Agriculture and Rural Development
Friday 27th April 2001
MINUTES OF EVIDENCE
(I) Inquiry into Certain Aspects of the Livestock and Meat Commission
(II) Fisheries Issues
(III) Pig Industry Restructuring Scheme - Outgoers Schemes
Ordered by the Committee for Agriculture and Rural Development to be printed 25 May 2001
Minutes of Evidence: 9/00/E (Committee for Agriculture and Rural Development)
Committee for Agriculture and Rural Development:
Membership and Powers
The Committee for Agriculture and Rural Development is a Statutory Departmental Committee established in accordance with paragraphs 8 and 9 of Strand One of the Belfast Agreement and under Assembly Standing Order No 46. The Committee has a scrutiny, policy development and consultation role with respect to the Department of Agriculture and Rural Development and has a role in the initiation of legislation. The Committee has 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.
The Committee has power:
- to consider and advise on Departmental budgets and Annual Plans in the context of the overall budget allocation;
- to approve relevant secondary legislation and take the Committee Stage of relevant primary legislation;
- to call for persons and papers;
- to initiate enquiries and make reports;
- to consider and advise on matters brought to the Committee by the Minister of Agriculture and Rural Development.
The membership of the Committee since its establishment on 29 November 1999 has been as follows:
Dr Ian Paisley (Chairperson)
Mr George Savage (Deputy Chairperson)
Mr Billy Armstrong
Mr PJ Bradley
Mr John Dallat*
Mr Boyd Douglas
Mr David Ford
Mr Gardiner Kane
Mr Gerry McHugh
Mr Francie Molloy
Mr Ian Paisley Jnr.
MINUTES OF EVIDENCE
Friday 27 April 2001
Rev Dr Ian Paisley (Chairperson)
Mr Savage (Deputy Chairperson)
Ms B Rodgers)Minister of Agriculture &
Mr G McCracken)Department of Agriculture &
Mr L McKibben)
The Chairperson: I welcome the Minister and her officials.
Ms B Rodgers: I welcome the opportunity to contribute to the Committee's consideration of the role of the Livestock and Meat Commission (LMC). I have provided a response to the questions raised by the Chairman in his initial letter about the inquiry, and I have sent the Committee a copy of the report of the quinquennial review of the LMC, completed last year. Although that report was not published, it has been circulated to the industry organisations that contributed to the review, and the main findings and recommendations were largely agreed by them.
The specific functions and responsibilities of the LMC are set out in legislation - the Livestock Marketing Commission Act (Northern Ireland) 1967. Broadly speaking, its remit is to assist the development of the livestock and livestock products industries. In recent times the LMC has been operating in a difficult environment. The ban on beef exports; the resulting difficulties in securing commercial markets for Northern Ireland red meat; the relative strength of sterling; the unacceptable level of producer profitability; and the increased costs throughout the production, processing and distribution chain have all meant that the trading environment in which the LMC operates has been far from stable.
Despite that, I note the broad support for the LMC across virtually the whole industry and the wish for the LMC to take a more active and central role in areas such as generic marketing and provision of services to the industry.
Among the LMC's strengths are that it is independent of the Government and specific interests in the industry; it has a broad base of skills that are currently relevant to the industry; and it is broadly representative of the industry at commission level. Its problems include the level of funding available to the LMC through the levy income and the problems that the industry faces as a consequence of BSE and foot-and- mouth disease. However, a clear role exists for the LMC both in existing statutory functions and in developing other activities to serve the industry.
The quinquennial review states that if the LMC had not existed prior to the circumstances of recent years it probably would have been necessary to establish such a body.
I am aware of the concerns about the classification of carcasses at meat plants, and of the consequential criticism of the LMC and, on occasions, the staff involved in classification. However, classification is not a core function of the LMC. The industry requested that it be undertaken by the LMC, as it is an independent body. That was reaffirmed in a consultation on the quinquennial review. The LMC and everyone else want to move towards a more objective form of classification but the development of the necessary technology means that that is some way off. The LMC is not solely, or even mainly, about carcass classification.
The Chairperson: One response to the inquiry suggests that money from sheep annual premium (SAP) payments under the modulation proposals could be used to support LMC activities. Can you confirm whether money for marketing could be drawn from the modulation funds, or more exactly from corresponding Treasury funds?
Ms Rodgers: That is unlikely. We can only carry out what is contained in the Rural Development Plan. That is unlikely since that was not in the plan.
The Chairperson: Will you confirm that to the Committee?
Ms Rodgers: Yes.
The Chairperson: In its submission to the inquiry the LMC recommended that the European Commission be urged to adopt modern technology and change its price reporting structure from subjective grades to one based on meat yield objectively measured. Would you support that line in negotiations with the Ministry of Agriculture, Fisheries and Food (MAFF) and the European Commission?
Ms Rodgers: It will not be easy and they are looking at ways of achieving it. However, I would support that.
The Chairperson: My other question relates to appointments to the LMC. According to the LMC's most recent annual report the chairman has been a member since 1992, was appointed as chairman in 1997 and was reappointed as chairman until October 2002. Two other members were reappointed from 1 January 2000 and a fourth member has been in the LMC since 1995. Are you satisfied that those reappointments have been sufficiently scrutinised? The guidance states that second reappointments are to be exceptional, therefore that means that some difficulties might loom in the future.
Ms Rodgers: The Nolan procedures have been strictly applied to all appointments, and those procedures have been examined twice and were found to have been correctly applied. All new appointments are subject to the Nolan procedures, are advertised in the local press and relevant parts of the industry are notified about them. There is also an appointments procedure that includes shortlisting, and an interview panel that includes an independent person and senior people from the Department.
The Chairperson: Would you consider allowing sector bodies to nominate members to the LMC rather than having every appointment made by yourself?
Ms Rodgers: The legislation requires that I make the appointments. A change in the legislation would be required to do that. We try to ensure that the necessary expertise drawn from the different sectors of the industry is found in the LMC.
The Chairperson: Would you be prepared to have the legislation changed so that sector bodies could make appointments?
Ms Rodgers: We would have to be careful that nominations would be in accordance with the Nolan procedures. I am not sure that that would be the case if we insisted on sectoral appointments.
Mr McHugh: Our inquiry is quite important in that it follows on from various reports that we have previously come up with. Some farmers would be happy with certain parts of the LMC's work. For a body that is partly responsible for increasing quality over the years - that was one of its main objectives at the start - it has not been able to do that on enough farms through encouraging farmers to increase quality by the returns that they receive.
The worst Friesian beef could make as much for many farmers over the years as opting for high quality grading and classification - that is not good for the industry. The LMC has not achieved that and it has not been able to eliminate those things. Farmers would maintain that that is because of certain people's vested interests.
That may also affect appointments. People who sit together on those bodies for too long develop a cosy relationship. They may find that because the same groups are paying them, they must stay and take orders rather than properly scrutinise. Moreover, I am not sure that they have the farmers' broad support.
Ms Rodgers: I thank Mr McHugh for his questions. The reason we have the beef quality initiative, for which I have procured £2 million, is that beef quality has been recognised as a problem both by the LMC and by the Department. The LMC contributed to the debate and the proposal surrounding that. It is also responsible for the Northern Ireland farm quality assurance scheme, which is important from a marketing and quality viewpoint.
There is ongoing dissatisfaction in the area of classification; that is a difficult issue. It is only natural that every farmer wants his meat classified as being the best. EU inspectors were over in 1998 checking on our classification procedure and were initially unhappy with it. They came back later in the year and expressed total satisfaction with the manner in which classification was carried out. Those who carry out the classification are trained and monitored by the Department, LMC officials and the EU. Those on one end of the scale will never be happy; it is a subjective process, which is continuously monitored. The current situation, therefore, is that EU inspectors have expressed satisfaction with it.
Mr McHugh: It is not achieving the goal that we would have wanted for the overall industry.
Ms Rodgers: There is no doubt that there is a problem with beef quality. That is why we have put £2 million into the beef quality initiative. One of the reasons is that subsidies are only based on headcount; there is no incentive for improving the quality. Therefore an absence of beef quality cannot be blamed on any industry sector. Farmers are anxious to improve the quality of our beef, as better beef quality will be an important marketing factor when our outside markets are reopened.
Mr Dallat: Should a farmer have the right to appeal a classification to an independent body, rather than to a senior LMC officer? Would that not remove any controversy surrounding classification?
Ms Rodgers: Controversy has surrounded classification. I am not aware of any evidence that the existing appeal mechanism is unsatisfactory. There will be additional costs if any other body were to take over the appeal function. There will be difficulties because there is no obvious body to whom that function could easily be passed.
Mr Bradley: The three-year promotional plan undertaken by the red meat strategy development group will come to an end in 2002. Will the Department continue to fund the group after that date?
Ms Rodgers: The Department has given no commitment to do so, but we will keep it under review and make a decision at the appropriate time. If necessary, we will seek funding.
Mr Savage: One of the recommendations of the LMC's quinquennial review is to continue consultations, with a view to increasing the producer levy to a level that is equitable vis-à-vis the position in Great Britain. The general levy rates in Great Britain for cattle and sheep are 205p and 31p respectively, of which the processor pays half. Do you intend to increase the maximum levy as set out in the Livestock Marketing Commission (Maximum Levy) Regulations (Northern Ireland) 1976? Producers are concerned that any increase in that levy charged to the processor would eventually be passed back to the producer. How would the Department ensure that that would not happen?
Ms Rodgers: The simple answer to the last part of your question is that we cannot interfere in any commercial decisions by any private companies. On your overall question, it is vital that the LMC is properly funded to carry out its statutory function. That requires levies to be paid, but, subject to comments from interested parties, plans to amend the legislation to increase maximum producer levy and introduce a processor levy are under way. That levy should be reviewed annually and amendments to the basic levy arrangements may be affected by subordinate legislation. However, any extension of the levy system to other parts of the food chain would require primary legislation.
Mr Savage: A number of years ago - before the LMC became too involved with the situation - representatives from the various slaughterhouses visited farms and a price was given for the animals. That could have been 200p a kilo or whatever was appropriate. We should return to a similar situation; I do not agree with grading. I know there are Holstein steers, but a good cross-bred Friesian is as good as any Simmental or any breed that the Department will produce through artificial insemination. I have seen surveys from Great Britain that state that the Friesian cross-bred cattle are more profitable than continental cattle.
When some graders see a Friesian animal - a black-and-white one - they adopt a completely different outlook. There must be a simpler way of doing things because some of the prime cuts from Friesian cattle end up on some of our top supermarkets' shelves. There must be a fair assessment. I am not blaming the LMC in any way - we have got to share that responsibility. At the stroke of a pen, the farmer is the fall guy every time. I am sorry, Chairman, for taking up time, but I will keep quiet later on.
The Chairperson: That would be a miracle.
Mr Savage: Four different Departments came before the Committee one day, and each one was living off the farmers's backs. The farmer is being screwed into the ground all the time and he cannot take any more. You have seen the last generation of farmers that will work for nothing. We need a fair assessment of what the farmer produces. The farmer does not want to rip anybody off, but he wants to be placed on a level playing field. I am sorry for taking up time.
Ms Rodgers: You have taken it anyway. Thank you Mr Savage. I understand that farmers have a problem with the issue of pricing. Farmers are at the bottom of the chain, and they have no one to pass any problems on to. Those are all commercial issues that are outside my Department's domain. However, we hope to see co-operation along the food chain, and discussion about the food chain and its different links. We should then arrive at a situation in which everyone understands what each part of the chain costs, and whether the costs that are passed on are exorbitant. We must also arrive at a situation in which everyone gets a fair profit.
