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 45. 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.

* Mr Dallat replaced Mr Denis Haughey on the latter's appointment as a Junior Minister.

"Farmers are greatly concerned at the huge mark up between farmgate and retail prices for many commodities. More transparency is needed in the agri-food chain to ensure fair pricing structures are in place"

Ulster Farmers' Union Memorandum of 7 February 2000

"A large proportion of the costs which arise between the farm gate and the retail shop include the costs of sale and transport, processing, packing, distribution and retailing costs. Retailing costs include the cost of promotion, staff, depot and the cold chain. Processor costs have risen significantly due to additional food safety and hygiene requirements. These costs have been passed on to the retailer."

Memorandum submitted by Sainsbury's on 9 February 2000

"We know and would seek acknowledgement of the very genuine and substantial costs that accumulate throughout the chain to determine the final retail price. This is an issue about costs, not profits."

Mr Cliff Kells, Northern Ireland Commercial Category Manager, Tesco, 11 February 2000

"We need to understand the position of the middleman...". "The main reason that the Northern Ireland housewife is paying more for potatoes is that the market is smaller and the costs of preparation and packing for the middle-men.are considerably higher than for their equivalent on the mainland."

Mr Kevin Hawkins, Director of Communications, Safeway, 11 February 2000

Executive Summary

Recommendations

1. Introduction

2. Issues considered by the Committee

3. Response by Retailers

4. Response by Supply/Marketing Groups

5. Consideration of Evidence

6. Conclusions

EXECUTIVE SUMMARY

PURPOSE

1. Both before and after its decision to embark upon an Inquiry into Debt in the Agriculture and Fisheries Sectors, the Northern Ireland Assembly Committee for Agriculture and Rural Development received representations about retailers' policies in relation to Northern Ireland agri-food products. The Committee decided to undertake an analysis of retailers' actions, attitudes and involvement with the local agricultural industry as part of its Inquiry.

2. At its first meeting following suspension of the Assembly the Committee agreed to review its Inquiry and to concentrate on three main issues in the agriculture industry, issuing separate reports on each. Both original and revised Terms of Reference for the Inquiry can be found at Sections 1.1 and 1.2 of this Report.

THE MAIN ISSUES CONSIDERED

3 A number of representations were made to the Committee about the role of the retailers. These included:

concerns about the reasons for the disparity between prices paid at the farm gate and those charged to consumers;
prices paid to producers frequently failing to cover production costs;
an alleged lack of commitment from retailers to local suppliers and producers;
a failure by the supermarket chains to market Northern Ireland products to their fullest potential;
weaknesses in labelling policies;
retailers passing the costs of promotional activity to the producer; and
concerns about the market power of, and standards required by, major supermarkets and unfairness in the operation of quality assurance schemes.

THE COMMITTEE'S APPROACH

4. The Committee decided to examine the procurement and sales of potatoes as a specific example to help in its assessment of retailers' influences and actions. Written submissions on this and general procurement issues were sought from seven of the main retailers operating in Northern Ireland and statistics were obtained from the Assembly's Research Service. An evidence session was held on Friday 11 February 2000 during which representatives from each of the seven companies made a short statement and were then questioned by members.

5. Following restoration of the Assembly the Committee agreed to take evidence from five organisations which had submitted memoranda to the Committee. All of these organisations are involved in the marketing of agricultural produce or in its supply to retailers. A sixth organisation, Malton Bacon Factory Ltd., was also asked to give evidence in view of the specific difficulties faced by pig farmers. These evidence sessions took place on Friday 9 June. The Northern Ireland Grain Trade Association was unable to attend but submitted a second memorandum to the Committee.

6. Transcripts of the evidence sessions appear as Minutes of Evidence in Volume 2 of this report. Memoranda submitted, together with statistics and other relevant material, can be found as Appendices to the Minutes of Evidence, and as "Other Relevant Papers", also in Volume 2.

MAIN FINDINGS

7. Operating Costs of Suppliers and Retailers

7.1 The Committee notes that the operating costs of both processors and retailers add significantly to the differential between the farm gate price and the consumer's shopping basket. Indeed, many of these costs add value to the Northern Ireland economy through processing, retail and transport-related jobs. In addition, the Committee finds that the Northern Ireland supplier is dealing with lower volumes and therefore higher overheads than his counterpart in Great Britain.

7.2 The Committee concludes that retailers' net profits are not excessive at the 5-6% level quoted by the companies that gave evidence. Similarly, the estimated suppliers' profit (5-8%) is not unduly large. However, the primary producer is not sharing in this profitability and the Committee concludes that there must be profit for all partners if the industry is to be sustained. An absence of transparency about the scale of retailers' profits and of costs borne by suppliers needs to be addressed.

7.3 The Committee notes the acknowledgement by retailers that, owing to local market conditions, they have to pay higher prices to suppliers in Northern Ireland. This being so, the Committee believes that a re-assessment is needed regarding the prices paid by suppliers to producers.

7.4 The Committee agrees with retailers' views that fragmentation of production weakens the producers' negotiating position with suppliers. The Committee feels that strong producer groups would be in a better position to influence fair and realistic pricing in relation to production costs.

8. Sourcing Local Products

8.1 The Committee welcomes the commitment expressed by the retailers to sourcing local products, provided that their good intentions are translated into positive action and measurable outcomes. The Committee acknowledges the large sums of money entering and circulating within the local economy as a result. However, much more could be done in terms of local sourcing, for example in respect of frozen foods. The Committee believes that it would be in the public interest that statistics on companies' turnover and purchases of Northern Ireland agri-food products (for sale both in Northern Ireland and further afield and broken down by sector) should be published on an annual basis. Future plans for increasing local sourcing of specific products should be published alongside these. This would enable the local consumer, producer and supplier to make judgements on whether or not these commitments are being met.

9. Co-operation Between Retailers and Producers

9.1 The Committee notes that most retailers are proactive in their dealings with current suppliers and that a number of the companies operate schemes designed to seek out new suppliers and products. The Committee believes that this approach, which appears to encompass education, encouragement and advice, should be facilitated on an industry-wide basis between retailers, suppliers and primary producers. The Committee notes and concurs with a suggestion by one company that a 'resource' or 'authority' should be established to advise producers on how to satisfy current market demands in terms of production, packing and distribution, etc.

10. Effects of Imported Produce

10.1 Concerns have been expressed about the importation of fresh produce and other products, particularly where this is believed to be of inferior quality and standard to that available in Northern Ireland. This was a specific criticism from potato growers and the Committee notes the concerns of producers that importation of potatoes continues despite an evident over-supply. The suppliers argue that it would not make commercial sense to import potatoes when produce of the required quality is available locally. The clear inference is that potatoes are imported only when local produce of sufficient quality cannot be obtained or where the local growing season does not provide the required potato type. The Committee concludes that the assertion that imports are depressing prices has not necessarily been sustained. There is an over-supply of lower grade potatoes and growers must avoid this occurring in the future if they are to receive a price for their product which will be profitable. Growers must work with retailers and suppliers to identify alternative varieties and to extend the season for locally-produced potatoes. This will require investment in the form of adequate storage facilities and education in expanding into new varieties for which there is demand but which may be difficult to grow in Northern Ireland. The Committee also urges the Department to ensure that its research is translated quickly into commercial advantage to the potato grower.

10.2 Competition in the marketplace dictates that retailers will purchase a lower cost product from outside the UK if the quality is the same as, or better than, that produced locally. It would be improper (if not illegal) for retailers to charge a higher price for an imported product simply to protect a domestic one. However, the Committee is aware of examples where imports continue despite local availability. For example, yoghurts, cottage cheeses and dairy spreads are largely sourced in Great Britain in spite of the fact that local products could easily substitute for these.

10.3 The Committee is concerned that retailers import lower quality products from outside Northern Ireland and that these do not reach the standards required of locally-produced goods. The Committee seeks a cessation of this practice or better information to enable consumers to make comparisons on factors other than price.

10.4 The Committee seeks an urgent review by retailers of the availability of locally-produced products. Northern Ireland products compare very favourably with those from elsewhere and the Committee concludes that there is also scope for improved marketing of local products by the various marketing boards and authorities.

10.5 It was suggested to the Committee that retailers' contact with existing marketing boards should be formalised and that new boards should be developed for other sectors. While the Committee does not wish to see an over-proliferation of bodies it does consider that a co-ordination of effort between producers, suppliers, those charged with marketing and retailers would have far-reaching benefits for the Northern Ireland industry.

CONCLUSIONS

11. It is clear to the Committee that farm debt difficulties arise from many different circumstances, some of which, such as the BSE crisis and currency values, are outside the control of producers, suppliers and retailers. However, two of the factors which can lead to debt problems are:

a perceived difficulty of the primary producer to sell his product; and
if he can sell it, the price he receives is often insufficient to cover his production costs.

12. There are, in turn, a number of inter-related elements which contribute to these factors. For example:

insufficient research into market conditions leading to over-production and/or failure to fully exploit the market's potential;
a failure to secure, in real marketing terms, the maximum benefits of the exceptionally high production standards under which Northern Ireland producers operate;
an absence of a comprehensive resource to assist farmers identify, produce, package and distribute products to suit both their circumstances and those of the market;
the lack of co-ordinated advice to farmers and suppliers about marketing strategies;
insufficient co-ordination among the large competing retailers and other stakeholders to ensure that local producers are both educated and assisted to compete in the global market;
competition among retailers driving down prices paid to suppliers, with these reductions being fully passed down to primary producers;
the negotiating weakness, in relation to price, experienced by producers, particularly those who act as individuals; and
a failure by some primary producers to plan for and reach the quality standards required by the modern consumer and a lack of co-ordinated training and advice to help producers meet the ever-increasing administrative responsibilities associated with these quality standards.

