Examination of Witnesses (Questions 812
- 819)
WEDNESDAY 12 DECEMBER 2007
Mr Callton Young, Ms Ruth Rawling, Mr Tim Innocent
and Mr Simon Harris
Q812 Chairman:
Can I start off by thanking you all for finding the time to come
and see us and to help us with our inquiry. We have received,
obviously, written evidence which has been enormously helpful
in any case but it is always nice to have that amplified through
a chat across the table. A couple of formal things; we are technically
being webcast, so what we are saying here is possibly being heard
by some person somewhere—we have never actually been able
to find out whether anybody does, but never mind, I will pass
on quickly. Secondly, it is a formal evidence-gathering session
so a record will be taken and you will get the typescript as soon
as possible, and you can check it and make any adjustments that
you feel necessary. I wonder whether any of you would like to
make a brief opening, orientating statement, or would you prefer
to go on to questions and answers?
Ms Rawling: If I may, My Lord Chairman, I would
like to just introduce my colleagues and make a brief statement.
Thank you very much for inviting us to this hearing this morning;
we do appreciate that and we do appreciate the fact that you are
taking the time to look into this important area of work. I would
like to introduce the team I have brought with me here: on my
left is Simon Harris, who is an adviser to ABF and British Sugar;
next to me here is Tim Innocent who is from Nestlé, the
purchasing manager for all their food direct materials. He is
also chair of the UK Industrial Sugar Users Group. On my right
is Callton Young who is the director of sustainability and competitiveness
at the Food and Drink Federation. I myself am the vice-president
of corporate affairs for Cargill in Europe and also I chair the
FDF's Trade Policy and CAP Committee. You have seen our written
paper but, as you well know, the FDF is the voice of the food
and drink manufacturing industry in the UK, the largest manufacturing
sector in our country. We focus really on three key areas for
our business: food safety and science, health and well-being and
sustainability and competitiveness. The area we are in today,
as far as our members are concerned, is the sustainability and
competitiveness area. I would just like to stress two key things
which run through our evidence; one is how important access to
raw materials is for our members and how important it is that
we have a level playing field within the EU in order for our industry
to remain competitive in the UK. Secondly, it is very important
that within the EU overall it remains competitive on a global
level, with the rest of the world, because we are competing, particularly
in high value added products, with food industries in other parts
of the world and we need to keep the competitiveness issue in
front of us to enable the manufacturing industry here to remain
here. That is all I would like to say to start with.
Q813 Chairman:
Thank you very much, that is helpful. I will kick off with a couple
of questions: the note in your evidence was that the food and
drink manufacturing industry must obviously be able to access
a steady supply of raw materials that are safe—a fundamental
requirement—are of high quality and competitively priced,
and that the CAP should help to achieve this. Is there a tension
lurking somewhere between your calls for competitively priced
agricultural raw materials and your request that these be safe
and of high quality? It is a tension that we hear from time to
time, that sourcing on price leaves open the difficulty of safety
and high quality. If there is a tension there, which of those
considerations do you consider to be the more important?
Ms Rawling: Thank you, My Lord Chairman. All
of us would absolutely stress that food safety is non-negotiable,
so wherever you source your food and drink materials from, whether
within the EU, the UK or outside, safety has to be the paramount
consideration. Beyond that there is of course a balance to be
struck between quality and price, but I would say that there are
many examples of our members being able to source high quality
products which are competitively priced and we want that to continue.
I suppose the one issue we have is that sometimes if a number
of standards are imposed on farmers in the EU which their global
competitors do not face, then that is an issue which could over
time affect the competitiveness of EU agriculture, and there is
a balance here between how many constraints you put on in the
interests of quality in different kinds of areas.
Q814 Chairman:
Is that a real concern at the moment? Are you suggesting that
that is now something that is almost coming to a sort of tipping
point, or is it something that you see as a danger that may be
in the mid-term or long-term?
Ms Rawling: It is an issue which we live with
constantly, that there is always an issue with. I would not say
it is something that is coming to a tipping point; in fact I actually
think that there is greater recognition today than perhaps there
has been in the past about the issue of the constraints imposed
on EU farmers vis-a"-vis the rest of the world, and it is
a difficult issue to deal with but it is something that actually
is understood better than perhaps it has been in the past. I do
not know if any of my colleagues would like to comment on this.
Mr Harris: If I might, I would just like to
make the point that actually this is not just an issue for farmers
it is also an issue for the food manufacturing industry itself;
particularly in the sectors that I am involved with you could
find that the regulatory conditions that you are required to meet
in different countries around the globe vary very substantially
and this can affect your cost-effectiveness.
Q815 Chairman:
Can we move on to the next one which is you mentioned the continued
downsizing of the food and drink manufacturing industry and the
tendency for companies to move offshore due to, basically, price
pressures. What is the evidence for that in the UK and is that
the same experience in other EU Member States? I suppose, to finish
off that little bit, have the CAP reforms of 2003 improved the
competitive position of British food and drink manufacturers or
even adversely impacted on the competitive position?