With regard to classification, and what used to happen, I recognise that I am speaking to an expert practitioner and I bow to his better knowledge. However, there is an EU requirement for classification, which we simply cannot get away from.
The Chairperson: I should have mentioned that Messrs Armstrong, Bradley, Douglas, Kane, McHugh and Savage declared an interest during an earlier evidence session. If there is anybody whom I have not mentioned, who needs to declare an interest, they can add their name to the list.
Mr Kane: Minister, you must have noted that there are no women representatives on the LMC board? Does the Department of Agriculture and Rural Development perceive that as an oversight?
Ms Rodgers: I assure Mr Kane that that has not gone unnoticed by me, and that I am very anxious to address that issue as soon as possible within the Nolan guidelines. At one time there was a woman on the board. She was from across the water, and I think her name was Margaret Percy.
Leaving facetiousness aside, it is important that we have a gender balance on committees, because, otherwise we will not reflect society. I am pleased that Mr Kane is aware of that necessity.
The Chairperson: Mr Kane belongs to a party that accepts that view.
Mr Armstrong: Behind every good man there is a good woman.
The Chairperson: Behind every good woman there is a good man.
Ms Rodgers: Mr Chairman, there is also a saying that goes "Behind every good woman is a man who tried to stop her".
The Chairperson: You could turn that around, and say that behind every good man there is a woman who tried to stop him.
Mr Armstrong: In the light of the foot-and-mouth outbreak, the promotion and marketing of meat products from Northern Ireland will undoubtedly assume more importance if the industry is to regain lost ground. Does the Department have any plans to increase funding to attain that goal? Would you be in favour of a price based on meat yield, if the objective classification could be obtained?
Ms Rodgers: We are keeping marketing under review, and we will be discussing that at a national level within the UK. A marketing strategy will be needed more than ever. We were looking at it in preparation for the lifting of our export ban, but given the further deterioration in that situation, the need for marketing will be much more to the fore when we return to normal. We will be keeping that under review and, from my point of view, it would be a priority.
Mr Armstrong: Do we need more representation from farmers on the LMC, including farmers' wives?
Ms Rodgers: I would go for the farmers' wives anyway.
Mr Armstrong: I have noticed that meat now comes so fresh it does not have the taste, and the culture of meat has to be addressed. I do not know if that is a livestock problem, or whose problem it is, but meat has to be cultured before it is eaten.
Ms Rodgers: My butcher always gives me well- hung meat, so I cannot complain. I accept that if it is not well hung it unnecessarily gives meat a bad name.
There are two producers on the LMC out of the seven members, which, considering that it must reflect the whole industry, is a fair proportion. The report contains a proposition to increase the membership to nine. Consumers are not represented, which they would complain about. The technology end of the industry could also possibly be represented, as the report has mentioned. Producers are reasonably represented at the moment in having two members from the respective unions.
Mr Armstrong: The farmer's wife and the consumer know what they want.
Mr Douglas: Individual producers feel that they have had to pay the levy to have their stock classified, and on many occasions they are not satisfied with the grade received, especially for similar stock. At the same time the meat plants have freedom to sell their carcasses at premium prices once they are classified. That is the main problem for primary producers - they seem to be the loser every time. Meat plants have been expanding and are showing huge profits - that needs to be addressed. The classification needs to be changed as soon as possible.
Ms Rodgers: Perhaps the problem to which Mr Douglas refers relates more to the pricing arrangements in Northern Ireland. The LMC has facilitated discussions between producers and processors on those issues. At the request and recommendation of this Committee, the Department has agreed to investigate the price differentials.
Mr Douglas: It is well known that the cattle, and even sheep, were classified and went into the same container whenever they were going across to France. I have heard on good information that they were all going at a fairly good price. However, the producer was undoubtedly cut severely.
Ms Rodgers: I cannot comment on that because that is a commercial issue.
Mr Douglas: It needs to be addressed.
Ms Rodgers: We are investigating the differential in prices and we are aware of the problem.
Mr Ford: I want to follow up on Mr Armstrong's point about the size of the LMC. You acknowledged that there are two views as to how additional seats should be allocated, either to the producers or the wider commercial background. The quinquennial review appears to suggest the latter - bringing in a wider range of expertise. Are you inclined to move that way at this stage?
Ms Rodgers: We will be consulting the industry on any changes that we intend to make. I have an open mind, and I am prepared to listen to other people's views.
The Chairperson: Minister, why has it taken so long for the quinquennial review to be produced, even in draft form? When do you expect the final version to be published?
Ms Rodgers: The review was being prepared under direct rule. It was finalised then, and it probably would have been published during the transition to devolution, but we had the suspension. There were several hiccups. I cannot explain that any further.
The Chairperson: When do you expect to undertake the next quinquennial review? Will it be in 2003 - five years from the start of the current review - or will it be five years from the publication date of the current report?
Ms Rodgers: That is a very good question.
The Chairperson: My questions are all good.
Ms Rodgers: The work was undertaken around 1999. Therefore I expect the next quinquennial review to be starting around 2004, based on the work that was done. However, I cannot give you a day and date.
The Chairperson: That concludes the questions. Minister, as we are just beginning our investigation, we will submit other questions to you that will require answers. I would appreciate some response from your Department on evidence that we are hearing. I can assure you that they will all be good quality questions.
MINUTES OF EVIDENCE
Friday 27 April 2001
Rev Dr Ian Paisley (Chairperson)
Mr D Rutledge)
Mr G Lowe)
Mr C Duffy) Livestock and Meat Commission
Mr M McCoy)
Mr I Mark)
The Chairperson: I would like to bid the members of the Livestock and Meat Commission (LMC) welcome to this meeting. I understand that your members are here and in the Gallery. We have decided to have a look at the commission under four headings. The funding of the LMC, including the operation of producer and processor levies and core funding from the Department; the provision by the LMC of classified services in both the beef and sheep sectors; the LMCs promotional activity; and the Department's appointments to the Livestock and Meat Commission, including reappointments. We will also take account of the five-year review of the commission.
Thank you, gentlemen, for coming. Does someone want to make an opening statement to us?
Mr Lowe: Good afternoon, Chairman, and good afternoon to members of the Agriculture Committee. My name is Gerry Lowe and, as chairman of the Livestock and Meat Commission, I thank you for this opportunity to contribute to your inquiry into some aspects of our activities.
Our chief executive, David Rutledge, has provided a written submission which we believe is a comprehensive response to the questions set out in your letter of 13 March. In it there are a number of matters raised that are of fundamental importance to the commission.
First, the quinquennial review, although not yet published, has now, I believe, been forwarded to you in final draft form by the Department. I hope that is correct.
Secondly, you raised the critical issue of LMC funding. It is clear from the submissions that we have made that the LMC will not be able to sustain all the activities with which it is currently involved if additional funds are not made available to us. It will be our objective, however, in the future to deliver the best value we can to our industry with whatever funds industry or Government provides. Our statutory role is to maximise returns to the Northern Ireland red-meat industry, and we shall continue to do this with whatever resources are available to us from whatever source.
On the subject of classification, we provide a service to the industry as a result of encouragement to do so from farming organisations and processors. We have neither any right to that business, nor, indeed, any desire to continue to provide that service if a better solution can be found to meeting the European regulation. This regulation requires classification of all cattle offered for trade and sets down and controls the standards which are operated in every member state in regard to cattle and sheep carcasses.
We have provided you with a very comprehensive response with regard to the activities with which we are involved. We felt it important to set this out in considerable detail, as it is, indeed, very much a core activity of the commission, involving a major expenditure item of levy income.
Appointments to the commission are not the responsibility of the commission; they are the responsibility of the Minister. Our response to your inquiry is to highlight what we perceive to be the necessary qualities of persons appointed to the board.
Finally, Mr Chairman, may I formally introduce the members of the commission to the Committee, beginning with myself. My primary interest is Lowe Refrigeration. As a global supplier of services to the food exhibition industry I have considerable experience in the promotion and marketing of agrifood products internationally. I also have strong family connections with the local farming sector. I have been a member of the LMC since 1992 and was appointed chairman in January 1997.
Colin Duffy was appointed to the LMC in January 2000. He is the current chairman of the Northern Ireland Meat Exporters' Association (NIMEA). He is a board member of the Northern Ireland Food and Drink Association, and his main interest is in running the ABP plant in Newry, where he has been involved since 1996.
Miceal McCoy has been on the LMC board since 1997. He is a specialist beef farmer running a herd of suckler cows. He combines his farming interest with off-farm employment as manager of his local South Down/South Armagh rural development partnership group. He is also chairman of the Northern Ireland Agricultural Producers' Association (NIAPA).
Owen McMahon has been a member of the LMC since 1995. He runs a very successful retail butchery in Belfast and is past president of the Northern Ireland Master Butchers' Association and a founder member of the Northern Ireland Elite Butchers' Group. He also sits on a Department of Health advisory panel in London.
Ian Mark has been a member of the LMC since 1997. His primary interest is in farming. He is a member of the Ulster Farmers' Union cattle and sheep committee and is the immediate past chairman of that committee. Some years ago he, along with others, formed a company called Lean and Easy, adding value to his specialist lamb products. The company is now very successful and has many prestigious customers.
Richard Watson has been a member of the LMC since 1999. He is a director of the Foyle Food Group and a freeman of the Fellowship of the Institute of Meat Guild and a board member of the Meat Training Council.
Gordon Orr is the most recent commission member and was appointed in October 2000. He is an independent management consultant specialising in strategic market planning, mentoring and training in the agriculture and food industry. He is a past regional chairman of the Chartered Institute of Marketing.
You are already acquainted with David Rutledge, our chief executive, and Phelim O'Neill, our marketing manager. Mr Rutledge will lead the responses to your questions with support from Mr O'Neill or any commission member as is deemed appropriate.
The Chairperson: I have already read out the terms of our inquiry. Thank you for the submission; it contained meat, not bone. It was very helpful as it covered some of the matters that the Committee is concerned about. In that submission you explained that the LMC was making a significant contribution to the budget of the Meat and Livestock Commission (MLC) in Great Britain. That was to help ensure full and proper qualification of the attachment of the British meat brand in Northern Ireland meat.
I want to ask a few questions on that. Are the MLC's promotional activities accessible in Northern Ireland, and are they sufficiently generic to include Northern Ireland? Is the growth in beef consumption - 5% according to your paper - equally applicable to Northern Ireland as to Great Britain? The Ulster Farmers' Union has worries about media reports of widespread dissatisfaction among GB producers about the activities of the MLC. Can you comment on those concerns? Could the LMC not operate locally based promotional activity under the authority of the MLC, rather than accept its activities?
Mr Rutledge: Regarding access to MLC promotional campaigns, it is important to be aware that our contribution is to qualify for the "British Meat" label in the GB market. That is not something that is used to any significant degree, although some of the GB multiple retailers do use that brand in Northern Ireland. Our interest is in securing the market share we currently enjoy in GB. We concluded that this is the most effective way of contributing towards that part of the market for Northern Ireland beef, which we have highlighted in our report as being of the order of 60% of our current slaughterings, and is the most critical market in which we operate. It is not necessarily to do with the Northern Ireland market that we chose to contribute to MLC. We do some of our own work in Northern Ireland, as described in our paper.