13. These factors are not helped by the current climate of suspicion and allegation, with primary producers concerned that they are unequal partners in an otherwise profitable business.

14. Action by the Farmers

14.1 The Committee acknowledges the responsibilities faced by primary producers. In order to achieve profitability farmers must ensure that they can meet the required quality standards and that access exists to either domestic or export markets.

14.2 The Committee recognises that a farmer's family may have specialised in a particular commodity or farmed in a particular way for generations. However, farmers who do not take account of the changing demands of the market cannot expect to survive.

15. Action by the Retailers and Suppliers

15.1 As purchasers of extremely high volumes of product, retailers have the potential to seriously damage parts of the industry. They must aim to ensure that profitability extends throughout the entire food chain from producer to retailer.

15.2 The Committee is delighted to receive the offers of assistance made by retailers to participate in new bodies or schemes and to offer advice using their knowledge of the market. It is imperative that these are acted upon with the utmost urgency. There is an onus upon retailers to follow through on their commitments and on suppliers to recognise their vested interest in the maintenance of a profitable supply base. Their ultimate success depends upon the capabilities of the producers who supply them.

15.3 Farmers are entitled to expect to make a reasonable living when they meet the demands of the market. There is a huge turnover in the business of retailing and profits are undeniably being made. It is in the interests of all involved in the food chain to ensure that everyone can make a profit and that there is co-operation and a clearer understanding at all levels.

16. Action by the Department of Agriculture and Rural Development (DARD)

16.1 The Committee believes that it is appropriate for the Department of Agriculture and Rural Development to maximise the potential for co-operation among producers, suppliers and retailers. There is potential for the introduction of a new resource to provide educational advice and assistance to producers in terms of researching the market in order to match products and to improve presentation. The Committee feels strongly that more transparency is needed in the areas of costs, profits, local sourcing and promotions. This would lead to a better understanding and greater trust between producers, suppliers and retailers, while allowing the public to make a judgement on companies' stated commitments to the local economy.

RECOMMENDATIONS

17. The Committee believes that implementation of the recommendations set out in the following section will sustain and improve the benefits to primary producers, help ensure a return to profitability and thus reduce the burden of debt faced by many farmers.

RECOMMENDATIONS

BETTER ORGANISATION, CO-ORDINATION AND ADVICE

1. The Committee recommends that the Department should create a scheme incorporating incentives and initiatives to encourage farmers to form new or develop existing producer groups, in order to deal effectively with suppliers and retailers. These groups should work in partnership with, and receive direct assistance and advice from, supplier and retail personnel in terms of training, marketing advice and consumer research. Evidence suggests that the retail sector is willing to participate in support of producers. The Department should consider the use of Treasury matching funds from 'Modulation' in support of this activity.

2. The Committee further recommends that DARD take steps to ensure that farm diversification and other rural development opportunities are accessible to producer groups and co-operatives and that applications are actively encouraged from these groups.

3. The Committee recommends that the Department take measures to capitalise on the retail industry's willingness to participate in developing new partnerships. The Department should work in partnership with retailers, suppliers and producers in the various sectors to develop a resource in order to advise primary producers on best practice in market research and in linking production to current and developing market demands. Every effort should be made to encourage the participation of producers who are not yet able to take up the opportunities arising from retailers' purchasing power and policies.

4. The Committee recommends that the Department should re-assess the current position regarding export marketing and trade development effort and develop a workable structure whereby the expertise available within the major retail companies can be utilised to practical effect, leading to an increase in the export of goods produced in Northern Ireland. It is also recommended that retailers and existing marketing authorities play the fullest parts in such a structure. With regard to the costs of such action, the Committee notes that the Department was able to offer significant funding to the Livestock and Meat Commission for its 'red meat marketing strategy'. Treasury match funding from modulation could be considered as a source of funding.

5. The Committee recommends that retailers ensure that their suppliers (and, importantly, producers who provide them with raw materials) are warned of the risks and penalties incurred when the product does not reach the required standard. It further recommends that farmers seek professional advice before undertaking major investment in order to enable them to supply major supermarkets and that they explore, at the outset, alternative markets for products which do not fully meet the standards of their main customer. Ideally, no major investment should be made without adequate research and a clear linkage with, and assurances from, suppliers and retailers.

6. The Committee recommends that farmers give careful consideration to the potential benefits of participating in quality assurance schemes. The Committee further recommends that scheme organisers should ensure better co-ordination of these schemes, streamline their administration and reduce the costs to farmers. In addition, retailers (and their suppliers) should be prepared to pay 'quality assured' producers a premium for their products.

SOURCING AND IMPORTATION

7. The Committee recommends that retailers urgently review the availability and quality of products which could be sourced with ease and facility in Northern Ireland, but which are currently imported, with a view to encouraging and developing local supplies. This should include a review of procurement for the organic, pig meat, pig meat product and frozen food markets. The Committee believes that the Department must also challenge the relevant bodies who are charged with marketing Northern Ireland products to review and improve their performance in securing business from major retailers.

8. The Committee recommends that, where retailers demand high product standards from local producers, they refrain from importing lower quality produce, or that if they do so, retailers provide consumers with clear information in order to enable them to make informed comparisons, judgements and choices.

9. The Committee recommends that, where Northern Ireland producers work to higher standards than their competitors, these standards should be used to bring forward innovative and creative marketing campaigns. The Department should make sufficient funds available to appropriate marketing bodies in order to facilitate this process, in co-operation with retailers and within the structure recommended above (Recommendation 4).

TRANSPARENCY AND COMMUNICATION

10. The Committee recommends that suppliers should act in a co-ordinated way to assess the prices which they pay to local producers. This would demonstrate whether or not an adequate level of profitability exists which will sustain the local agricultural industry. Suppliers would then be in a position to adjust their own margins and to renegotiate the prices they themselves receive. In order to maximise transparency, the Department should take urgent steps to facilitate such a process and ensure that producers are invited to participate fully in these negotiations.

11. The Committee recommends that retailers and their suppliers take steps to introduce greater transparency in the area of costs and profits. This should aid the overall understanding of pricing within the chain and, if managed correctly, build trust between producers and retailers' suppliers. Costs arising from such communication should be borne by retailers and suppliers and should not be passed back to the producer.

12. The Committee recommends that retailers provide information about turnover, purchases and sales of local products (at home and elsewhere) on an annual basis for publication by DARD. The Committee would ultimately wish to see a voluntary commitment from the processors and retail industry to support a defined, measurable percentage of local sourcing which shows significant improvements and meets agreed annual targets. Annual monitoring by DARD would allow the general public to ensure this commitment was being met.

13. The Committee recommends that retailers provide their suppliers with detailed information on the costs of specific promotional activities and instruct suppliers to pass this information direct to producers, thus giving the primary producer the fullest picture.

GENERAL RECOMMENDATIONS

14. The Committee recommends that the Department set aside sufficient resources within its forthcoming processing and marketing scheme (or as a unique scheme using Treasury match funding of Modulation monies) to enable expansion of existing potato storage facilities. It further recommends that retailers, through their suppliers and in partnership with the Department, offer more assistance and advice to local potato growers in growing the varieties and quality demanded by the market. The Department should also place greater emphasis on using the expertise of its scientists in order to identify new varieties and strains together with improved growing techniques to help the producers meet market demands. The Department should also ensure that new developments arising from this research are urgently translated into commercial advantage for the farmer.

15. The Committee believes that there should be statutory provision made to require clear and accurate labelling of food at the point of sale, to include information on the country of origin. The Committee urges the Department of Health and Public Safety to work towards this end. Pending such provision the Committee recommends that all retailers adopt a voluntary Code of Practice similar to that operated by CWS. This would ensure that consumers are better informed.

16. The Committee requests that the Department of the Environment urgently considers what additional steps can be taken to more stringently evaluate planning applications for new retail developments, to take greater account of displacement of small retail businesses and allow room for an independent retail sector to remain and thrive.

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1. INTRODUCTION

1.1 On 13 December 1999 the Northern Ireland Assembly Committee for Agriculture and Rural Development announced that it would undertake a major inquiry into debt within the agriculture and fisheries sectors. The Terms of Reference (ToR) for the inquiry were:

(a) To ascertain the level and extent of debt in the Agriculture and Fisheries sectors including an indication of any geographic differentials within Northern Ireland and the comparative positions in England, Scotland and Wales;

(b) To establish factors (within each sector) which have contributed to the current debt situation, including the Department's actions at the onset of the BSE and Pigs crises;

(c) To examine the actions taken and proposed by the Department which would have the effect of alleviating debt, including both national and EU policy considerations;

(d) To ascertain the extent to which aid available from the European Union, which may offer direct financial benefit to those involved in each sector, has not been taken up by the UK Government and to establish reasons for this;

(e) To assess the additional benefit to be gained by each sector if all available aid was utilised;

(f) To examine alternative proposals for addressing the problem of debt; and

(g) To report to the Assembly making recommendations to the Department and/or others on actions which would make a positive contribution to alleviating debt in the agriculture and fisheries sectors in Northern Ireland.