Ms Rawling: Thank you. I would say on this point
that this is not a point we want to labour too much, we do not
want to make very heavy weather of it. There is some research
done by Defra which was published in 2006 and it did conclude
that the evidence of offshoring is actually quite limited and
really, perhaps, had only occurred in the confectionery sector,
and that was what we had in mind when we wrote our evidence to
you, but we would not want to over-emphasise this point. Our concern
is that things like export refunds which enable our members to
export processed goods and be compensated for higher priced raw
materials, if those for example were to disappear before we have
a level playing field on access to raw materials, that kind of
thing would be a consideration to take into account in terms of
moving plant, but there are a lot of very complicated issues that
come in as well, it is not just the raw material prices here.
I do not know, Callton, if you want to add to that.
Mr Young: That covers it pretty fully from our
perspective. It is a very complicated area, one we need to keep
an eye on as CAP reform goes ahead. Export refunds are really
the main issue for exporters and if you have companies which cannot
export competitively you can leave them little choice but to move
that production closer to the markets to which they are exporting.
Q816 Chairman:
You mean they cannot export competitively because of the regulatory
burdens placed on them here, is that the argument?
Mr Young: Yes, that is the argument—and
also the issue is about export refunds. Unless the export refunds
are linked in with CAP reform, i.e. export refunds are not removed
before CAP is reformed, then there are potential problems for
the future.
Chairman: Thank you, I will pass on to Lord
Plumb.
Q817 Lord Plumb:
Two questions related to market mechanisms, and it becomes a bit
of a cliché to say that we are moving towards a much more
market-led food industry, everybody accepts that, and many would
say that is a good thing. You emphasise the need for full decoupling,
the end of intervention in the dairy and cereals markets and the
end of set-aside, but you oppose capping which is interesting—and
this question comes up before many people at the moment. We asked
Mrs Fischer Boel this question the other day; which changes should,
in your judgment, be given priority in the health check which
we are looking at at the moment, recognising of course that 2015
will be starting off almost a new world.
Ms Rawling: Yes, thank you. Obviously, the 2003
reforms did very much push in the direction of market orientation,
and we welcome that. It is quite difficult to single out particular
measures from this health check package as to which would be preferable
because they all form part of a piece, but what we are looking
for is market orientation which allows farmers to respond to market
signals from the food industry and obviously, ultimately, from
consumers and also which allows them to be efficient, which is
why we do not think capping is a good idea. To the extent that
capping would impact on the efficiency of farmers, trying to respond
as best they can to market signals, it seems to go against some
of the other things that the abolition of set-aside and further
decoupling are really aiming for. I hope that helps answer that
question.
Q818 Lord Plumb:
Thank you, can I then ask my second question which is perhaps
of greater concern in the longer term. You say in your paper that
there is a likelihood of increased agricultural price volatility.
We have already seen that this year, particularly of course between
grain and livestock but you say that could be limited through
market-based risk management tools such as the futures market
and farmer-based risk insurance schemes. We could have a debate
on that if you have views, but it is the most important question,
frankly, looking to the future because in the past producers have
grown accustomed to stability and would like the stability of
the way things have been stabilised under the old system, because
at least we had that stability which is not going to be there
as we move into a much more market-led food industry.
Ms Rawling: Thank you. There are two key points
I would make to this. One is that there are already market-based
types of systems which help farmers cope with price volatility
such as the futures market and various kinds of contracts. The
biggest obstacle to market-based risk management systems of this
kind actually is government policy because the one thing that
futures markets cannot predict is sudden shifts in policy and
that is going to be the real dilemma in how far are you going
to be sure that government policy does not suddenly take a turn,
so I really think that is one of the biggest obstacles. The other
point I would make is that because of the market orientation and
the fact that farmers these days have quite a lot of other considerations
to take into account when they are producing certain qualities
et cetera, quite a lot of the management of price is done through
long term contracts, which give you a certain stability if you
like in your pricing. I think, therefore, that we should not have
the idea that the entire market is going to be dependent on things
like futures markets because an awful lot of the market these
days does actually go through contracts and that does provide
a certain amount of stability for farmers. I do not know if my
colleagues would like to add something. Tim.
Mr Innocent: We buy a lot of materials that
are commoditised and are subject to price risks, et cetera. As
organisations we are able to cope with that, but as Ruth has accurately
said if we get to a position where on Thursday we have one set
of rules and on Friday another set of rules it is very difficult
for us to move forward in that framework. We are, as I say, used
to it; you are quite right in what you say, Lord Plumb, that this
year has been a difficult year and I think sometimes in private
we say slightly different words to "difficult year".
Q819 Lord Plumb:
I could join you.
Mr Innocent: But we have got through that, and
we have to put mechanisms in place and talk to our customers about
the things that are going on, but it is when we have fundamental
changes that we cannot price the risk or the difficulty.
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