The 5% market share is the order of magnitude of the growth that has taken place, comparing 1995 beef sales in Great Britain with the 1999-2000 figure. I am not exactly sure of the start point and end of those years - if you want that specifically, I will have to refer to my colleague. That percentage growth is monitored by the collection of statistics by sub-contracted organisations to MLC. We do not have past records of consumption in Northern Ireland to the level of detail that has been collected in GB. Therefore we cannot definitively say whether Northern Ireland has enjoyed the same growth since 1995. It probably has reflected a similar pattern, but I cannot say that in as definitive terms as the MLC can of the GB market.
The recent dissatisfaction expressed in MLC by producers in that jurisdiction has focused mainly on the pig industry. The major distinction between our operations in Northern Ireland, and on behalf of the Northern Ireland industry, is that we do not have an interest in the pig sector. That was not allocated to us in the 1967 founding legislation, under which the LMC was created. The plight of the pig industry in Great Britain over the last couple of years has been widely publicised and is unfortunately shared by our own industry in Northern Ireland. That is the main core of the dissatisfaction. There will inevitably be criticism of any organisation attempting to do the work that both the MLC and ourselves do. It is not possible to satisfy 100% of the people, 100% of the time.
We have recently experimented with buying some of the MLC television advertising and have run a campaign locally over the autumn and winter months. There is always a question as to whether that is specifically the right material for Northern Ireland. There is a draft report on an assessment of the Tim Nice-But-Dim campaign that may demonstrate to the Committee some of the responses to the use of that campaign in Northern Ireland.
That, in essence, is a small part of the budget that we spend in promotional and marketing work in Northern Ireland. The majority of our promotional and marketing expenditure here is in the education sector and again that is significantly and, I hope, adequately described in our paper.
The Chairperson: In your submission you say that you have £425,000 for the current year budget for international activities, but that this will reduce to £300,000 per year after that. What will the fall-off be from your list of activities? What activities will you have to cut down on because of that loss of £125,000?
Mr Rutledge: There is a specific programme. A lot of that interrelates to the red meat strategy, which, again, is comprehensively referred to in the paper. There is a significant amount of promotional activity involved in that which, as that programme comes to an end, will reduce the quantum of expenditure that LMC will incur. It is basically matched funding from Government. As that programme comes to an end, so our contribution will diminish.
We will clearly have to make final determination on all our budgets with regard to the available funding. If the funding that we would hope to be available is available then we will be curtailing some of that marketing. That will include point of sale promotions, cooking demonstrations, sampling in supermarkets, that sort of thing that we are currently involved with.
The Chairperson: I want to ask one final question about the classification. The Ulster Farmers' Union has called for fundamental overhaul of the current rating appeals procedure to make it more user-friendly. The NIAPA representative also said that there needs to be a system of appeals that is credible to the producers, graders and processors - perhaps an independent system. Can you add anything to the debate about this procedure further to your submission? In what ways might it be made more user-friendly or credible?
Mr Rutledge: Other than to listen to specific ideas that might come from the industry, we have no particular view. We provide that service because we have been historically asked to do so by the producers and processors. The consultation of the quinquennial review, of which you have the draft, concluded that there was, as yet, no better solution to the meeting of the regulatory requirement for classification.
We have an appeals procedure that certainly has some frustration expressed with it, mainly when customers require aitchbone hanging of carcasses. It basically denies the opportunity for classification of the cold carcass. The definitive classification has always under the European regulation been based on a cold carcass. If you aitchbone hang you are making the hot interpretation and therefore the appeal to the cold carcass is not available.
The difficulty we have here is that customers, in specifying aitchbone hanging, are endeavouring to meet a regime to tenderise and provide what they perceive to be the best product for their consumers. We can do no other than try to assist with meeting the customers's needs. However, we understand the frustration with the carcasses which are aitchbone hung and therefore not available for an appeal. We would be happy to listen to alternative suggestions for an appeals process, but we do not see how we can achieve that.
Mr Douglas: You advocate the setting of price to be placed on meat yield by mechanical means as opposed to subjective grades. If the technology were capable of such assessment, in your experience do you feel that this would be supported by the meat processors and more importantly by the farmers?
Mr Rutledge: The majority of processors will not have any significant objection to this process when the technology is available and proven to a payment system based on a measurement of the meat yield. The trials performed in the Republic of Ireland that have been well publicised in the media concluded that the equipment tested was capable of making a reasonable assessment of meat yields. However, one would like to see that equipment at a higher level of sophistication - making a closer determination of value by measuring the yield of the high-value cuts. No doubt processors would seek to get up that hill. From my contacts with the processors they do not seem to have any objection in principle with regard to mechanical determination of the yield and value and a payments system built around that.
Mr Armstrong: A regular in-house quality assurance scheme and regular training of staff would help to reduce inconsistencies in the classification process. What quality assurance scheme, if any, does the LMC currently operate in-house to ensure that classification officers produce consistently accurate classification of animals? Does ongoing training take place?
Mr Rutledge: In regard to the classifications officers there is an initial training programme which LMC operates. Subsequent to that there is a licensing process that requires each classification officer to be subject to scrutiny by the competent authority personnel in the plants. Each one of those officers subsequently would be brought through with a review by our management. If it is found that they are drifting towards the boundaries set in the standard then ongoing training and development will take place. They are continually monitored by the competent authority, and there are between three and five Department staff employed with the sole purpose of monitoring the classification officers, which fulfils their duty as the competent authority in setting the standard.
Mr Armstrong: On completion of that competence training deo you then go out to the butcher to see if he is satisfied with the classification of the carcass?
Mr Rutledge: We have more feedback from the multiple retailers. From time to time we will get comments from them if the yield of a Northern Ireland R3 departs from the yield that they will observe from a GB supplier. We do not have a formal process in place to determine that feedback. The classification is regulated ultimately by the European Commission. We have contact with butchers, but we do not sense that they have a great deal of complaint. However, from time to time we get comments about the standard drifting because we are not getting the yield.
The Chairperson: What are the boundaries you mentioned?
Mr Rutledge: There are boundaries set so that when a classification grade is put on an animal for its confirmation, the officer is allowed, in the regulation, up to 20% of his classifications to be wrong. We have in the test programme and the supervision -
The Chairperson: It is my understanding that the leeway in error is 20% of all cases.
Mr Rutledge: He is allowed 20% of his grades on conformation to be wrong. He is allowed 20% of his grades on fatness to be wrong and still maintain his licence. There will be a monitoring process to bring him back within the boundaries where the percentage of those that are incorrect are closer to the norm. We have records that the Department will be able to present to you. Those records will show that on both fatness and conformation, our officers are drifting in the direction of the producers by an average of about 10%.
The Chairperson: Is 20% not a very big leeway in error?
Mr Rutledge: That is the European interpretation, Mr Chairman.
The Chairperson: It is like something that would come out of Europe.
Mr Armstrong: It could be the other way around.
Mr Rutledge: I am not aware of any evidence of a competent authority or a European inspection showing that we had ever classified to the disadvantage of producers in Northern Ireland. It can, on a day, be wrong, but that is the regulation. That is a judgmental thing; it is a subjective thing on the boundaries between different grades. I cannot make it different. That is the way it is set up, Mr Chairman.
Mr Armstrong: Will you give the producer the option?
Mr Rutledge: No. We cannot. The producer is not a licensed classifier. It is required to be done by people licensed by the competent authority.
Mr Armstrong: Will you give him the option to justify that his grade was lower than what he had anticipated?
Mr Rutledge: Every producer is disappointed. The big producers understand the grading process and generally agree that the grades are consistent and right. They may disagree that it is harsh on them when the payment for their animal is determined by the classification. If they expected an R and it was an O+ they would be dissatisfied.
Mr Kane: By how many grades was grading overgenerous in Northern Ireland, compared with other regions?
Mr Rutledge: I do not know the statistics in regard to other regions. I do not understand the question.
Mr Kane: As chief executive you should know the statistics.
Mr Rutledge: In regard to other regions and other member states?
Mr Kane: If you are doing your business you should know.
Mr Rutledge: Thank you for telling me that. I do not know the statistics in regard to the individual classification officers' routines under inspection by the competent authority in other regions. I suspect that that would be private information, although I have not sought it.
Mr Kane: Mr Lowe, you will be aware that the allegation of a price-fixing cartel is a regular topic of conversation amongst producers. Does the process by which you gather information for your weekly bulletin cause you to believe that there is insufficient price fluctuation between meat plants to suggest the existence of an organised price-fixing strategy between plants?
Mr Lowe: Since joining the LMC in 1992, I have never been involved with an organisation that has tried to uphold integrity so well. I have never seen any indication whatsoever of there being a cartel. I have heard the talk, of course, but I have never seen any evidence of a cartel. If there were, rest assured that I, as chairman, would be the first to react.
Mr Kane: Since Northern Ireland's beef has not been exported for some considerable time, what exactly is LMC's role?
Mr Lowe: The role of the LMC is to attract the customers that we used to have and to keep constant contact with them to ensure that when markets are reopened to us we have still got the good relationship and product to provide to those customers. It is a very trying time, but we are on top of it.
Mr Rutledge: We should add to that that, of course, we have continued to have a lamb export trade. So it is important not to forget that a significant proportion of lamb processed in Northern Ireland is exported and has continued to be exported through the years since the export ban.
Mr Kane: Why are women or farmers' wives not appointed to the board of the LMC? Is this a perceived oversight on your part or is it another quango?
Mr Lowe: It is the Minister of Agriculture and Rural Development who has the authority to appoint board members.
The Chairperson: So you are not anti-women at all?
Mr Lowe: I would be delighted if we had excellent women on the board. Indeed, if we achieve our ambition to increase the number of board members from seven to nine, I would be singularly disappointed if there were not more female members.
The Chairperson: Is it the Minister who appoints?
Mr Lowe: Yes, the Minister appoints.
The Chairperson: Would you object to a sectional interest in the meat businesses - either producers or others - having the right to nominate to the board?
Mr Lowe: That might take away from the independence of the commission. I suggest that it would be the subject of a consultation process.
The Chairperson: Would you be opposed to it?
Mr Lowe: To date I have seen no necessity for it. I am convinced that we now have the strongest commission ever. It is certainly the strongest since I was appointed.
Mr Bradley: In 3·2 of the classification section you referred to a small number of producers and commentators giving sporadic abuse to the LMC and its staff because of their unwillingness to accept classifications. Do more producers complain than actually make an appeal to a senior officer?
Secondly, regarding beef, how many purchasing grades and how many selling on grades are there?
Mr Rutledge: There are a number of aspects to that. The number of appeals and complaints tends to reflect the price circumstances. When prices begin to fall in the marketplace, the amount of appeals increases. When prices are stable there are fewer appeals.
Mr Bradley: Can you clarify that? Have you figures relating to complaints as opposed to appeals? What percentage of complaints are followed through to appeal?
Mr Rutledge: An appeal is a formal process, and I am not necessarily drawing a distinction between an appeal and a complaint. A complaint is what we read about in the papers, and we may or may not have had an appeal from the person who is complaining in the media or elsewhere. The formal measure that we have of the number of producers who are unhappy with a grade is the level of appeals that we receive.
Mr Bradley: My second point was about the number of purchasing grades as opposed to selling-on grades.