1.2 At its first meeting following suspension of the Assembly the Committee agreed to review its Inquiry and to concentrate on three major issues in the Agriculture industry, issuing separate reports on each. Revised Terms of Reference were agreed as follows:

To investigate factors that may have contributed to farm debt or to difficulties in servicing this debt; and

To examine proposals for addressing farm debt, publish reports and make recommendations in the following areas:

the effects on primary producers of the practices and policies of major retailers and their suppliers;
the particular circumstances faced by the pig industry; and
the particular circumstances faced by the beef industry.

1.3 The Committee believes that a separate analysis of retailers' actions, attitudes and involvement in the industry is appropriate. Representations about retailers' policies had been made (direct to Members, by written submission and through informal oral evidence) prior to the Committee's formal decision to embark on the Inquiry. The Committee felt it important to consider these 'allegations' and issues raised by farmers' representative and other industry organisations. In so doing the Committee considered written and oral evidence from seven of the main retailers in Northern Ireland and statistics provided by the Assembly's Research and Information Service.

1.4 Following restoration of the Assembly the Committee agreed to take evidence from five organisations which had submitted memoranda to the Inquiry. All of these organisations are involved in the marketing of agriculture produce or in its supply to retailers. A sixth organisation, Malton Bacon Factory Ltd., was also asked to give evidence in view of the specific difficulties faced by pig farmers. These evidence sessions took place on Friday 9 June. The Northern Ireland Grain Trade Association was unable to attend but submitted a second memorandum to the Committee. Transcripts from the evidence sessions are included in Volume 2 of this Report under Minutes of Evidence and memoranda received can be found as Appendices to the Minutes of Evidence.

1.5 The Committee was also aware of an ongoing inquiry into supermarkets by the Competition Commission and considered that findings relating to Northern Ireland would have a very real relevance to the Committee's Inquiry. The Commission's "issues statement", published at the end of January 2000 and included in Volume 2 as one of the "Other Relevant Papers", was therefore taken into account.

1.6 Analysis of the submissions and evidence has identified proposals for addressing the problem of debt and the Committee has made a number of recommendations involving producers, suppliers, retailers and the Department of Agriculture and Rural Development.

1.7 The Committee wishes to thank all of those organisations and individuals who contributed to this report by giving oral evidence or submitting written material or indeed both.

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2. ISSUES CONSIDERED BY THE COMMITTEE

2. Issues considered by the Committee

2.1 The main issues brought to the attention of the Committee in relation to retailers could be summarised as follows:

a) the disparity between prices paid at the farm gate and those charged to consumers, and allegations of excessive profits for retailers and 'middlemen' at the expense of primary producers;

b) that prices paid to producers frequently fail to cover production costs causing debt for the primary producer;

c) an alleged lack of commitment to local suppliers and producers demonstrated by a failure to procure sufficient goods from within Northern Ireland and unnecessary importation of inferior quality products from Great Britain and elsewhere. In addition questions are raised over retailers' input into the local economy in comparison to their turnover in stores here, and a belief that there is an inadequate relationship between the retailer and primary producer;

d) the failure of the supermarket chains to market Northern Ireland products on the basis of their high quality and welfare standards to their full potential; that they pass the costs of promotional activity to the producer; and weaknesses in labelling policies which contribute to the absence of effective marketing; and

e) concerns among farmers about the market power of and standards required by major supermarkets and a perception of an imbalance in the operation of quality assurance schemes with the burden being unduly carried by the primary producer.

2.2 These issues were considered by the Committee against the background of general concerns expressed by farmers' representatives and others on the Department's ability to meet their needs. A recurring theme in representations to the Committee is one of frustration at the Department continually emphasising obstacles, rather than working towards solutions, and a desire to see a 'can do' approach.

2.3 The issue of procurement and sales of potatoes was included in the Inquiry as a specific example to help assess any disparity between farm-gate and retail prices and to examine retailers' influence on the market. Specific issues surrounding the potato sector mirrored many of those listed above in terms of price paid to producers versus production costs, retailers' mark up, unfeasibly high standards, misleading labelling and price depression caused by unnecessary imports. An additional concern related to the heavy investment farmers need to make to meet retailers' standards and the consequences to the farmer if his product is then rejected.

2.4 In subsequent sections of this report the terms "producers", "suppliers" and "retailers" are frequently used. It is intended that "producers" refers to the primary producer or farmer, that "suppliers" refers to the processors or 'middle-men' who purchase product from producers and add value before supplying supermarkets, and "retailers" refers to the main supermarket groups operating in Northern Ireland.

2.5 The term "local sourcing", as used by the Committee, means purchasing products which are actually grown or produced in Northern Ireland. The Committee does not necessarily accept that this meaning applies to the use of this term by the retail companies.

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3. RESPONSE BY RETAILERS

3.1 Summaries of the main points made by each company are provided below.

3.2 Potatoes

3.2.1 The Co-operative Wholesale Society (CWS)claimed that:

All potatoes sold in Northern Ireland are bought locally except where there are supply problems, eg new potatoes out of season.
Clear company policy on labelling with country of origin and a Code of Practice to support this.
Retail prices have fallen in line with cost prices but prices have fallen faster in Great Britain. Farmers are getting less because yield has increased but demand has not. Prices paid in Northern Ireland are demonstrably higher than in Great Britain.

3.2.2 Dunnes claimed that:

All potatoes sold in Northern Ireland stores are purchased from local suppliers. 90% of potatoes are sourced in Northern Ireland.

3.2.3 Marks & Spencer (M & S)claimed that:

Suppliers are challenged to procure as much of the M&S potato range as possible locally.
Locally sourced potatoes are sold in Northern Ireland, Republic of Ireland and Europe. This year some Irish varieties are being exported to Europe and this may have great potential.
Prices must reflect supply costs but may be constrained by what customers are willing to pay. Deflation is not as great in the premium potato market - prices have come down but margins retained. M&S pays more for Northern Ireland sourced potatoes than in Great Britain. The M&S supplier confirmed that the prices paid to producers are not less than production costs for M&S premium lines.
Labelling is clearly by origin, not where they are packed.
Although the costs of raw material and final product have come down, it should be noted that costs of the retailing operation have not.

3.2.4 Musgrave SuperValu-Centra (MSVC)claimed that:

The company uses only local suppliers. Two of these suppliers use 100% local produce for MSVC own label.
A labelling policy is in place to highlight 'Product of Northern Ireland'. Trading managers ask suppliers to prove that their produce is from Northern Ireland.

3.2.5 Safewayclaimed that:

In Northern Ireland, 95% of potatoes are supplied by a single local supplier. 95% of Safeway potatoes sold in Northern Ireland are sourced here with the other 5% from Scotland.
The price which the company charges is driven by the price paid to the supplier. Marketing conditions in late 1999 were difficult due to a bumper crop after a poor crop in 1998 gave high prices, eg the retail price for 2.5 kg whites came down by 50% since the Spring of 1999.
There were reasons for the difference in retail price with Scotland. Northern Ireland suppliers suffer from trading in lower volumes and higher overheads. Suppliers are on an average net profit to sales of 5% which is the same as the company's own net margin. Safeway could reduce its price to consumers by importing all potatoes from Scotland but do not in order to support the local agricultural economy.
The company's labelling policy is that potatoes always have country of origin on the label.

3.2.6 Sainsbury's claimed that:

Potatoes at a market value of £1m per annum are purchased from a single local supplier. 90% of potatoes sold in Northern Ireland are of local origin.

3.2.7 Tesco claimed that:

The last decade has seen changes to consumer expectations, purchasing habits and eating patterns.
Company policy is to source fresh potatoes from Northern Ireland. The company has worked through their sole suppliers with local growers to enable them to meet the necessary specification, for example: washed potatoes (two thirds of overall fresh potato sales whereas 5 years ago hardly any washed potatoes were sold here). The company stress the need not to lose sight of the consumer.
The following areas are potential topics for discussion:
the development of comprehensive market data and local consumer research.
the need for adequate storage to extend the season for locally-produced potatoes.
further development of new products and potato varieties.
the development of a local and international marketing strategy for Northern Ireland potatoes
increased production of organic potatoes.

3.3 General Procurement Issues

3.3.1 CWS claimed that:

Procurement policies are determined in Manchester but are devised to source as much as possible of what they sell in Northern Ireland from local suppliers. Approximately a quarter of what they sell is bought locally - worth £18m (fresh produce) per year with further £18m shipped over to Great Britain stores. An example was given of Hughes Mushrooms who provide 100% of Northern Ireland supply and a large proportion of that supplied to Great Britain.
Supermarket profits have also dropped.

3.3.2 Dunnes claimed that:

The company has always had a policy of supporting locally sourced products. There is also an emphasis placed on exporting to the Republic of Ireland.
Indigenous producers are finding it difficult to meet economies of scale demanded by the recently arrived retailers.
The company continues to recognise the high calibre and quality of Northern Ireland suppliers:
Dairy produce - £5.2m (100% of milk and eggs)
Pork - £5.0m
Poultry - £3.2m plus £12.6m exported to the Republic of Ireland
Vegetables and potatoes - In excess of £18m in 1999.
Retail prices have come down.
The company will stand over "Product of Northern Ireland" as meaning grown or produced in Northern Ireland.

