of concern. For example, in practice, Brazil is currently
able to export its high value fresh and chilled boneless cuts
to the EU, pay the full import tariff and duty and still undercut
the internal EU price for the product. In this situation, even
if the EU were to achieve lower cuts in import tariffs through
any agreed "sensitive product" provisions, it is difficult
to see that this would afford significant import protection against
such low price imports. And any cuts in tariffs would be expected
to put increased downward pressure on the prices of the equivalent
EU products. With the EU's deficit in beef production already
widening, further pressures would merely "export" the
Union's remaining production capacity and increase its reliance
on imports from third countries, where production standards are
sometimes lower than those of the EU and where animal disease
outbreaks (eg FMD in Brazil) can interrupt their supplies.
28. For the EU, therefore, while the possibility
of designating some products as "sensitive" provides
some potential scope to cushion the impact of greater market access,
careful judgements will need to be made as to the balance of advantage
between, on the one hand, accepting whatever normal tariff cuts
would apply under a final agreement and, on the other hand, seeking
to designate products as sensitive, recognising that market access
would still be increased through a combination of tariff cuts
(albeit lower than they would otherwise be) and expanded tariff
rate quotas.
29. From time to time during the WTO negotiations,
the EU has raised its "non-trade concerns", including
the use of geographical indications on a range of speciality products,
and animal welfare and other standards. We accept that such "non-trade
concerns" should not be used as a vehicle for raising non-tariff
barriers. Equally, they touch on the legitimate concern to prevent
products produced to lower labour, environmental and animal welfare
standards from undermining EU production or misleading EU consumers.
The EU has a right to refuse entry to products not produced to
EU standards of food safety. A similar mechanism should be considered
with respect to other standards of production, most notably animal
welfare.
ENVIRONMENTAL ISSUES
30. Globally, agriculture accounts for about
20% of the projected human-induced greenhouse effect, about 9%
of total human-related carbon dioxide emissions, about 35-40%
of the methane emissions, and about 70% of the nitrous oxide emissions.
In the UK, farming is the biggest source of two important GHG.
Grazing animals, notably cows, release about 35% of total UK methane
emissions. Soils and fertiliser account for two-thirds of the
UK's nitrous oxide emissions. But the Environment Agency notes
that GHG emissions from UK farming have fallen by 12% over the
last 10 years—methane emissions by 11% and nitrous oxide
emissions by 13% over the same period —as a result, for
example, of more efficient uses of fertilisers, minimum tillage
techniques and fewer livestock.
31. In our view, the CAP can play a role
in the mitigation of, and adaptation to, climate change through
Pillar 2 of the CAP. In principle, as noted earlier, the EU Rural
Development Regulation provides scope for a wide range of information
and training activity under axis 1 (competitiveness) of the Regulation,
much of which relates to agricultural practices that can contribute
to strategies to mitigate and adapt to climate change impacts
and also help to improve the competitiveness of the agricultural
industry.
32. In the livestock sector, for example,
a wide range of R&D and knowledge transfer activity serves
to increase the efficiency of production through nutritional and
management strategies covering the composition, manipulation and
conversion of animal feed, manure management, as well as the genetic
merit of stock. Such strategies can both increase productivity
and profitability and contribute to reducing greenhouse gas emissions.
33. In the pig sector, a positive contribution
can be made through the use of co-products in feeding, rather
than resorting to landfill, as well as in aspects of energy generation.[31]
FINANCING
34. We have some reservations about the
concept of co-financing. As the example of the new Rural Development
Programme for England shows, co-financing can be a useful tool
for topping up otherwise inadequate EU funding (in this case because
of the low allocation of EU rural development funds to the UK).
On the other hand, co-financing carries the inherent risk of different
EU member states setting differential levels of co-financing,
which can tilt the "playing field" and lead to distortions
amongst member states. Much depends on the rules around co-financing
arrangements.
ENLARGEMENT
35. In respect of the livestock sector,
the 2004 and 2007 enlargements have had a limited impact on the
UK to date. The new member states are largely engaged in modernisation
programmes in their agricultural sectors. In time, these countries
offer both competitive challenges and market opportunities.[32]
OTHER ISSUES
36. This inquiry focuses on the future of
the CAP. However, we would like to register our view that from
the point of view of producers seeking to adapt to and compete
in a radically new business environment, it is important that
a wide range of EU policies—including agriculture, rural
development, food safety, labelling, environmental, animal health
and welfare, and competition—should operate in a way that:
enables markets to function openly, efficiently and fairly; allow
producers to deal on a more equitable basis with large retailers,
make an adequate return and allow for investment; ensure efficient
and proportionate regulation; and, provide consumers with accurate
and meaningful information about the provenance and quality of
food.
June 2007
24 The British Pig Executive estimates that of total
pig meat imports into the UK 70% would be illegal to produce in
this country on the grounds of pig welfare. Back
25
While pig producers have not received direct production subsidies,
the CAP provides a measure of protection from third-country imports. Back
26
Many producers have not been attuned or fully receptive to the
technical knowledge and advances that are available-much of these
through MLC-to secure the husbandry and business improvements
that might raise their returns and incomes, and reduce their reliance
on subsidy receipts. Back
27
In England voluntary modulation rates will rise from 12% to 14%
over the period 2007 to 2012 and in Northern Ireland from 7% to
10%. At the time of writing, the rates in Wales and Scotland have
yet to be announced. Back
28
"Business Pointers for Livestock Enterprises", Cattle
and Sheep Business Costings, November 2006, English Beef and Lamb
Executive. Published by Farmers Weekly Back
29
Much of the activity of MLC and its constituent federal bodies
and of the Red Meat Industry Forum is targeted at improving the
livestock industry's performance through genetic and feeding improvements,
disease control, knowledge transfer, training and business improvement,
including benchmarking. Back
30
In implementing the new Rural Development Programme for England
with respect to the competitiveness axis through the Regional
Development Agencies, we would urge greater cooperation and sharing
of best practice experience amongst RDAs where activity clearly
does or can cross regional boundaries. Back
31
The recently published BPEX discussion document on a Pig Industry
Environment Strategy (PIES) explores a range of environmental
activity and initiatives. A greater level of financial support
and incentives in this area would be helpful. Back
32
In the pig sector, some concern has been expressed about the use
by the Polish authorities of what in effect is intervention buying
as a means to support internal prices. Back
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