Mr Rutledge: I do not know the number of purchasing grades. The majority of our product is purchased by the premium supermarkets. They are the most important customers, and the majority, by value, of what we sell is purchased by the premium retailers. They tend to specify E, U and R grades. Fatness levels 3 and 4L are the main purchasing specifications that we are formally asked for. Beyond that, it is more the determination of the value of the meat yield. That is mainly for customers who are buying red meat. They may buy more expensive cuts, but much of the meat will go for mincing to the burger trade, as will cheaper cuts from prime animals. In the beef industry about 50% of the value is product for mincing - from those grades that fall below the prime specification. The parts of the animals which are prime specification but not prime cuts are used for mincing.
Mr Bradley: We seem to have 10 different grades that we pay out on and two grades that we sell on.
Mr Rutledge: While customers will specify a range of grades that they want, they do not necessarily pay for U3 or R3. U3 to R3 is a measure of the yield and the value in the grade range that they want to buy. A supermarket will not just buy in R3; it will buy a range of grades.
Mr Duffy: It could be argued, in the grading system as it is structured now, that the price being paid for cattle at the top end of the scale is too little vis-à-vis the price being paid for cattle at the lower end of the scale, which is too high. There is no formula to justify the present structure or the differences between the grades down to the last 3% or 4%. That is why this old classification issue is a very emotive one. Also, our farmers are not happy with the appeals procedure. If it could be replaced with something on an objective basis, that would be welcomed by all parties concerned.
The Chairperson: What do you think about the 20% margin of error? Would you employ someone who could err up to a level of 20% and could still remain in employment?
Mr Duffy: Definitely not.
The Chairperson: You certainly would not do it in politics. You would be out through the door if you did.
Mr Duffy: I could not afford to have errors of 20%.
The Chairperson: It is an amazing figure.
Mr Rutledge: It is to do with the subjectivity involved in the exercise. It is not a precise science. It is based on skill and judgement. We would be in severe bother if the European Commission found that we had an actual error level of 20%. It would not tolerate that.
The Chairperson: It is not skill if you can have a 20% margin of error. A skilled man should be within 3% or 4%. The bone of contention among farmers is this classification and how it works.
There is hardly a farmers' meeting where the issue is not raised. It is not raised in a nice way, but in a rugged Ulster way which shows how mad people are about it. If you were to argue one way, they would say that you were taking sides with those carrying out the classifications. I should have thought that if a man were skilled his margin of error should be less than 20%.
Mr Rutledge: Indeed, they are. I described to you what the regulation permitted - I believe that was the question asked. I have answered by telling you what the regulation says. Our people are classifying within a margin of about 10%, but it is our policy - and perhaps I omitted to mention that this is agreed across the industry - that the producer be given the benefit of the doubt. When the European Commission team comes over, it does not want to do that. However, we do so, and it is agreed with the processors and the producers' organisations that we accord the producer that benefit when it comes to the boundaries between classifications.
The Chairperson: Mr Rutledge, I would take you on before farmers any time and put forward the proposition that it is not to the benefit of the producer, because the farmers do not believe that it is. The perception is that grading is so subjective that it makes a proper, reasonable finding impossible.
Mr Rutledge: I can only agree. We have our own producer meetings, and it can be very difficult, for we are "piggy in the middle". We provide a service to the best of our professional competence. If there were a better solution, we would be delighted to find it. There is a European regulation, and the service that we provide must operate within its constraints.
Mr Dallat: With "bones of contention", "piggy in the middle" and my mind firmly fixed on the survival of Phoenix, I am not sure that I should ask questions at all. Given the importance of such gradings as E, U, R, U3, R3 and 4L, can you explain, in the context of your promotional activities, what they mean to the housewife visiting the local butcher? I emphasise "the local butcher" rather than the large supermarket, for which I have no time. How do the grades enhance the Northern Ireland product? In what way do they help to market it better and give it more added value than an import from South America? We have spent months arguing about grades, yet I have never once experienced them as a consumer, nor would I be able to understand them if I did. My question may sound frivolous, but it is absolutely genuine.
Mr Rutledge: I appreciate the background to your question, which is by no means frivolous. Ultimately the grades should - and do - relate to the consumer, for they determine such matters as the size, shape and fat content of a steak bought across the counter. Therefore if a professional retail butcher has a prime customer base for which he must have a consistent product of a particular size, shape and weight, he will source to meet customer demand. That is how the grades ultimately reflect back to the consumer.
Mr Dallat: In that context it is all the more surprising that you state in the report that your promotional activities may be curtailed because you are strapped for cash. I find it difficult to separate your two functions. How can you grade meat to reflect the preference of the Northern Ireland consumer while possibly facing a future where you are no longer involved in the promotional activity to deliver what you have identified on the production line?
Mr Rutledge: We want to have an industry with the maximum number of prime grades - E, U and R are what our premium customers want. By interfacing with producers we seek to encourage and help them in every way possible so the maximum percentage of meat from the farms achieves those grades.
If we find a prime customer - name any multiple retailer - it will want Es, Us and Rs. We want to promote Es, Us and Rs because we want to provide what the prime customer is going to pay for. We want that income for our industry. I do not know if that answers your question adequately, but that is how the two aspects ultimately interrelate. As the proportion of the bovine population attached to the dairy herd increases, we have a problem because we cannot produce a high enough percentage of the Es, Us and Rs. Therefore we are moving in the direction of producing - and fighting against having to produce - more and more commodity product for mincing.
Mr Ford: You will be pleased to know that I am not going to talk about grading. In relation to the funding of the organisation, you highlight money that is available to An Bord Bia, to Welsh Beef and Lamb Promotions Limited and to Quality Meat Scotland. There is an implication in your submission that there should be similar funding from the Department of Agriculture and Rural Development. Have I taken the implication correctly?
Mr Rutledge: We have tried to give a full reply on that particular aspect. There are difficulties at two levels. First, there is the difficulty that Governments in Europe giving money to organisations such as ours will have to have European state-aid approval for that. That can be difficult, but, given the experience of our colleagues in the Republic of Ireland, it would appear that there are means of doing that. They have a national development plan under which they are able to provide substantial funding. My recollection is that, out of a £20 million budget, some £14 million comes from Government in some form or other.
The second problem is obviously a Treasury and Northern Ireland Budget problem. If money is to be made available to our industry, will someone else have to suffer? It then goes into the realm of politics as to whether it is justifiable to provide funds to us to assist in the promotion of beef and sheep meat.
Mr Ford: Given the financial difficulties that you are going through at the moment in reducing the balances that you currently hold, and given the financial problems that primary producers have, if there is not state funding what activities will the LMC have to cut back on?
Mr Rutledge: There are a number of facets to that. We had outlined in our strategic plans that we were going to deal with two of three significant problems. The three significant financial headings are levy income, farm quality assurance and classification. We have, over the last year, as we described to you, successfully introduced an income from the processing sector. The primary slaughterers are providing a voluntary contribution to LMC. We have almost completed an agreement on farm quality assurance scheme funding. We may be able to get that introduced quickly. We had hoped not to have to deal with classification this year. It is tough enough for producers to have to deal with the farm quality assurance scheme funding. Our strategy was built around our not having any additional levy income or any uplift in the classification until next year.
The current foot-and-mouth disease outbreak does have some implications for LMC in that we are not generating as much income as we had budgeted. The problems of the industry created by foot-and-mouth disease are far more important than our little problems, but it is only appropriate to say that our budget may be affected by a shortfall in income arising from the knock-on effects of foot-and-mouth disease. Our plan may be thwarted to some degree.
On cutting back on our activities, our biggest expenditure item is promotion and marketing. That is the one that we can most readily cut back on. Our information services cost significantly less, and farm quality assurance, which is the other major activity that we are involved in, is more or less being sorted out.
Mr Ford: The report seems to agree with the idea of increasing the commission's total board membership. I am keen to hear the views of the board as a whole on that; I am particularly interested in what Mr Mark or Mr McCoy might say regarding the balance of interests if there were to be an additional two members.
Mr Mark: If, as the quinquennial review suggests, we extended the commission's board to nine members, it would allow farmers' interests to be further represented by at least one additional player, giving them a proportion of three out of nine members, as opposed to two out of seven. That would go some way towards allaying the industry's perception that it is under-represented. I feel that the current membership of seven gives farmers adequate and well placed representation. A further expansion to nine members will allow the board to remain manageable while also allowing a greater diversity of opinion from a broader spectrum of the Province's agriculture industry.
Mr McCoy: The perception means a great deal in our industry and in Northern Ireland at large. The recommendation from the LMC board to increase its membership to nine reflects the perception among producers that there should be more representation. I concur with Ian Mark that running the LMC is a larger business than it simply being a producer-owned organisation. There are other issues, and the diversity of expertise and experience which comes to the board must always be respected.
Being a member of the LMC board is an onerous task, for there is a fair amount of material and debate to go through, but I contend that having more producers on the board would lend it greater breadth. However, it cannot be overlooked that other individuals might bring complementary experience.
The Chairperson: Mr Mark, what do you think about the 20% margin of error?
Mr Mark: Mr Rutledge has referred to the fact of the European regulation. The difference with our operatives within the classification is that the actual difference he quotes - 10%, 5%, 4% or 9% - is still subjective, in that we put forward our grades and classifications for another subjective examiner to look at. The examiner then expresses a view that 10% or 9% or 8% are wrong. None of us is any better qualified to say whether he is more correct than the original examiner. The actual statistic quoted does not necessarily reflect what is happening on the ground on a given day.
Mr Rutledge is absolutely right that there is no evidence whatsoever - and in all my time, both as a farmer and on the commission, there was no evidence - to suggest that any variation allowed on grading has not benefited the producer. If there is a debate in the classifier's mind about whether an animal is potentially an R or an O+, he awards it an R. One can argue that he is wrong or right to do so, but he will never give an R-grade bullock an O+ because he is in two minds.
The Chairperson: Mr McCoy, what is your attitude?
Mr McCoy: I should use the analogy of the 20% parameters. We all drive on roads that are wider than our vehicles. I take the chief executive's point that the commission's classification officers try to direct their assessment of the carcass within the 10% to maximum competency.
In saying that, however, it is particularly difficult for me, as a farmer, or for anybody else. Not many people are competent to grade an animal live in the field, and then to grade it "undressed", with its hide taken off and hanging on a hook. There is therefore a discrepancy in some farmers' belief of what their animals were capable of achieving. In some ways, the livestock ring was always the best place to assess the net worth of the animal, because people were competing. In this case, the animal has been slaughtered, and it is hanging on a line. Human nature is not always correct.
Mechanical classification is something which we should seriously consider in Northern Ireland to achieve a better system of payment for the farmer's produce. It should not depend on the existence of an EUROP classification based simply on the shape of the animal. It should be based more on the content and quality of the beef.
Mr McHugh: The last time that we met there was some contention over whether farmers were satisfied with what the LMC and the meat exporters were doing on their behalf. I was almost told that I was a liar for saying that they were dissatisfied. Mr Rutledge said earlier that 100% of the people cannot be satisfied 100% of the time. The farmers, however, would be far away from 100%. At present, we do not have the marts, and there is very little competition in what the farmer can get. He can only go to the meat plants. I wonder how well the farmer is doing at the moment.
In representations to this Committee, farmers have told us that they are not satisfied. Something, somewhere, is wrong with the system. If that is happening, the overall aim should be to have the best quality produce to sell and to export. We have not been able to achieve that over the last few years. The analogy is made that the larger farmer's understanding of the grading system, and the expectations from it, works to his advantage. All others are then almost incompetent in presenting animals. It therefore works to their disadvantage. I would contend, however, that one of the key factors which makes people move towards quality is the returns by way of pounds in their pockets. Farmers would say that that has not been happening on their side.