3.3.3 Marks and Spencer claimed that:

The company employs 1600 people and have invested £65m over last 5 years.
The company is proud of its long-term relationship with Northern Ireland and has a well established record of giving support to local producers through local sourcing.
The focus is on high quality and highly innovative products - M&S policy aims to develop collaborative supplier relationships. They have had relationships with individual suppliers for over 25 years.
Three quarters of suppliers also supply to M&S Great Britain and European outlets. There is a real opportunity for further exports. Examples given were:
Avondale foods - 50% of their business is now sold in the rest of Europe.
Dromona - supply 60% of all butter sold by M&S in Europe.
All milk sold in Northern Ireland is produced in Northern Ireland.
All free-range turkeys across their food business were supplied by O'Kane's Poultry.
Ten percent of all Northern Ireland steer carcasses are supplied into the M&S food business.
The company has developed a select farm scheme in which 200 farmers participate by producing fine quality produce.
People fail to take account of the increased costs in the middle (between farmgate and shop) which have arisen as a result of BSE and the legislative burden. (eg, bones which were worth £65 per tonne to the processsor and now cost £85 per tonne to dispose of.) The company's assessment is that 50% of cattle do not meet retailer specifications in relation to carcass grade and carcass fat.

3.3.4 Musgrave SuperValu-Centra claimed that:

The company operates differently to the major retail chains in that it provides distribution and retail support to independent retailers. Combined retail turnover is £138m. This equates to 8% of the Northern Ireland grocery market. The company employs 119 office and warehouse personnel with 2000 employed in stores.
It is company policy to source locally - 60% of all MSVC purchases are from over 200 local suppliers. 70% of fresh foods volume is produced locally. Fresh Pork, beef, lamb, deli sausages, deli bacon, milk and eggs are all 100% sourced in Northern Ireland. Northern Ireland produce to the value of £11.6m is supplied by the company to the Republic of Ireland market.
The independents' share of the market has grown by 50% in the Republic of Ireland, preventing widespread proliferation of large supermarkets with their aggressive purchasing tactics. Independent retailers' profit margins are around 2-3%.
The farming community needs to ensure that it produces the required quantities for the demand that exists. Under or over supply benefits the middleman.
Musgrave SuperValu Centra made the following proposals:
there should be a one-day 'think-tank' to explore issues and consider/recommend solutions. This would involve key individuals from the major organisations involved in producing, marketing and retailing Northern Ireland produce. The company would be pleased to be involved;
the creation of a forum for formalised contact between the major retailers and the existing marketing boards in order to address sectoral issues and promote produce at trade and consumer level through dedicated marketing campaigns throughout the retail industry;
the establishment of marketing boards for other sectors to include appropriate input from the retailers;
the establishment of an authority (with appropriate research resources) to advise producers on how to satisfy current/future market demands in terms of production, packing, distribution etc. (The company offered its own personnel to help resource such a body); and
the development of producer groups (through co-operation between retailers and farmers' representatives) which would be capable of supplying modern retail and consumer demands.

3.3.5 Safeway claimed that:

The company has a 13% share of the grocery market. It markets 1400 branded and own branded products sourced in Northern Ireland with a sales value of £200m last year.
Sales are up 15% this year but profits are 40% down. The average net profit margin to sales is between 5 and 6% and the company suggested that this is the case in general for the retail industry.
There is 100% local sourcing of meat, vegetables, salads, bread, milk and eggs. The company does not import meat products from any country whose standards are below those in the UK.
Supply has not adjusted to meet demand and some staple items of primary produce are being eaten less (eg, potatoes versus pasta).
Retailers cannot deliver higher guaranteed volumes or higher and assured prices to suppliers/producers. The competition authorities' rules would not allow this even if there was the will and capability amongst retailers to do it.
Suppliers' costs of preparation and packing are considerably higher than in Great Britain owing to the absence of economies of scale etc. This should encourage farmers to form collectives and so gain more leverage with suppliers. Working with suppliers and developing a co-operative climate would provide a more productive strategy for the future.
Most people are unaware of how small a proportion of the total carcass of an animal is actually marketed through supermarkets. Less than a third (sometimes as low as a quarter) of the carcass purchased by the supplier comes to the retailer as prime meat for which there is a demand.

3.3.6 Sainsbury's claimed that:

The company's stores provide 2200 full- and part-time jobs. They have 100 suppliers in Northern Ireland with business currently valued at £120m per annum. They are committed to increase this to between £150 and £200m per annum.
There are 20,000 product lines in store of which about 1,000 are sourced in Northern Ireland. The aim is to source 100% of perishable goods in the Province.
The costs of special promotions are not all passed back to producers - for example 70% may be absorbed by the retailer with 30% by the supplier who then negotiates with producers.
The company operates a supplier development programme - if Northern Ireland suppliers can provide a product as good as one currently sourced in Great Britain then the company will develop that supplier. 27 local food companies were involved in a process to better understand how to work with Sainsbury to develop their business. This programme is now complete and these companies' business grew by £12m. A second programme is now underway.
The company's producers and suppliers are encouraged to explore the wider opportunities - suppliers can sell in Great Britain. Farm Fed Chickens' new contract is worth £5m p.a. to supply a premium range of corn fed chicken to the company's top 70 stores. Hughes Mushrooms is expected to triple its business with Sainsbury's over the next 18 months to £4.7m pa.
The company's policy is to label meat, fruit and vegetables as home produced. Produce from Northern Ireland is labelled 'Product of Northern Ireland'. They will move towards labelling on remaining fresh meat products by mid 2000.
Sainsbury's view is that Northern Ireland is part of a single national market. They operate a national pricing policy with "a few tweaks" for local conditions eg potato, milk and bakery industries.
There is a public perception that retailers are making large profits at the expense of the farmer. Survey results showed that retailers made 6.5p in the pound actual profit whereas it is commonly thought that this is closer to 36p. Manufacturers make 8.5p per pound whereas this is commonly perceived to be closer to three times this amount. (Statistics sourced from the Institute of Grocery Distribution.)
Recognition must be given to the costs that arise between the farm gate and retail shop, i.e. sale and transport, processing, packing, distribution, retailing costs (which include promotion, staff, depot and the cold chain).
Processor costs have also risen owing to additional food safety and hygiene requirements. There is over-capacity in the processing sector and companies will be required to consider co-operation or mergers to remain in business.
Cheap imports: it would be improper to charge customers more for an imported product simply to protect a locally-produced one.
The company is fully engaged in ensuring there is a successful future for farming in Northern Ireland - all parts of the food-chain need to work together. Supermarkets are part of the solution to the present crisis and not the cause of it.

3.3.7 Tesco claimed that:

The company would offer its co-operation to help find practical and sustainable solutions to the problems currently experienced by farmers. It was willing to share its consumer and other relevant research and technical expertise and would be pleased to participate in discussions pertaining to the development of customer-orientated agricultural strategies.
They would be willing to participate in the development of a multi-disciplinary task force including DARD, processors, retailers and customers. This group would develop strategies for each sector.
The company felt that Northern Ireland's high standards could be better marketed to persuade the consumer that we have superior quality products. The company gave, as an example, their new 'champ' product which added value, drew on existing areas of expertise and food heritage while meeting customers' requirements.
With the exception of a few speciality products, local sourcing is used for: all fresh beef, lamb,pork, fresh and seasonal frozen poultry, fish, eggs, milk (including goat's milk), fresh produce in season/available and fresh bread. The total value of produce purchased locally is £220m per annum with suppliers on target to increase this to more than £290m per annum by 2002. This accounts for 1500 product lines sourced in Northern Ireland. The company also stressed that it has 7000 local employees.
Tesco technologists and the local management team have forged links with producers, agricultural colleges and universities aimed at enhanced product development. Tesco is also part of a trade development group that includes DARD, LEDU, IDB,CBI and the Northern Ireland Food and Drink Association.
Many Northern Ireland agricultural sectors are producing more than is consumed locally. They therefore need to sell the surplus beyond the local market.

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4. RESPONSE BY SUPPLY/MARKETING GROUPS

4. Response by Supply/Marketing Groups

4.1 A full transcript of evidence taken from these bodies can be found in the Minutes of Evidence section in Volume 2 of this report. Associated written submissions are included as Appendices to those Minutes of Evidence. Summaries of the main points made by each organisation are provided below.

4.2 General Procurement and Marketing Issues

4.2.1 Livestock and Meat Commission (LMC) claimed that:

There has been a dramatic fall in the farm gate value (pounds per animal) from 1995 to a low in 1998 and some recovery in the current year. In some sectors current costs are not being covered by market prices.
The farming community needs to appreciate more fully that the value obtained by processors and the value obtained by retailers from their customers has followed the same pattern. There are significantly increased costs through the processing and retail chains as a result of BSE-related controls. However, there is evidence that Northern Ireland processors have been profitable where farmers have not, and this creates resentment.
The farmer is the weakest part of the chain. The LMC would like to achieve maximum transparency on trading between farmers and processors.
As part of the Agenda 2000 agreement there will be a reduction in the market price for beef, compensated by an increase in subsidies to producers. This may result in farmers producing product to collect subsidy rather than to meet a market need.
The LMC has a strategy that focuses on premium products for premium markets. Northern Ireland is unlikely to sustain a beef or sheep meat industry at commodity prices and every step must be taken to differentiate our industry through animal traceability, welfare, husbandry and environmental advantages.
Within the beef and sheep industries, farmers must achieve the basic quality requirement of being farm assured to have a chance of getting out of the commodity end of the business.
It is clear that beef and sheep meat producers must be helped to achieve improved genetics on their farms, to improve productivity and efficiency and to maximise subsidy support. They must also be trained to meet the ever-growing burden of paperwork which is an essential requirement of food production.
Government has an important role in research and development and should support quality production, through rural development funds.

4.2.2 Northern Ireland Meat Exporters Association (NIMEA) claimed that:

Their aim is to ensure rural prospects are sustained by a direct supply chain and a market-focused route. Total Quality Assurance throughout the supply chain will be a factor in ensuring a place on the top shelves of Europe's supermarkets.
Only 37% to 43% of cattle in Northern Ireland currently gain export status due partly to documentation and administrative problems on farms. Farmers must accept that more accurate paperwork is necessary for future development.
Approximately 35% to 45% of the animals which are being produced are not wanted by the retailers - largely due to farmers ignoring market demands.
Future strategies must take account of the demands of the consumer and future production should be linked to quality market criteria so that the highest prices can be achieved. Traceability, Farm Quality Assurance, Livestock Chain Management, Farm Auditing and the Red Meat Strategy are all part of future food production systems.
Farm Quality Assurance is a pre-requisite to supply any premium market. Those who have worked with the scheme are producing some of the best quality products in the world. It is, therefore, imperative that this scheme is put into all farms rather than the current 50% of farms. Those within the scheme are forced to accept a lower price because others are pulling the sector down.
Government should introduce a forceful rural education programme urging everyone to meet the challenges of the future in a climate of change.
Mistrust between farmers and meat plants has contributed to a poor uptake of schemes offered by those meat plants. NIMEA would welcome any scheme that would show greater transparency and enlighten producers as to what was actually happening in the market place. Such a scheme might also highlight the difference between sales of animals which are 'farm quality assured' and those which are not. The industry ought to acknowledge that the Livestock and Meat Commission's weekly bulletin already contains excellent information on prices.
Over 70 pieces of legislation have been introduced to the beef processing sector since 1996, all of them adding costs to the industry.
Production is currently fragmented and there is little by way of co-operative production and marketing. Major changes are needed to further reduce input costs.
Local consumers claim to support home produce but often, when it comes to value for money, that philosophy tends to be forgotten.

4.2.3 Ulster Agricultural Organisation Society Ltd. (UAOS) claimed that:

A working example of co-operative action, which they described, resulted in a reduction of farm input costs by up to 15%. This group has now branched out (with other groups in their sector) into marketing, and this has also reduced costs. In the long run it is hoped that the marketing group will have real marketing power.
They acknowledge that, because of their lack of bargaining power, producer groups do not always command the prices their quality products deserve, particularly in periods of high availability of product.
The co-operative described has built up trust with local meat plants and this has helped members respond to consumer demand in terms of quality.
Co-operatives marketing lambs to meat plants have to meet very stringent quality requirements. Bonuses are paid for high quality but there are penalties where lambs do not meet the quality standards.
UAOS also supported an Aberdeen Angus initiative in conjunction with producers and meat plants. This provides a quality product to a specialist niche market and has resulted in premium prices in return for achieving the required grade.
The co-operative provides a focus for the education and development of the farmers within it. It can also provide for sharing of skills, labour and equipment. Having worked together farmers can become involved in rural development initiatives.
Co-operative action can lead to off-farm employment opportunities such as the Fivemiletown Bio-gas project.
The history of Marketing Boards has stymied the development of voluntary co-operatives. UAOS feels that the industry beyond the farm gate needs to adopt a more positive approach to farmers being brought together to market their produce. Processors and those further down the chain must recognise that this can lead to a consistent, high quality supply.
Many Northern Ireland products go into supermarkets' own brand marketing and are not, therefore, recognised or adequately promoted as quality local produce.
The price differential between the carcass leaving the farm and the price obtained in the supermarket is widening to the detriment of the producer, and without due reward for the added value of quality assurance, traceability and so on.

4.2.4 Northern Ireland Poultry Federation claimed that:

The levels of loss sustained in the pig industry have been replicated in the poultry industry. However, those losses have been borne by the processing companies rather than by producers. Producers are contracted to processors who are also marketing the product. These contractual arrangements give security to producers, provide support from a larger organisation, secure returns relative to performance levels and reduce risks to producers. These arrangements have always been market-led and help to co-ordinate the different aspects of the industry.
The industry itself has had to control the volume and standards of the product on offer. If other sectors are to follow this model then there must be consideration of the extent to which the processing and marketing sectors are prepared to co-operate with producers.
Producers have invested as part of planned expansion with the support of a processor and their income is therefore protected. In this scenario there is less likelihood of unsustainable debt.
Imports from non-European sources do not incur costs borne by the industry here, such as the ban on the use of meat and bone meal, use of antibiotic growth promoters and legislation. Products not produced to the same standards as ours and at a lesser cost have an adverse impact on the average prices in the market place. In addition, these added costs to local processing are not being successfully passed on to the supermarkets or consumers.
Supermarkets do not limit themselves to purchasing and selling only those products which reach the standard required of Northern Ireland processors. If they did the Northern Ireland industry would be better placed to compete.
It is difficult for local companies to influence purchasing decisions of GB-based supermarkets due to the fact that procurement policy is generally perceived to be a Head Office function. One possible area for progress would be if retailers could review their current policy of selling products at a UK price despite this being a higher-cost production region. Selling at a 'Northern Ireland' price would provide benefits for suppliers and producers.
Supermarkets are now considered to be giving more support to local suppliers and this provides substantial volumes of business.

4.2.5 Northern Ireland Grain Trade Association claimed that:

The integration and partnerships within the poultry sector have addressed the issue of minimising costs.
The intensive sector in Northern Ireland faces input costs of between 5% and 10% higher than in Great Britain. The grain regime means that the livestock industry pays an inflated price for its raw material and gets no assistance on exports or protection on competing imports.
Only niche markets are suitable for home-grown produce as Northern Ireland cannot compete with commodity prices.
A measure which could make a difference would be the effective labelling of food products. Consumers should be educated regarding countries where products are sourced and the production methods used in these areas.
Evidence suggests that processors in Northern Ireland are losing money.
A facilitator with a 'can do' philosophy within DARD could play a leading role in bringing food industry players together for the common good.

4.2.6 Malton Bacon Factory Ltd. claimed that:

The problems faced by the pig industry started as a result of the over-supply of pigs. As the supply of UK pigs diminishes farmers are returning to profitability and losses are shifting to the processing industry once again. What is required is a 'cake' large enough to divide between producers and processors.
Welfare legislation in the UK banned production systems which incorporated stalls and tethers and heavy investment was required to implement this. This investment has caused difficulties as incomes went into a period of decline.
The pig meat industry was slow in taking up the opportunity of marketing the improved welfare that the United Kingdom's unique legislation forced upon it.
Having a viable pig farming supply base is essential and fundamental to the structure of the processor's business.
The company envisages working closely, and having contracts in place, with a Northern Ireland pig producers' co-operative within the next year.

4.3 Much of the evidence taken from the above organisations will also be used to inform the Committee's reports on the Pig and Beef industries. These reports are due to be published in the Assembly's next session, which begins on 4 September 2000.

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5. CONSIDERATION OF EVIDENCE

5.1 In considering the evidence before it the Committee addressed each of the main issues as outlined in Section 2 above.

5.2 Disparity Between Farm Gate and Retail Prices

5.2.1 The Committee accepts that the operating costs of both suppliers and retailers will add significantly to the price differential between the farm gate and the consumer's shopping basket. Indeed it is acknowledged that many of these costs add value to the Northern Ireland economy through processing, retail and transport-related jobs. While it is recognised that producers have had to bear considerable additional costs in relation to food safety and hygiene requirements, so also have the suppliers. Finally, the Committee accepts that the Northern Ireland suppliers are dealing with lower volumes and, therefore, higher overheads than their counterparts in Great Britain.

5.2.2 The Committee therefore accepts that it is not possible to directly compare the 68p per kg received by pig producers with the £8 per kg cost of pork fillet to the consumer. What must be borne in mind are the costs outlined above and the fact that only a proportion of the carcass reaches the point of sale. However, the figures do present a stark contrast and bear witness to the fact that both suppliers and retailers are able to cover their costs, however large, and still manage to return a useful profit. It is clear to the Committee that the primary producers are not so fortunate. They have also, at least, the perception that the price differential is widening to the detriment of the producer.

5.2.3 In the Committee's view, retailers' net profits are not excessive at the 5-6% level quoted by companies who gave evidence. Indeed the Committee has taken advice and is reliably informed that these figures are regarded as being representative of the industry norm. This is borne out by a preliminary finding of the Competition Commission that there was " . . .at most only limited evidence of excessive profitability." The Committee does note, however, that these are net profits. Without the expansion and capital expenditure programmes undertaken by companies (which, owing to the small size of the local market, will have only marginal benefit in Northern Ireland) these profit figures would be significantly higher.

5.2.4 The Committee has little evidence to hand about profits made by the suppliers, although in the potato sector the packer's average net profit to sales was estimated as 5%. When giving evidence, one retailer quoted the results of a survey carried out by the Institute of Grocery Distribution which found that 8.5p in each pound spent in food shops went to manufacturers (i.e. suppliers) in profits. This level of profit may not yet be worthy of description as excessive but it is significant. The Committee feels that it is difficult to justify a level of profit greater than the retailers' when little or no profit is being made by the primary producers. The Committee also noted evidence that, when the retail price of 2.5 kg of white potatoes fell by 50% over a 10-month period, the price to the processor fell only by 38%. This would suggest that the processor is able to protect his margins in both directions.

5.2.5 In conclusion, the Committee recognises that suppliers and retailers must be able to return profits in order to continue trading. However, it is clear that the primary producer is not sharing in this profitability and the Committee stresses that there must be profit in all aspects of the food chain for the industry to be sustained. It is, however, apparent that there is a general lack of understanding within the agricultural industry (and indeed in the community at large) about the scale of retailers' profits and of costs borne by suppliers. This communication gap should be addressed.