The role of the LMC was one of the factors which we considered in relation to the profit reports and reports prior to this one. In relation to your aims and objectives for the next few years, what can you do, post-foot-and- mouth disease, to move to a different position in the relationship between the farmers and yourselves to achieve quality through returns to the farm? I do not think that it can be achieved in any other way. People will say that the subsidies have been a blockage, and that if farmers are being paid subsidies they will not necessarily produce the right animal. I do not believe that. If the farmers are getting the right returns from the meat plants or mart rings, they will come up with the goods. That must happen. We cannot afford to be in a position where we have a whole level -
Mr Rutledge: I would agree with much of your comment. The first point you made was on the present situation.
The Chairperson: I hope that you did not agree with the first part of it, because it was a criticism.
Mr Rutledge: Thank you. Looking at the question, and the debate which Mr McHugh raised, the current situation - interestingly - demonstrates reasonably well that supply, demand and quality are driving prices. We saw in the early stages of the foot-and- mouth disease crisis in GB that there was a dearth of product. Northern Ireland product moved more freely. There were some weeks when the Northern Ireland price was virtually the same as the price in England and Wales.
Great Britain is now slaughtering the majority of cattle that come forward, so that situation is being redressed. It is hard to get figures at the moment because everything is very disrupted; however, we think that the average price in Northern Ireland today is between 5p and 10p per kilo less than the price in GB. Two weeks ago the prices were almost equal. That is what the market is giving to the farmers.
I agree with much of what you said about the issue of quality. It is in the interests of everyone to take whatever steps are possible to address the quality issue. Several initiatives have been talked about, the Department is working on some proposals, and there are some proposals being considered by the commission, to start initiatives to improve the quality again from the breeding herd into the commercial herd. The LMC is participating in that, and we are contributing towards it with our own resources.
We have a specialist beef industry that, for the most part, continues to produce a very good product. There has been some slippage for a number of reasons - one of which might be the brown envelope. One of the problems is the commercial return that is available. People are not properly finishing cattle, for example, because they do not think that the return is good enough. Cattle are sold on when the farmers get their beef premium. We have to fight against that.
There is also the increasing influence of the dairy herd. There has been a significant migration of milk quota from GB, and that is putting a dairy influence on the raw material that we have for our specialist beef industry. That presents everybody with difficulties, but there are things that we can do to improve that. We have spoken about creating a specialist bull business. There are efforts being made to produce specialist bulls as a dairy by-product.
There is also the issue of getting a proper genetic mix, so that the dairy cow can produce a reasonable beef calf. There are things that can be done, but it is a continual battle to keep the quality high. The quality is determined by the grading classification.
The Chairperson: We will have to leave the issue there, because we have run out of time. I thank the members of the LMC for coming along today and for helping us with the inquiry. There were some questions that we would like to have had time to discuss, but we will send those to you, if you would be good enough to reply to them. We do not want to dilly-dally over the investigation - we want to get the results out as quickly as we can.
MINUTES OF EVIDENCE
Friday 27 April 2001
Rev Dr Ian Paisley (Chairperson)
Mr Savage (Deputy Chairperson)
Ms B Rodgers)Minister of Agriculture &
Rural Development Mr J Prentice) Department of Agriculture &
Ms E Cummins)
The Chairperson: Minister, you will be aware that the Committee considered the draft Statutory Rule at our meeting on 6 April, which will allow the Department of Agriculture and Rural Development to make payments under all its fisheries operational programme's schemes. We agreed to recommend that provision for an independent appeals process should be included in the rule, as it has been in the Department of Agriculture and Rural Development's rules. I put that in my letter to you of 10 April. Do you agree to that recommendation? One of the producers' organisations raised a concern that an appeal by one owner may result in a delay of payments to all successful applicants. I am sure that appeals do not hold back payments in other departmental areas. I would like your assurance that that would not be the case if you agree to an appeals process. Can you assure the Committee that the remaining schemes, as they are rolled out over the years, will be subject to the Committee's comments before publication?
Ms Rodgers: Yes. There will be an appeals procedure for every scheme, and the procedure will be contained in the guidelines.
Mr Prentice: The Committee asked for the recommendation to be included in the regulation but it is not in general circulation. However, it is not hidden from people. The fisherman and the processor will have the application form and the guidance notes in their hands. Therefore, we have drawn up an appeals procedure as the Committee recommended.
The procedure that we are proposing to put in the guidance notes for each of the schemes, including decommissioning, is as follows. When the Department notifies the applicant that he has been refused, the applicant may appeal. He can submit a written explanation for the decision to Sea Fisheries. If the applicant is not satisfied, he can submit a written appeal setting out the reasons for challenging the decision to the head of the Fisheries Division, who will have the original decision investigated by a senior departmental officer from outside the Fisheries Division.
If the applicant remains dissatisfied he can refer the matter to a fully independent panel. That panel would consist of an industry representative, a senior civil servant and an independent person. It would review the case or accept an oral statement and make recommendations to the Minister to take into account the various deliberations, the legal points and the need for sound financial control. If the applicant is still dissatisfied at the end of that process he can seek a judicial review or appeal to the Ombudsman. However, we would expect to resolve any difficulties before that stage.
The Chairperson: The Committee was anxious for that to be written in. That statement will appear in Hansard for all to see - there will be a definite appeals procedure, which would be available for all sections.
Ms Rodgers: With regard to fisheries, the Committee stated that it would like an update to include the proposed vessel-decommissioning scheme. I welcome the opportunity to discuss decommissioning proposals with the Committee and to outline where we are on implementation. I would also like to discuss other measures that I have been pursuing to help the local industry.
On 29 March I announced a package of measures worth £21 million to help fishing and its ancillary industries over the next six years. I said that £5 million would be available to fund a decommissioning scheme and that that would be a priority measure for the near future. That remains the case.
Members are aware, through their current consideration of the relevant regulations and discussions with my officials, that progress has been made in finalising the terms of the scheme and producing the necessary documentation and guidelines. A major issue that needed to be resolved was the wider legal consideration of decommissioning across the United Kingdom fishing industry and our obligations towards non-discrimination in the common fisheries policies. Other jurisdictions made the decision to decommission much later than Northern Ireland. While the Northern Ireland proposals had already been submitted for clearance from legal advisors, that was in the context of Northern Ireland being the only region to propose a decommissioning scheme in its structural funds plan.
Now that Scotland and England have recently announced their intentions to introduce decommissioning, it is important that separate schemes with varying terms and conditions can be legally defended against possible challenge. I am happy to say that I have obtained positive legal clearance on that aspect.
When the regulations receive final clearance from our solicitors I will be in a position to make a formal announcement on introducing the scheme. I am confident that the scheme we have devised meets the specific needs of the Northern Ireland industry. The funding that I have proposed is intended to achieve, through decommissioning, a better balance between fishing capacity and resources. That is intended to help the viability of the local fleet as well as contributing to the longer-term recovery of stocks. Members are aware of the scheme's format, which targets white fish and nephrops boats that are at least 10 years old and over 12 metres in length. Successful bids will be grant-aided on the basis of a strike price to be set by the Department for each of the two aforementioned sectors.
The fisheries plan also contains provision for other key measures to assist the industry, including improvements to infrastructure at the fishing ports through the fisheries harbour authority. There is also assistance for the fish-processing sector and aquaculture plus encouragement towards collective action by the industry. The industry is going through extremely difficult times, and I feel that this represents a good package of practical measures in the short term. It will build confidence for the future.
The Chairperson: Can you address the controversy over the track record? I understand that when the two fishery organisations entered into negotiations with the Department for Regional Development it was suggested that the track record should be kept in Northern Ireland and given to the owners of the decommissioned vessels. There was no suggestion then that that legally could not take place.
There are schemes proposed for England and Scotland and an effort is being made for us to stay in step with those schemes. That would mean that the fishing that is lost through decommissioning could fall into the hands of an outside country. At the last evidence session your official said that that could not happen. What about the Spanish boats that are fishing our waters? They are registered in England, but they are Spanish vessels that are owned, controlled and financed by Spanish companies. We do not want the fishermen to be bereft in this decommissioning scheme as far as the whole fishing complement of Northern Ireland is concerned. Two representatives from the fishing industry have put that to you. What is the position under your scheme?
Ms Rodgers: I take the point that it would be preferable if quotas could be retained in Northern Ireland. That would have been our preferred option. I share the wish of the industry in that matter. I regret to say that the legal advice against a means of retaining the track record in Northern Ireland was extremely strong. The proposed scheme gives applicants the choice of retaining or selling track record. The disadvantages are that the sale of track record could involve purchase from elsewhere. Unfortunately we could not find a way round that problem.
With regard to other jurisdictions and us staying in step with them, we announced our intention in the plan to have a decommissioning scheme. The other jurisdictions announced that only about a month ago. That caused us a delay, as we have to stay in step. We would be open to a court challenge if it was proven that we were advantaging some or disadvantaging others.
The Department did not have any option but to go ahead on that basis because of the legal advice that it was given and on human rights grounds. Unfortunately the track record is open to being purchased by anyone. That is probably advantageous to the seller, but I would prefer if it could be kept within our industry.
The Chairperson: Minister, does it not seem strange to you that that was not considered before negotiations began? Firm negotiations took place with the two organisations that indicated that it could be done. It was only when the other two parts of the nation started to negotiate that it was discovered that some legal barrier was in place. Why did the Department of Agriculture and Rural Development not know that when it began the deliberate negotiations, instead saying that it could be done? It suddenly discovered that there are legal obligations. Can the devolved Assembly and the devolved Executive, the matter being devolved to them, not take a step for the good of Northern Ireland, and keep that for the benefit of the Northern Ireland fishing community?
Ms Rodgers: When my officials were in discussions with the fishing industry they took on board all of the industry's concerns and attempted to meet them. However, the Department must take on board the advice - not from the Great Britain solicitor - but from its own legal advisers because of devolution. If the Department is advised that it is open to challenge in the courts and that it cannot do certain things that it may wish to do, it does not have an option except to accept that advice. There are also consequences for the public purse.
The Chairperson: I understand that, but I do not see why the negotiations should go so far, and then, suddenly, when we come to make a decision, we pull back completely and say "No, no, we would be brought to Court if we did this". I must say to you, Minister, the matter leaves a bad taste in the mouth of the fishing industry. Fishermen ask me why they were not told at the outset that they should save their breath because it cannot be done - it is legally impossible.
However, it was put on the table as something that could be discussed, and it was only at the end of the day that somebody said "No". Why should it be law to the whole fishing industry in Northern Ireland? As you know, the fishing industry is in a bad enough state. I am sure that you, as the Minister, receive all sorts of representations about it. I would have thought that the Department of Agriculture and Rural Development's prime responsibility, at this time, was to retain anything that it could. It seemed at the time that the Department could retain that, and then suddenly we are in the realm of legal difficulties. Who will challenge that?
Ms Rodgers: If the Department had said, at the first date of interest, that it was not going to consider that because it does not think that it is legally possible it would have been criticised by the industry for not even trying. The Department had to take on board precisely what the industry wanted, which was actually what the Department would have agreed with in the interests of Northern Ireland's fisheries.
It is impossible to do everything at once. First, the Department had to talk to the industry and see what it would like. Following that the Department had to see what is possible, and then take legal advice. No matter what the Department does, it must take legal advice; it must make sure that it is not open to legal challenge. The Department must fit its actions into the human rights legislation or the requirements of the Northern Ireland Human Rights Commission.