5.2.6 The Committee recommends that retailers and their suppliers take steps to introduce greater transparency in the area of costs and profits. This should aid the overall understanding of pricing within the chain, and, if managed correctly, build trust between producers and retailers' suppliers. Costs arising from such communication should be borne by retailers and suppliers and not passed back to the producer.

5.3 The Failure of Prices Paid to Producers to Cover Production Costs

5.3.1 Evidence presented to the Committee of prices failing to cover costs of production is largely anecdotal but it is clearly supported by the recent DARD statistics on farmers' reducing income (a fall of 79% since 1995) and those on producer prices for Northern Ireland (which show a fall of 27% between 1995 and 1998).

5.3.2 Within the example of the potato sector, evidence given by one of the main suppliers in Northern Ireland indicated that the product procured for Marks & Spencer was not below the cost of production for local growers. It was explained that Marks & Spencer's concentration on the premium end of the market allowed premium prices to be paid. There is a very clear inference from this evidence that, in the higher volume, mainstream end of the market, prices paid to the producer are in all probability at or even lower than the costs of production.

5.3.3 Arguably, potato producers must share some of the responsibility for the current situation (described by suppliers as a three to four times over-supply) having arisen. Speculative growing may be understandable where farmers see a potentially better margin in a different commodity than that in which they normally operate. However, such speculation, without addressing the market requirements in terms of quantity or quality, risks a surplus of produce which will inevitably depress the price received by the producer. The Committee does, however, recognise that many farmers in the potato industry have had to change from seed potato production to ware potatoes.

5.3.4 From evidence provided on general procurement issues the Committee notes that retailers accept that they may have to pay higher prices to suppliers in Northern Ireland due to local market conditions (although this is likely to be passed on to the consumer). The Committee believes that, within this realistic approach, the conditions exist for a re-assessment of prices paid by suppliers to producers. It must, ultimately, be in the interests of both retailers and suppliers to ensure that a local supply base is maintained and this will only be possible if profitability is returned to producers. Failure to address the non-profitability of such an important link in the food chain will inevitably destroy the local supply base.

5.3.5 The Committee recommends that suppliers should act in a co-ordinated way to assess the prices which they pay to local producers. This would demonstrate whether or not an adequate level of profitability exists which will sustain the local agricultural industry. Suppliers would then be in a position to adjust their own margins and to renegotiate the prices they themselves receive. In order to maximise transparency, the Department should take urgent steps to facilitate such a process and ensure that producers are invited to participate fully in these negotiations.

5.3.6 Two of the retailers recommended that producers work more closely with each other. The Committee agrees that the fragmentation of production weakens the producers' negotiating position with suppliers and that strong producer groups would be in a better position to influence fair and realistic pricing in terms of production costs.

5.3.7. The Committee also heard compelling evidence from an organisation which supports the development of co-operative groups in Northern Ireland. The evidence demonstrated clear benefits which are achievable when farmers work together, such as a reduction of farm input costs by up to 15%. The Committee believes that co-operatives offer one way in which producers' bargaining power can be enhanced. Although the organisation acknowledged that current groups can, on occasion, lack negotiating strength, the examples given demonstrate how trust can be built between producers and suppliers to the benefit of both parties.

5.3.8. An interesting by-product of co-operatives, in addition to the primary reason for coming together, is the opportunity for participants to work on other projects. The organisation gave examples of education and development initiatives, of members sharing skills, labour and equipment and of involvement in rural development activities. The Committee recognises that rural employment opportunities will have to be identified on- and off-farm and believes that a co-operative approach is the best way forward.

5.3.9 Accordingly, the Committee recommends that the Department should create a scheme incorporating incentives and initiatives to encourage farmers to form new or develop existing producer groups, in order to deal effectively with suppliers and retailers. These groups should work in partnership with, and receive direct assistance and advice from, supplier and retail personnel in terms of training, marketing advice and consumer research. Evidence suggests that the retail sector is willing to participate in support of producers. The Department should consider the use of Treasury matching funds from 'Modulation' in support of this activity.

5.3.10 The Committee further recommends that DARD takes steps to ensure that farm diversification and other rural development opportunities are accessible to producer groups and co-operatives and that applications are actively encouraged from these groups.

5.4 The Retailers' Alleged Failure to Procure Sufficient Goods from within Northern Ireland, Queries over Retailers' Input into the Economy, Relationships with Primary Producers and the Unnecessary Importation of Inferior Quality Products

5.4.1 Local sourcing (as defined in Section 2.5) is not simply a matter of benefit for the local supplier and producer. There are very real savings to be made for the retailer through reduced transport costs. In evidence, retailers also acknowledged the need for a profitable industry given the greater dependence on agriculture in Northern Ireland than in Great Britain, with the importance of a thriving rural economy also being greater in terms of their customers' prosperity and purchasing power.

5.4.2 The Committee noted, with interest, evidence given by retailers' representatives that it was either stated company policy to source locally or that companies have a strong commitment to source significant amounts of local products and do so in practice, with these amounts on the increase. Such policies and practices are welcomed by the Committee which acknowledges the large sums of money entering and circulating within the local economy as a result.

5.4.3 The Committee remains convinced, however, that much more could be done in terms of genuine local sourcing, for example in frozen foods, and that good intentions must be translated into positive action and measurable outcomes. In one instance a retailer gave evidence to the Committee about the company's commitment to increasing the value of its Northern Ireland sourced business from the current £120m to between £150m and £200m over the next few years. However, in evidence given to the Northern Ireland Forum for Political Dialogue in October 1997, a representative of the same company outlined commitments to increase from a then current figure of £110m to reach £160m by the year 2000. It is clear that the company has failed to deliver on earlier commitments and that a question mark must be placed against their current targets. It is, therefore, incumbent upon this and other retailers to achieve their projected targets and not simply to pay lip-service to the concept for their own public relations advantage.

5.4.4 The Committee also notes that the same company sourced £80m of local products before it opened any stores in Northern Ireland and the current value of purchases must be seen in this context. Other companies which have begun trading in Northern Ireland relatively recently also claim to have had an original supply base here. The Committee is of the opinion that there is an obligation on such retailers to increase local sourcing at least in line with the percentage increase in turnover associated with their new-build or recently-acquired stores.

5.4.5 The Committee believes that it would be in the public interest that statistics on companies' turnover and purchases of Northern Ireland agri-food products (for sale both in Northern Ireland and further afield and broken down by sector) should be published on an annual basis. Future plans for increasing local sourcing of specific products should be published alongside these. This would enable companies to publicly demonstrate their commitment to credible and measurable local sourcing and enable local consumers, producers and suppliers to make judgements on whether or not these commitments are being met.

5.4.6 The Committee recommends that retailers provide information about turnover, purchases and sales of local products (at home and elsewhere) on an annual basis for publication by DARD. The Committee would ultimately wish to see a voluntary commitment from the suppliers and the retail industry to support a defined, measurable percentage of local sourcing which shows significant sustained improvements and meets agreed annual targets. Annual monitoring by DARD would allow the public to ensure that this commitment is being met.

5.4.7 It is clear to the Committee from retailers' evidence that they consider themselves to be a step removed from the primary producer and that they deal solely with suppliers. The Committee cannot, however, accept that there should be no responsibility towards producers. Retailers have acknowledged that all parts of the food chain should be working together and the Committee believes that retailers must accept a role in ensuring participation by all sectors.

5.4.8 The Committee welcomed evidence that most, if not all, companies were proactive in their dealings with current suppliers and that a number of the companies operated schemes designed to bring on new suppliers and products. The Committee recognises that this is not entirely altruistic on the part of retailers, but part of a commercially-driven development of their supply base. The Committee believes that this approach, which appears to encompass education, encouragement and advice, could and should be facilitated on an industry-wide basis between retailers, suppliers and primary producers. The Committee was impressed with a suggestion made in a written submission to the Inquiry that a 'resource' or 'authority' should be established to advise producers on how to satisfy current market demands in terms of production, packing and distribution. The Committee also appreciated the company's offer of personnel to advise such an authority. Another company also pledged its willingness to participate in any such discussions leading to the development of customer-orientated agricultural strategies.

5.4.9 The evidence heard from supply and marketing groups also made reference to the educational needs of producers. The Livestock and Meat Commission suggested that farmers must be trained to meet the growing burden of administrative tasks. The Northern Ireland Meat Exporters Association challenged government to introduce a ". forceful rural education programme ." in order to help meet future challenges. The Committee believes that these aspirations must be accommodated within the resource suggested above.

5.4.10 Accordingly the Committee recommends that the Department take measures to capitalise on the retail industry's stated willingness to participate in developing new partnerships. The Department should work in partnership with retailers, suppliers and producers in the various sectors to develop a resource in order to advise primary producers on best practice in market research and in linking production to current and developing market demands. Every effort should be made to encourage the participation of producers who are not yet able to take up the opportunities arising from retailers' purchasing power and policies.

5.4.11 There has been a great deal of disquiet in the agriculture industry about the extent of importation of fresh produce and other products, particularly where it is believed to be of an inferior quality and standard to that grown or produced in Northern Ireland. This was a specific criticism from potato growers and the Committee notes the concerns of producers that importation of potatoes continues despite there being an over-supply. However, the Committee also noted the suppliers' assertions that it would not make commercial sense to import potatoes where produce of the required quality is available locally. The clear inference is that potatoes are imported only when local produce of sufficient quality cannot be obtained or where the local season does not provide the required potato type. These are the main factors which should be addressed. The accusation that imports are depressing prices is not necessarily sustainable. The over-supply of lower grade potatoes would appear to be to blame and growers must avoid this situation in future if they are to receive a price for their product which will be profitable.