Therefore, I am afraid that while I agree with your premise that it would be desirable if we could retain it in Northern Ireland, the Department cannot ignore legal advice. It was not in a position, in the initial stages of the negotiation, to absolutely refuse to consider it on the basis that the legal advice might go against it. The Department was prepared to look at it.
The Chairperson: I understand that that was never raised at the meeting at all. The Department of Agriculture and Rural Development never suggested that there were any legal complications. That came in later. Will Northern Irish vessels registered and licensed in Scotland be eligible for the Scottish decommissioning scheme?
Ms Rodgers: I understand that they will be.
Ms Cummings: The Scottish scheme has not yet been developed and proposed. Both Scotland and England have announced an intention to have a decommissioning scheme but they have not issued details.
The Chairperson: Then the answer cannot be "Yes". It could be negotiated, but the answer could be "No".
Ms Cummings: The Northern Ireland scheme is that those vessels licensed by the Secretary of State for Northern Ireland are eligible. In devising schemes elsewhere in the UK, administrations will have to take care to ensure a clear distinction between eligibility in each of the schemes that become available. Neither the Scottish nor English administrations have concluded details. They are at a fairly early stage.
The Chairperson: Therefore, the answer is "No" at the moment.
Ms Cummings: Because no scheme is available in Scotland at the moment.
The Chairperson: There can be no answer until -
Ms Rodgers: There can be no answer until the scheme has been worked out and presented.
The Chairperson: The two fish producing organisations agree that the use of the two 12-month periods will help to include the days at sea in the equation when considering applications. However, the effort in 2000 is undoubtedly distorted by the Cod Recovery Plan (CRP). Would using 1998 and 1999 not be a better option?
Mr Prentice: The regulation requires us to use one or other of the preceding years for the scheme. We plan to use the previous two calendar years, which are 1999 and 2000. I appreciate that the impact of the CRP is disadvantaging us. By and large, the fleet was equally affected by it with regard to the two sub-sectors.
The white fish fleet was affected to the same extent, and by the same rules and closures. That should not make any material difference.
The Chairperson: Minister, can you share your legal advice with the Committee? Can we be a party to it?
Ms Rodgers: I can ask the solicitor if he will let you have a copy of the legal advice.
The Chairperson: The Committee should examine that as part of its statutory duty.
Ms Rodgers: That is fair enough.
Ms Cummings: As well as correspondence with our legal advisors, a number of detailed discussions took place. I am sure that it would be in order for us to ask our advisor to produce a composite paper containing the definitive advice that he gave us.
The Chairperson: We have statutory powers, but we do not wish to use them.
Ms Rodgers: You are entitled to know the background to the legal advice.
The Chairperson: The Committee will need to examine that. It is a big issue that needs our consideration.
Mr Douglas: To what extent are the proposed decommissioning schemes structured by European or national requirements? Have you had to reconsider aspects of the Northern Ireland scheme because Scotland, England and Wales have decided to introduce their own schemes?
Ms Rodgers: As they are only beginning to work on theirs and ours is almost finalised, we have been tailoring our scheme to meet the needs of Northern Ireland.
Mr Savage: Has any research or monitoring of ships that are fishing with flags of convenience been undertaken?
Ms Rodgers: I am not sure what the question is.
Mr Savage: I have been told that many boats are fishing under flags of convenience. Are they being controlled or monitored?
Ms Rodgers: Boats from where?
Mr Savage: I am told that they have a flag of convenience for wherever they fish.
Ms Rodgers: I am not clear as to what precisely is behind the question. I therefore have some difficulty in responding to it. If you can provide more details at a later time, I will be able to answer the question.
Mr Savage: I will certainly follow that up with you.
The Chairperson: Spanish companies are flying a British flag, purely as a flag of convenience. Have we any way of ascertaining how many boats in our waters, and in the Irish Sea, are doing that? Although they are registered and are pretending to be British boats, they are sponsored by another EU country and only fly the flag as a convenience.
Ms Rodgers: There is a review of the Common Fisheries Policy (CFP) taking place and you have got the Green Paper. That might be something that could be included in the review and taken into account.
The Chairperson: It would be interesting to obtain those figures and know how many boats are flying flags of convenience. It might be a big shock to the British fishing fleet to know how many of those boats are among them.
Mr Prentice: I am not aware that a significant number of flag of convenience vessels are fishing in the Irish Sea, but there may be some. I would be aware of them if they were a significant factor where our fleets are fishing in the Irish Sea. There are significant numbers of flagged vessels off Milford Haven and the Welsh coast, and while they are fishing in that part of the Irish Sea they are not entering our areas.
The Chairperson: Is it not useful for those people to get hold of the track records and establish their position in the Irish Sea?
Mr Prentice: If that occurs, it will be a commercial transaction.
The Chairperson: That is what we are worried about - that we are going to lose out very badly. However, we have to wait until we see the details.
Ms Rodgers: If Mr Savage can get hold of any data relating to his question will he let us have it?
Mr Savage: I have it and will forward it on to you.
Mr Armstrong: You have indicated that decommissioning is the Minister's priority and that other aspects of the fisheries measures will be introduced on a rolling programme. Will you be producing a timetable to indicate to the industry when those other schemes will begin?
Ms Rodgers: I hope to indicate that very shortly. The current priority is to get the decommissioning scheme up and running because I am concerned, as is the industry, about the length of time it has taken. Clearly the legalities were very complex. The fact that decommissioning schemes were being introduced across the water, we had to clear our lines with the Ministry of Agriculture, Fisheries and Food (MAFF) to make sure that we were not open to legal challenges. That caused a further delay. I will be announcing the other schemes shortly.
Mr Armstrong: I do not completely understand the track record. Can you explain it to me, as I am not a fisherman? If you are decommissioning a boat- selling it off - and somebody from another area buys it, what advantage is there in decommissioning, whenever somebody else can buy what is supposed to be decommissioned? It can be used against you at a later date when it will not be in Northern Ireland's jurisdiction.
Ms Rodgers: I often ask myself that question. The advantage is to have fewer boats fishing. If you have fewer boats fishing they can fish less. If you take a certain number of boats out of the equation, not as much fishing can be done.
Mr Armstrong: Yet it can be sold to somebody else who will be fishing for the same quota?
Ms Rodgers: Yes, but that will still limit the capacity of the boats to fish if fewer boats are fishing.
Mr Armstrong: You seem to be selling your heirloom.
Ms Rodgers: The objective is to make the fleet, and the industry, more viable.
Mr Armstrong: It will give somebody else more strength.
Ms Rodgers: I hope that bids will also be made for those quotas or track records from within Northern Ireland. There seems to be a presumption that the fishermen in Northern Ireland are not going to be buying any of the track records. I would like to think that they will buy them.
Mr Armstrong: They have not been making very much money over the last few years to buy anything.
The Chairperson: Would the Department like to finance a scheme so that we could buy them? Is that not a good way of helping the industry?
Ms Rodgers: We have to adhere to pertinent EU regulations about giving support to industry. The Chairperson will be well aware of that.
The Chairperson: I agree, but we have the sort of conspiracy abroad that when we lose something we lose it forever. There is no way that we can still save our industry and allow people the legitimate escape route of getting out of the industry. It is a terrible thing that if you are decommissioning a boat, you are terminating the capacity of that boat. That is not decommissioning in the sense of a change - it is death. You are putting up an obituary notice and saying that, as far as the track record is concerned, that is it.
Ms Rodgers: When I was talking to the fishing industry representatives over a year ago, they strongly pointed out that they wanted a decommissioning scheme. I have given them a decommissioning scheme. That is the only answer that I can give you. If I had not given them a decommissioning scheme I probably would have been pilloried for not doing so.
Mr Armstrong: They are looking for a better income and that is why they were looking at decommissioning. That is the only way -
The Chairperson: It is hardly fair, Minister, to say that in black and white. They were looking for a decommissioning scheme that would help the people leaving but also help the industry that is left to retain the capacity to fish those fish.
Figures before me tell me that Northern Ireland's share of UK quotas in the Irish Sea has fallen from 63% to 55%. If that is so, that means that the fishermen want a decommissioning scheme but that they do not want the industry killed off. The fishermen want the remaining boats to have the capacity to fish that particular quota.
Ms Rodgers: That is precisely what we are trying to do. However, there is no perfect answer in this world to any big problem. Our biggest problem is that the seas have been overfished - for whatever reason, the fish have moved further out from the shore. We will have no fishing industry if no fish are left in the sea. We are attempting to balance the need between maintaining a viable industry and maintaining stocks in the sea. That is not easy, but we are doing our best. We have consulted with the industry and were told that a decommissioning scheme was needed. Many people contact the Department of Agriculture and Rural Development to find out when that is going to come into operation. I am anxious to get it moving as soon as possible - there is a demand for it.
There are downsides to everything, but the purpose of decommissioning is to make the remainder of the industry more viable.
The Chairperson: Minister, you are missing the point. The remainder of the industry can be made viable by cashing in on what is already ours and not letting it go. That is why we are discussing the sale of track records, and that is why the two fishing organisations originally put the idea to your Department. The idea was to conserve what we have, yet have the decommissioning scheme. You are right, decommissioning is wanted - not only do we want it, but we need it. I have not heard any member of this Committee say that we do not want decommissioning.
If we have decommissioning, we will cut our throats on the track record, and we feel aggrieved at that. That is serious, and some other party will benefit from the sale of the track record. It looks as though the owner can sell to a boat that flies a flag of convenience, which can fish in the Irish Sea because it has his track record. That worries us.
Ms Rodgers: Chairman, you have indicated all the possible downsides without mentioning any of the possible upsides. I will consider any way that the Committee tells me that decommissioning can be achieved without it being open to legal challenge. My strong legal advice is that decommissioning cannot be done without the risk of such a challenge - successful legal challenge - if we confine the track record to our own industry. That is unfortunate and I wish it were otherwise, but if the Committee can tell me of another way that decommissioning can be done I will be glad to hear the proposals.
The Chairperson: We will have to look at the papers.
Mr Kane: Minister, will you confirm the exact budget for the implementation of the scheme? There is confusion in the industry given that earlier pronouncements suggested a figure of £8 million as opposed to the £5 million announced with the scheme.
Ms Rodgers: At no stage did my officials or I announce any figure for the decommissioning scheme, although the officials were pushed many times. There may have been a presumption that £8 million would be available for all the schemes that we might go for. I announced £5 million and that is what is available. I have never suggested that £8 million would be available for decommissioning.
Mr Bradley: Could the fishing industries in Northern Ireland, Scotland and England get together to address the problems? Are the industries in Scotland and England facing the same situation? Could an exchange among the three be done?
Ms Rodgers: Yes. We have been in discussion with Scottish and English officials.
Mr Bradley: There is a possibility of exchanges? I am trying to think -
Ms Rodgers: Are you talking about the track records?
Mr Bradley: Yes. There is a danger that Scotland or England will buy the quota from Northern Ireland. Will they also suffer losses? Can the quota be sold on for a nominal sum, or exchanged back and forward for a nominal sum? Would that be illegal?
Ms Rodgers: The person who is decommissioning will put his track record up for sale, and he has the choice to sell it. The fisherman may decide out of the goodness of his heart to give it at a lower price to the Northern Ireland industry. I do not know, but that will be a big issue.
Mr Bradley: Perhaps I am not getting my point across. Could the Northern Ireland organisations buy Scottish quota at an agreed price?
Ms Rodgers: Yes. I assume that the same would apply across the board. It will be an open market. I suspect that the Scots will be concerned for the same reason, that we would buy their track record or quota. There is nothing to stop that happening.
Mr Bradley: It would not be illegal?
Ms Rodgers: It would be illegal for them to prevent us, as it is illegal for us to prevent them.
Mr Bradley: Rule 5(2) states that
"the Department may reject an application if it considers the amount of the bid in the application to be unreasonable, having regard to the amount of money allocated to this Scheme."
Is there no room for a negotiated downward revision of a bid, rather than straightforward rejection?
Ms Rodgers: No, there will not be any coming back once the bid is made. There will be no room for manoeuvre or negotiation once the decision is made. It is a strict tendering procedure so, if the tenders did not succeed, adjustment would not be possible.
Mr Bradley: I was thinking of the pig outgoers scheme.
Ms Rodgers: Are you talking about pig outgoers number two? I do not think that will happen in this case, unless perhaps the money is not taken up. We would have to start with a whole new scheme if that were the case. We would have to go through the whole thing again. The rules cannot be changed after the event, because people who had tendered might complain that they would have made different tenders.
The Chairperson: Minister, people in Scotland have told us that in their scheme, money will be made available to the fishermen to buy the track record of other ships. I do not know how reliable that information is, but we have been told that money is available so that they can keep their particular track records in their own waters. If that is so, can the Department of Agriculture and Rural Development not make some enquiries into what they have? Our difficulty is that they are only starting their negotiations, which I understand. We are a long way down the road with ours. It would, however, be a terrible thing if, after we had negotiated and you had taken a decision on legal grounds that that could not be done, Scotland could come in and do it. Where would we be then? We would need to know on what basis they are considering money for that.
Ms Rodgers: I will certainly ensure that we find out what the Scots propose to do, and I will ask my officials to proceed with that.
Mr Dallat: Minister, when drawing up the powers of authorised officers and how they carry out their duties, did the Department take into consideration the Human Rights Act 1998?
Ms Rodgers: We have to take the Human Rights Act 1998 into consideration in everything we do, and we did so with regard to the powers of authorised officers.
The Chairperson: Axis 1 - Adjustment of fishing effort, paragraph (d) states that it will be a two-tier scheme. How will the funds available for financing decommissioning be divided between those two tiers? In Scotland, for example, we have been told that the scheme has set a target for removing 20% of the Scottish white fish fleet. Does the Department of Agriculture and Rural Development have any such specific targets?
Ms Rodgers: Yes, it is our intention that 75% would go to the white fish fleet and 25% to the nephrops fleet. There has been a reduction of approximately 15% in the target fleet.
The Chairperson: Why did the Department set the limit for applicant vessels to over 12 metres? What percentage of the fishing fleet will be able to apply, and have you considered lowering the limit to 10 metres?
Ms Rodgers: The purpose is to reduce capacity, and decommissioning smaller boats would not attain the goal of reducing capacity as easily as with larger ones.
The Chairperson: Rule 5(2) states that
"the Department may reject an application if it considers the amount of the bid in the application to be unreasonable, having regard to the amount of money allocated to this Scheme."
Is there no room for a negotiated downward revision of the bid, rather than straight rejection?
Ms Rodgers: That question was asked by Mr Bradley. I do not believe the possibility exists.
The Chairperson: In the Statutory Rule, reference is made to establishing a "strike price" mechanism for each segment - vessels above 730 fixed quota allocations (FQAs) and those of 729 FQAs or less. What is a "strike price"? Will negotiations take place with the producers' organisations to establish a mechanism for the two segments?
Ms Rodgers: The "strike price" forces fishermen to submit bids below their real expectation in the knowledge that they will ultimately receive a marginally higher reward. The alternative is to establish a competitive bid per vessel capacity unit (VCU), awarding decommissioning grants to the lowest successful bidders. However, historic evidence has shown that that conventional method has resulted in a very high degree of collusion by fishermen, thus removing or diluting any competitive element in the process. I believe the "strike price" will achieve a considerably lower average bid per VCU.
The Chairperson: Therefore you have inserted the mechanism to pre-empt collusion. Do you feel the fishermen are clever?
Ms Rodgers: I have no doubt of that.
The Chairperson: If you had been in the industry for generations and saw it all going behind you, you would use every possible means to get out of it what you felt was your entitlement. The idea of minimising the market value of what you have is a difficult principle to embrace. I thought fishermen were entitled to ask for the highest possible price within reason. You are in a difficult position if you cut the price expected or the price that they would normally ask.
Ms Rodgers: The idea is to ensure that more people receive money. Of course, people who have bid low will also end up getting marginally more than what they bid for. However, its aim is to ensure that as many people as possible can avail themselves of it.
The Chairperson: It has been put to us that, even with the best possible decommissioning scheme, the fact that fishermen must pay back 45% of the grants they have received cuts a great scythe sweep from what they would otherwise get. They should therefore be entitled to get the last penny piece from what they sell. It should not be said to people that they can get out, but only at a price.
Ms Rodgers: I have no room for manoeuvre on that, for it is part of the finance regulations.
The Chairperson: Who made the finance regulations?
Ms Rodgers: The public sector. Perhaps my official had better answer that, for it is too complicated.
Ms Cummins: They are the general financial regulations that control the administration of all schemes. There is a requirement to pay back any grant obtained in the event of a decommissioning scheme.
The Chairperson: I am quite aware of that. However, surely you cannot blame people for asking for the highest possible price - and you cannot ask them to ask a lower price - if they know that when the sale is complete they will have to pay back 45%, or whatever amount, of the grant?
Ms Rodgers: Do you mean that that is to allow for the fact that they have to pay back the grant?
The Chairperson: Yes. That is what they have put to me. I was talking to a fisherman in Kilkeel who said that if he entered the decommissioning scheme he would have to pay back the grants that he had received. When that was deducted from the money he would receive, he would have a pittance left. That is what worries us.
Ms Rodgers: Can I point out that the situation is difficult? I am not trying to pretend that it is easy, but the grants that they received were to help them remain in the industry. Therefore, the grant they are now receiving is to enable them to leave the industry. There is a dichotomy there.
The Chairperson: The poor fishermen are in a no-win situation.
Ms Rodgers: I accept that the fishermen have had a difficult number of years. We are trying, to the best of our ability, to ensure that we can minimise their difficulties. Unfortunately, there are no easy answers. We have to balance the need to conserve the fish stock with the need to retain a viable industry, which is not an easy thing to do.
The Chairperson: Thank you.
MINUTES OF EVIDENCE
Friday 27 April 2001
Rev Dr Ian Paisley (Chairperson)
Mr Savage (Deputy Chairperson)
Ms B Rodgers)Minister of Agriculture &
Mr B Gallagher)Department of Agriculture &
The Chairperson: We will have to be brief, as the Minister has to leave at 12.45 pm. Minister, do you have something to say first?
Ms Rodgers: You have asked a number of questions, and it has been some time since we had the opportunity to discuss the pig industry restructuring scheme. I will attempt to respond to your questions, and that may take a little longer than my other opening statements. That is because it is a complicated scheme, and I want to address the issues that are of concern to the members.
I regret that I have not been able to provide the Committee with the information that they sought on this matter until now. I have no wish to be anything but transparent with the Committee, but there were constraints on my officials and me on discussing this issue before the second part of the outgoers scheme closed. There would have been a risk to the whole process if we had done so. I hope the Committee can accept this situation.
I intend to bring you as up to date as possible and deal with the questions that you have put to me in writing. I will respond as fully as I can to any further questions that you might have. Finally, before I move to the detail, I must explain that some of the figures may not be final. I understand that there are ongoing legal considerations about one or two applications, including one in Northern Ireland.
None of us needs reminding of the difficulties that the pig industry has had to endure over the last few years, to say nothing of the added effects of the current foot-and- mouth disease outbreak. Against that background of difficulties, once in office, I made considerable efforts to secure the early introduction of an aid package for pig producers. However, it proved a very tortuous process to devise and secure Brussels's approval for a scheme that will provide real help to the industry. We naturally had to have regard to the Treasury's views regarding value for money. The outcome did not result in an ideal scheme, but I was obliged by my colleagues in Great Britain to accept its limitations.
Perhaps I could explain the financial provision available to the scheme, which covers the entire United Kingdom and is funded entirely by the UK Government. The original provision was for expenditure of £26 million in 2000-01 for both outgoers and ongoers, without specific amounts being earmarked for either element, and £20 million in each of 2001-02 and 2002-03 for ongoers. However, no expenditure was possible on the pig industry restructuring scheme in 2000-01, as EU approval was not received early enough to do so. Much of that year's provision was used up by the Ministry of Agriculture, Fisheries and Food (MAFF), notably in compensation arising from the outbreak of classical swine fever in East Anglia. The balance remaining at the end of 2000-01 was £3·9 million. The provision for the other two years remains intact.
There is thus a total current provision of £43·9 million for the pig industry restructuring scheme. While Nick Brown has indicated that he will approach the Treasury for further provision if that is judged necessary, that currently appears unlikely - as I shall explain when I deal with the ongoers.
As later figures will demonstrate, outgoers are likely to require total expenditure of up to £15·6 million for the UK, leaving £28·3 million for ongoers. I am sure that I do not need to go into the background of the two elements of the scheme again, although my officials or I can deal with any questions you may raise.
A total of 1,237 applications in respect of 205,237 sow places were received under the original outgoers scheme, which closed on 2 March 2001. The number of applications from the four UK regions was: England 650; Northern Ireland 510; Wales 24 and Scotland 53. However, following the adjudication of the tenders, I was concerned at the contrast between us and other UK regions in respect of successful bids.
We had 87 successful bids, or 17% of the total application, against England's 315 or 48%. Wales had 10, which was 42%, albeit from a very small base of 24 applications, while Scotland had 20, or 38% of their 53 applications.
I was also concerned at the size and cost of meeting some of the successful bids in England and Scotland. However, despite our apparently poor success rate, the number of sow places in our successful bids was about 8,000, which reflects the percentage, 8%, that our sow places represented of total UK places in June 1998, the date on which the whole exercise was based.
Officials from my Department participated both in determining the adjudication and value for money criteria and in opening the bids. They reported to me that they were fully satisfied that the process was operated with total fairness. The adjudication criteria were developed and agreed by officials before the opening of the sealed bids and led to the following outcome: 432 bids representing 95,838 sow places across the UK were accepted at a total tender bid of £17,707,467, giving an average bid of £185 per sow place. The maximum bid accepted was £237 per sow place, with a consequential maximum payment of £142, or 60% of the £237. Making payment at up to 60% of successful tenders up to this maximum brings the cost of the first outgoers scheme to £10,624,480, about £851,000 of which will be paid to Northern Ireland.
Although the offers represented a greater number of sow places than needed, the first outgoers accepted just under 96,000 sow places. That cut-off came about as a result of the operation of a pre-determined criterion that had been agreed by officials from all the United Kingdom Agriculture Departments. It was devised on the basis of a working model that indicated that those criteria would deliver something close to 120,000 sow places. It did not deliver that figure.
Our subsequent considerations led to the Department's decision to accept 120,000 sow places and to rely on outgoers mark 2 and ongoers to bring the UK to its target figure. We took account of the availability of a reopened outgoers scheme and the requirement on larger pig enterprises - those employing 10 or more full-time staff or the equivalent participating in ongoers - to reduce their production capacity by 16%. Outgoers was reopened to allow application by those who decided to leave the sector because of the foot-and-mouth disease outbreak.