5.4.12 Evidence taken from two of the Province's main potato suppliers suggests that they source between 73% and 95% of their potatoes from local growers. It is not sufficient for these growers merely to produce greater quantities of the existing varieties in the same seasons if they wish to increase their market share. Growers must consider and meet market demand by working with retailers and suppliers in order to identify alternative varieties and to extend the season for locally-produced potatoes. The Committee recognises that this will require investment in the form of adequate storage facilities and education in expanding into new varieties (such as Maris Piper), for which there is demand but which may be difficult to grow in Northern Ireland.

5.4.13 The Committee therefore recommends that the Department set aside sufficient resources within its forthcoming processing and marketing scheme (or as a unique scheme using Treasury match funding of Modulation monies) to enable expansion of existing potato storage facilities. It further recommends that retailers, through their suppliers and in partnership with the Department, offer more assistance and advice to local potato growers in growing the varieties and quality demanded by the market. The Department should also place greater emphasis on using the expertise of its scientists in order to identify new varieties and strains together with improved growing techniques to help the producers meet market demands. The Department should also ensure that new developments arising from this research are urgently translated into commercial advantage for the farmer.

5.4.14 The Committee accepts that retailers will have little option but to purchase a lower cost product from outside the UK if the standard is the same as, or better than, that produced locally. Factors such as better climate or lower input costs may have allowed these producers to undercut local prices. The Committee also accepts that it would be improper (if not illegal) for retailers to charge a higher price for an imported product simply to protect a domestic one. However, the Committee strongly believes that local products should be sold whenever possible. The Committee is aware of sectors and products where imports continue in spite of local availability. One example would appear to be in the importation of dairy products (other than milk). Yoghurts, cottage cheeses and dairy spreads are largely sourced in Great Britain but local products could easily substitute for these. There are exceptions such as the butter supplied by a Northern Ireland firm which is claimed to represent 60% of all butter sold by one major retailer in its whole business.

5.4.15 One supply organisation reminded the Committee that imports from non-European sources may not incur costs borne by producers in Northern Ireland and that such imports inevitably depress average prices. The organisation also made the very good point that supermarkets do not limit themselves to purchasing (and selling to consumers) products which reach the standards they require of Northern Ireland producers. The Committee is deeply concerned that this demonstrates double standards on the part of retailers and that purchases of lower quality produce from outside Northern Ireland should cease immediately.

5.4.16 The Committee recommends that, where retailers demand high product standards from local producers, they refrain from importing lower quality produce, or that if they do so, retailers provide consumers with clear information in order to enable them to make informed comparisons, judgements and choices.

5.4.17 One retailer's memorandum acknowledged that it made sense, in terms of freshness and delivery costs, to source products locally if Northern Ireland suppliers can provide a product as good as the one currently sourced from Great Britain or elsewhere. The Committee is in no doubt that Northern Ireland products compare very favourably with those from anywhere in Europe and beyond and demands that even greater and sustained efforts should be made by retailers to increase the number of home-produced products sold here and further afield. There is scope also for improved marketing of local products by the various boards and authorities such as the Livestock and Meat Commission. Recommendations relating to marketing are made later in this report. (See Section 5.5.)

5.4.18 The Committee recommends that retailers urgently review the availability and quality of products which could be sourced with ease and facility in Northern Ireland but which are currently imported, with a view to encouraging and developing local supplies. This should include a review of procurement for the organic, pig meat, pig meat product and frozen food markets. The Committee believes that the Department must also challenge the relevant bodies who are charged with marketing Northern Ireland products to review and to improve their performance in securing business from the major retailers.

5.5 Failure to Market Northern Ireland Products in Great Britain and Beyond, Costs of Promotional Activity and Poor Labelling Policies which Contribute to this Failure to Market

5.5.1 It is very clear to the Committee from evidence given by retailers that there are a limited number of significant success stories where Northern Ireland products have been successfully sold in stores in the Republic of Ireland, in Great Britain and in Europe. These have included mushrooms, poultry, dairy and salads. It is also clear that with most sectors of the industry capable of producing more than is consumed locally it is essential that products are sold beyond the local marketplace. The success stories which have been quoted show that this is entirely possible through the major retailing operations, albeit in a limited number of instances.

5.5.2 The Committee is of the view that where retailers recognise the quality and standards of Northern Ireland products and offer these for sale in local shops they should also be prepared to offer them for sale in all their stores as initially promised by the main GB multiples. The Committee does of course recognise that local producers in England, Scotland and Wales would strenuously resist such a move where they produce similar products. However, where the product differs or the quality is significantly higher there must be scope for placing Northern Ireland products in the national marketplace and beyond.

5.5.3 The Committee believes that a review by retailers of local supply, as recommended earlier in this report, (paragraph 5.4.18) should identify opportunities for such action.

5.5.4 One potential area for improvement in current practice was suggested to the Committee. The company concerned suggested formalising retailers' contact with the existing marketing boards in order to address sectoral issues and to promote Northern Ireland produce at trade and consumer level through dedicated marketing campaigns carried throughout the retail industry. It was also suggested that marketing boards should be developed for other sectors and that there would be formal retailer input into, and involvement with, these. This proposal also sits well with another retailer's suggestion that they would help develop a multi-disciplinary task force to build strategies for each agricultural sector. They also highlighted their company's involvement in a trade development group along with DARD, LEDU, IDB, CBI and the Northern Ireland Food and Drink Association. The Committee has no wish to see the creation of layers of bureaucracy or an over proliferation of bodies but firmly believes that practical co-operation is achievable and sustainable.

5.5.5 The Committee welcomes these suggestions and believes that a co-ordination of effort between producers, suppliers, those charged with marketing and the retailers would have far reaching benefits for the industry here.

5.5.6 The Committee recommends that the Department should re-assess the current position regarding export marketing and trade development effort and develop a workable structure whereby the expertise available within the major retail companies can be utilised to practical effect, leading to an increase in the export of goods produced in Northern Ireland. It is also recommended that retailers and existing marketing authorities play the fullest parts in such a structure. With regard to the costs of such action, the Committee notes that the Department was able to offer significant funding to the Livestock and Meat Commission for its 'red meat marketing strategy'. Treasury match funding from modulation could be considered as a source of funding.

5.5.7 The Committee received representations to the effect that the costs of promotion of Northern Ireland products were inevitably passed back to the producer, squeezing already pressurised margins. During evidence to the Committee this was denied, with a company claiming that costs were shared between the retailer and the supplier, possibly 70% to the retailer and 30% to the supplier who would then negotiate with producers. One of the suppliers present confirmed this to be the case.

5.5.8 The effect of promotions on volume of sales was described as very significant during evidence and the Committee wants to see as much promotion as possible. If costs of promotions were shared as described above the Committee would consider this fair. If suppliers subsequently shared a proportion of their costs with producers, in return for increased volumes of purchases, this would also seem fair. This appears to be an area where greater transparency would lead to better understanding and would also help to lessen resentment.

5.5.9 The Committee therefore recommends that retailers provide their suppliers with detailed information on the costs of specific promotional activities and instruct suppliers to pass this information direct to producers, thus giving the primary producer the fullest picture.

5.5.10 The Committee believes that retailers' promotional activities have yet to highlight all the positive aspects of purchasing local produce. Where stringent standards are applied and the highest welfare and hygiene practices are employed, these should be fully utilised in order to gain maximum marketing advantage. A useful example was given in evidence, heard from one supply company, that the pig meat industry was slow in taking up the opportunity of marketing the improved welfare standards forced upon the industry by legislation. The Committee also noted the company's view that 'negative' marketing of a product, in which the shortcomings of others are highlighted, may have a negative impact on total sales of that product.

5.5.11 The Committee recommends that, where Northern Ireland producers work to higher standards than their competitors, these standards should be used to bring forward innovative and creative marketing campaigns. The Department should make sufficient funds available to appropriate marketing bodies in order to facilitate this process, in co-operation with retailers and within the structure recommended earlier in this section.

5.5.12 Another issue linked to the local sale and potential export of goods is labelling. Farmers' representatives have claimed that retailers' labelling is not clear, making it difficult to promote Northern Ireland's exceptionally high standards against other countries' products and allowing produce to be imported into Northern Ireland, processed and labelled as "Sourced in Northern Ireland."

5.5.13 Evidence before the Committee has not clearly established this as a major problem, with all retailers adamant that potatoes, for example, are clearly marked with the country of origin and that in general Northern Ireland products are clearly marked as such. There is still room for improvement with one retailer, for example, making a commitment to adopt a wider regional approach to labelling.

5.5.14 The Committee was particularly impressed with the Code of Practice on labelling pre-packed products which has been adopted by another retailer. This code requires a 'Country of Origin Declaration' on every product and also that the source of ingredients and the place of manufacture are separately identified. Examples of this approach would be "Produce of Denmark. Packed in UK" and "Product of UK made using Dutch Chicken". The Committee would, however, wish to see a distinction made between regions of the United Kingdom in order to ensure that local consumers (and those elsewhere) could be assured that the product was genuinely produced in Northern Ireland.