The second scheme provided another opportunity for those whose bids were rejected the first time round. I will give some details about the relationship between the original outgoers and outgoers mark 2. The maximum bid accepted under the first outgoers was £237 per sow place with a consequential maximum payment after the 60% reduction of £142. To be fair to applicants, that would also have to be the highest bid that would be entertained under outgoers mark 2. Given the financial provision of up to £5 million for outgoers mark 2 - and for which I strongly lobbied - bids could have been accepted for 35,200 sow places or more depending on whether all the provision was used up and on the level of successful bids. The sow places were calculated by dividing 5,000,000 by 142.
The figure of 35,200 is based on an assumption that bids are all being pitched at the maximum level. However, the target is somewhat less at 24,000 - 120,000 less than what the 96 secured under the first outgoers. I appreciate the argument that the Department should accept all bids up to the maximum limit of the financial provision. However, the Treasury's views will have to be considered.
There is also a counter-argument that to ensure that the United Kingdom retains a viable pig industry, as much of the available budget as possible should be retained for the ongoers' element of the scheme and thus benefit the residual industry directly.
It is hoped that these remarks will have informed the Committee and responded to most of the questions put to me in the letter of 10 April. However, I want to respond to the suggestion that the pig producers' relative success rate reflected badly on the Department of Agriculture and Rural Development because of the advice that the Department gave the producers. I cannot accept that. The pig industry restructuring scheme had to provide levels of financial compensation to help restructure the industry but give reasonable value for money to the taxpayer. That latter requirement led to the decision that the outgoers' element of the scheme would be operated on the basis of a sealed bidding system.
Criticism has been levelled at the Department of Agriculture and Rural Development for the lack of advice offered, particularly the absence of guidance on the level of bid that should be submitted and the relevance or otherwise of the valuations. That criticism is unjustified. As the Committee will recall, my Department - alone in the United Kingdom apart from one meeting held in Scotland - mounted a series of producer information meetings to fully explain the pig industry restructuring scheme, with particular emphasis on outgoers.
Upward of 1,000 producers attended those meetings, and a full explanation was given on how the scheme would operate. There was much discussion about bid levels, and significant reference was made to the additional costs of rendering unusable pig houses that local producers would be faced with. That would not be a cost for many outdoor producers in other parts of the United Kingdom, and producers here felt that it could be legitimately included in their bids.
My officials, one of whom is here today, underlined the need to take account of the competitive nature of the process and explained the value for money basis of the scheme. It was stressed that, while an independent professional evaluation of business loss was required, it was entirely a matter for each individual producer to determine the amount - whether the actual valuation figure or a lesser one - that he or she would be prepared to accept as compensation for staying out of pig production for 10 years and which would be successful in the bidding competition. There would be lower bids in the rest of the UK because they had lower requirements. These questions also arose in many telephone enquiries, and in all cases my officials explained that the valuation figures provided a ceiling figure - an indication of maximum potential loss - but the potential tendering nature of the scheme was repeatedly stressed. However, despite our pleas to producers to appreciate the competitive nature of the bidding process, it is our assessment that the overriding reason for our low success rate was not due to poor advice or service from the Department, but rather to applicants not sufficiently appreciating, or being reluctant to appreciate, the competition element.
Secondly, I turn to my role in determining and agreeing the criteria for the adjudication and the effort I made to secure agreement on levels of costs appropriate to the Northern Ireland situation, and particularly in the context of the Ulster Farmers' Union's comment that this scheme would have only a minor impact on the problems of the Northern Ireland pig industry.
Neither any other Minister, nor I, had a direct role in drawing up the criteria - it was a purely technical exercise aimed at utilising the funding available in the most cost-effective way, both for outgoers and the taxpayer. A number of possible permutations were considered. However, agreement was reached by senior officials, representing all four UK agriculture Departments, that the most effective way to proceed would be to disregard, for the purposes of calculating an average, all bids within 10% of both the top and bottom of the bidding range. Needless to say, the bids in the bottom 10% were all judged successful. In formulating this, the working model indicated that no bid in excess of 125% of the average, thus determined, should be accepted.
Turning to the second part of the question, this was an UK-wide scheme, funded by the Ministry for Agriculture, Fisheries and Food (MAFF), and in the event it was not possible to attain regional differentiation. As I have already stated, we ensured that our local producers were provided with the most comprehensive information available about the rules of the scheme. My officials expended a great deal of effort in explaining the scheme and the possible pitfalls, and I cannot disguise my disappointment that, despite the clear competitive element present and emphasised to all potential applicants, too many of the bids received were pitched too high.
I need to emphasise that both in financial terms and in number of sow places successfully tendered, the outcome here is a reasonable reflection of the comparative production situation at June 1998, and therefore it had a proportionately favourable impact. However, greater realism in bidding levels would have led to a much better outcome. I hope that this will be the case with the bids submitted under outgoers 2, adjudication of which will take place in two weeks. I will advise the Committee of the outcome for Northern Ireland applications after this second adjudication.
I mentioned earlier that a figure of approximately £28·3 million would be available for ongoers, and I want to expand on our analysis of that position. You will recall that ongoers provides for an interest rebate of up to 5% on qualifying loans for a period of two years. If we take half of the provision per year, which is £14·15 million, this would service such payments on loans up to £283 million. I would advise that applications throughout the UK to date, although ongoers still remains open until 2 August, require a provision of substantially less than this, and on that basis we can be reasonably comfortable that there is adequate provision. The figure to date in Northern Ireland is about £1 million in respect of 73 applicants, thus covering loans of about £10 million. However, Nick Brown has undertaken to seek additional provision in the unlikely event of such a need arising.
That concludes my presentation to the Committee, but I will be happy to deal with any other questions that you may have.
The Chairperson: Minister, we do not have much time for questions. However, you have made clear to us that the decisions for this matter were not taken by the Ministers but by senior officials. They drew up this scheme.
Ms Rodgers: Yes; that is correct.
The Chairperson: Is that the usual way of doing it? One would have thought that the Ministers would have all had their input in to it, especially as Northern Ireland is most unusual in regard to the rest of the United Kingdom, which did not see their one main factory burned to the ground. They did not see all the dangers and all the money that pig farmers lost. Northern Ireland was an unusual case. One would have expected that that should have been taken into consideration instead of people saying that we are just the same as everywhere else in the United Kingdom - when we were not. There will be questions, Minister, that we will want to send to you.
Ms Rodgers: I will respond very briefly. The purpose of the scheme was to reduce capacity and retain a viable industry. I made the point to Nick Brown at Ministerial meetings that our problem was much more severe and that our industry had been through a much more difficult time over the last number of years and had suffered much more than across the water. It was made clear to me that this was a UK-wide scheme, that there was no room for regionalisation in it and that, particularly since there was a tendering process in it, there would have to be conformity. I accept that it would have been better to have a regionalisation scheme, but it was made very clear to me that that was not possible.
The Chairperson: There can now be one question only from each member.
Mr McHugh: How does the scheme benchmark against the one in the South regarding leaving a viable industry after it?
Ms Rodgers: I do not have any details about the scheme in the South, but I can certainly find out for you. I was not even aware that they had one.
Mr Ford: Can you tell us anything about the number of applications under the second phase of the scheme from those 430 that were rejected?
Ms Rodgers: Are you referring to the second phase of the outgoers?
Mr Ford: Yes. I thought you would know that that has now closed.
Mr Gallagher: It is closed but it has not yet been adjudicated.
Mr Ford: I refer to the number who have actually applied.
Mr Gallagher: Do you mean from Northern Ireland?
Mr Ford: Yes. Of those 430 rejected, how many have tried the second time around?
Mr Gallagher: Virtually all of the outgoers who were rejected the first time have re-applied.
Mr Dallat: Minister, are you happy that there will be a viable pig industry when this is all spun out?
Ms Rodgers: I hope so. The pig industry has been through a very difficult time, and I hope that the ongoers scheme, which I hope will be extended in coming years, will help with the low interest payments to bring us back. There will also be a job of marketing to be done.
Mr Bradley: Before I ask the question, I will declare an interest in this subject, because I have a family member involved in the business of valuations. The valuers employed by the outgoers charge anything from £50 to £400 for the valuation and completion of the forms. Was there a recommended fee to be paid to valuers?
Mr Gallagher: There was no recommended fee, but at the meetings that I attended, they talked in general terms about a figure somewhere between £200 and £250 on average. It was a matter for the valuers.
Mr Bradley: It has been brought to my attention that some of them were charging up to £350, nearly £400 when VAT was added, while others were charging as low as £50. That is a serious discrepancy.
Ms Rodgers: I presume that the valuers charging £50 were getting more business than the ones charging £400.
Mr Savage: Minister, I missed the figures that you gave for the successful bids for Northern Ireland. At £142 per sow, how many applicants were successful? Did you say 298?
Ms Rodgers: It was 87 - 8% of the total. However, we had many more applicants, as you will have noticed. They had very few applicants in Wales and about 57 in Scotland. We had almost the same number of applicants as England.
Mr Gallagher: Mr Savage, the £142 was the 60% payment on a maximum bid - there was a range of bids.
Mr Armstrong: Northern Ireland pig farmers lost out because their bids were too high. The reason for that is that Northern Ireland pig farmers own all of their housing and everything that they have that is connected with pigs, and they were stall and tether free. Do you think that Northern Ireland pig farmers should have been able to get more money?
Ms Rodgers: In a competitive tendering situation, it is not possible to have fish and flesh made of the different people who are tendering. Northern Ireland pig farmers have higher costs because they do not have pigs out on open land. However, our officials had many meetings with the pig farmers and tried to emphasise that if the bid is relative to need and actual cost, it will probably be high and not be competitive. That is the unfortunate reality.
Mr Armstrong: So, Northern Ireland pig farmers should have been treated different from the rest of the United Kingdom.
Ms Rodgers: No, I am not saying that. Northern Ireland pig farmers could not have been different in tendering. In a tendering process some people cannot be treated differently to others. The lowest tenders must be taken. That is why the Department explained to the pig farmers that, if they wanted to go out of the industry, they should have pitched their bids lower than what they would consider a fair price, as done by the valuer, otherwise they might end up getting nothing. That was the unfortunate position and the nature of the scheme.
Mr Gallagher: I want to elaborate on that. I attended all of the meetings, and the phrase " half a loaf is better than no bread" was my dictum to the pig farmers to try to help them realise that the competition element must be considered in the process. There was much discussion about that at the meetings, as the Minister referred to earlier, and there was, in my analysis, some reluctance to acknowledge that.
The Chairperson: Of course, the loaf was not big enough to start off with.
Mr Douglas: There is a lot of concern that only 17% of Northern Ireland producers have been accepted compared to 38% for Scotland. Did the size of the pig herd have anything to do with it, or was it possible that they were trying to take out some of the bigger herds?
Ms Rodgers: Are you referring to the outgoers?
Mr Douglas: Yes.
Ms Rodgers: I cannot answer that.
Mr Gallagher: There was certainly no intention for that to happen. It was a completely open tendering system, and there was no discrimination for or against herds.
Mr Douglas: Was it sow places only?
Mr Gallagher: Yes.
Mr Savage: I welcome the loans because they will help the restructuring and alleviate a lot of problems.
Ms Rodgers: Disappointingly, so far there has only been a 10% uptake; it needs to be encouraged.
395.The Chairperson: Thank you very much, Minister.