5.5.15 The Committee believes that there should be statutory provision made to require clear and accurate labelling of food at the point of sale, to include information on the country of origin. The Committee would urge the Department of Health and Public Safety to work towards this. Pending such provision the Committee recommends that all retailers adopt a voluntary Code of Practice similar to that outlined above. This would ensure that consumers are better informed.

5.6 Market Power of the Major Supermarket Chains, Standards Required by Producers and the Imbalance against Producers in the Operation of Quality Assurance Schemes

5.6.1 The issue of market power is covered by the Competition Commission's ongoing inquiry and the Committee awaits the Commission's findings in relation to Northern Ireland. There can be no doubt that the major multiple retailers exert a major influence on the market and while each company emphasises that they are responding to consumer demand all are undoubtedly also in a position to drive demand.

5.6.2 The Committee was impressed with the evidence given by a retailer based in both Northern Ireland and the Republic of Ireland and felt that this created a useful balance of opinion and operation against those of the centrally-owned, multiple outlet companies. The Committee was most interested in the lower profit margins achieved by the family-owned stores serviced by this company (reported as 2-3% as against 5-6% for the multiples) and agrees that there should be room in the marketplace for an independent retail sector. Given the economies of scale achievable by the supermarket chains it would appear to the Committee that a co-operative approach by smaller retailers offers a better prospect for survival.

5.6.3 The Committee's opinion is that there must be an alternative to the purchasing power of the major firms, particularly for the smaller supplier, and that there should be a much greater degree of control over the proliferation of new stores planned by the major retailers. The rapid displacement of small family-run businesses (and the associated jobs) has already been apparent.

5.6.4 The Committee would therefore ask the Department of the Environment urgently to consider what additional steps can be taken to more stringently evaluate planning applications for new retail developments, to take greater account of displacement of small retail businesses and allow room for an independent retail sector to remain and thrive.

5.6.5 The power of supermarkets has also led to the increased application of exacting standards by retailers on their suppliers, and consequently on the primary producers. The Committee accepts that this is common practice and that consumers benefit from higher standards. There are, however, costs in meeting these standards and this can have a significant direct impact upon a producer's profitability. Anecdotal evidence given to the Committee by the Ulster Farmers' Union involved a farmer investing £100,000 in equipment to achieve 'preferred supplier' status with one of the major supermarkets. This farmer subsequently had a skin problem with his crop of potatoes and the potatoes were then rejected by that particular company. There is a very real potential for farmers to fall into debt in such circumstances. The Committee does not expect retailers to guarantee to purchase products where they fail to meet quality standards. It does, however, consider that retailers have a responsibility to highlight the risks associated with becoming a 'preferred supplier' as well as the benefits so that farmers are prepared should difficult circumstances arise. There is, therefore, also an onus on farmers to accept their responsibilities in these situations.

5.6.6 The Committee was interested in the comparison between the poultry industry and other agricultural sectors in terms of producer investment. Within the poultry industry investment is supported by a link between the producer and those processing and marketing the product. This model provides a safeguard for the primary producer who is, therefore, protected from losses which are as serious in the poultry industry as in other sectors.

5.6.7 The Committee recommends that retailers ensure that their suppliers (and, importantly, producers who provide them with raw materials) are warned of the risks and penalties incurred when the product does not reach the required standard. It further recommends that farmers seek professional advice before undertaking major investment in order to enable them to supply major supermarkets and that they explore, at the outset, alternative markets for products which do not fully meet the standards of their main customer. Ideally, no major investment should be made without adequate research and a clear linkage with, and assurances from, suppliers and retailers.

5.6.8 The Committee has heard that farmers in Northern Ireland could spend over £600 on compliance with a range of quality assurance schemes. These schemes would appear to benefit the retailer most directly in that they affect customer decisions at the point of sale. Suppliers will also benefit through retailers' acceptance of products backed by such assurance schemes.

5.6.9 The Committee received evidence that the agriculture industry in Northern Ireland must focus on providing premium products for premium markets and that, for example, the beef and sheep meat industries are unlikely to survive if they are achieving only commodity prices. The Committee was informed that the achievement of Total Quality Assurance throughout the supply chain will be a controlling factor in obtaining access to the wider European market. The Committee heard that those farmers working within the Farm Quality Assurance Scheme are producing some of the best and highest quality products in the world but that difficulties arise as a result of the number of farmers who are not operating within the Scheme. The Committee believes that future strategies must take cognisance of consumer and market demands and, if participation in a quality assurance scheme is one of the criteria, then farmers must make every effort to comply in order to maximise opportunities to enter new markets.

5.6.10 The Committee recommends that farmers give careful consideration to the potential benefits of participating in quality assurance schemes. The Committee further recommends that scheme organisers should ensure better co-ordination of these schemes, streamline their administration and reduce the costs to farmers. In addition, retailers (and their suppliers) should be prepared to pay 'quality assured' producers a premium for their products.

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6. CONCLUSIONS

6.1 It is clear to the Committee that farm debt difficulties arise from many different circumstances, some of which, such as the BSE crisis and currency values, are outside the control of producers, suppliers and retailers. However two of the factors which can lead to debt problems are:

a perceived difficulty of the primary producer to sell his product; and
if he can sell it, the price he receives is often insufficient to cover production costs.

6.2 There are, in turn, a number of inter-related elements which contribute to these factors. For example:

insufficient research into market conditions leading to over-production and/or failure to fully exploit the market's potential;
a failure to secure, in real marketing terms, the maximum benefits of the exceptionally high production standards under which Northern Ireland producers operate;
an absence of a comprehensive resource to assist farmers identify, produce, package and distribute products to suit both their circumstances and those of the market;
the lack of co-ordinated advice to farmers and suppliers about marketing strategies;
insufficient co-ordination among the large competing retailers and other stakeholders to ensure that local producers are both educated and assisted to compete in the global market;
competition amongst retailers driving down prices paid to suppliers, with these reductions being fully passed down to primary producers
the negotiating weakness, in relation to price, experienced by producers, particularly those who act as individuals; and
a failure by some primary producers to plan for and reach the quality standards required by the modern consumer and a lack of co-ordinated training and advice to help producers meet the ever increasing administrative responsibilities associated with these quality standards.

6.3 These factors are not helped by the current climate of suspicion and allegation, with primary producers concerned that they are unequal partners in an otherwise profitable business.

6.4 As purchasers of extremely high volumes of product, retailers have the potential to be part of the solution to the current crisis. They must, however, aim to ensure that profitability extends throughout the entire food chain, from producer to retailer. Otherwise, they risk causing damage to parts of the agriculture industry.

6.5 The Committee believes that the offers of assistance made by retailers to participate in new bodies or schemes (and to offer advice using their knowledge of the market) are genuine and that it is imperative that these are acted upon with the utmost urgency. There is an onus, therefore, on the Department of Agriculture and Rural Development to maximise the potential for co-operation. There is an onus also on the retailers to follow through on their commitments and on suppliers to recognise their vested interest in the maintenance of a profitable supply base - they are only as good as the producers who supply them.

6.6 This does not in any way underestimate the responsibilities faced by the primary producer. If they are to avail of the opportunities that now exist they must also be prepared to change. In order to achieve profitability farmers must ensure that they can meet the required quality standards and that access exists to either domestic or export markets.

6.7 The Committee recognises that a farmer's family may have specialised in a particular commodity or farmed in a particular way for generations. However, farmers who do not take account of the changing demands of the market cannot expect to survive.

6.8 Farmers are, however, entitled to expect to make a reasonable living when they meet the demands of the market. There is a huge turnover in the business of retailing and profits are undeniably being made. It is in the interests of all involved in the food chain that everyone can make a profit and that there is a clearer understanding of each part of the chain by the others.

6.9 The Committee believes that implementation of its recommendations will sustain and improve the benefits to primary producers, help ensure a return to profitability for farmers and thus reduce the burden of debt faced by so many.

6.10 The Committee therefore commends its report and recommendations to the Assembly.

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Email: info.office@niassembly.gov.uk

Local consumers claim to support home produce but often, when it comes to value for money, that philosophy tends to be forgotten.

4.2.3 Ulster Agricultural Organisation Society Ltd. (UAOS) claimed that:

A working example of co-operative action, which they described, resulted in a reduction of farm input costs by up to 15%. This group has now branched out (with other groups in their sector) into marketing, and this has also reduced costs. In the long run it is hoped that the marketing group will have real marketing power.
They acknowledge that, because of their lack of bargaining power, producer groups do not always command the prices their quality products deserve, particularly in periods of high availability of product.
The co-operative described has built up trust with local meat plants and this has helped members respond to consumer demand in terms of quality.
Co-operatives marketing lambs to meat plants have to meet very stringent quality requirements. Bonuses are paid for high quality but there are penalties where lambs do not meet the quality standards.
UAOS also supported an Aberdeen Angus initiative in conjunction with producers and meat plants. This provides a quality product to a specialist niche market and has resulted in premium prices in return for achieving the required grade.
The co-operative provides a focus for the education and development of the farmers within it. It can also provide for sharing of skills, labour and equipment. Having worked together farmers can become involved in rural development initiatives.
Co-operative action can lead to off-farm employment opportunities such as the Fivemiletown Bio-gas project.
The history of Marketing Boards has stymied the development of voluntary co-operatives. UAOS feels that the industry beyond the farm gate needs to adopt a more positive approach to farmers being brought together to market their produce. Processors and those further down the chain must recognise that this can lead to a consistent, high quality supply.
Many Northern Ireland products go into supermarkets' own brand marketing and are not, therefore, recognised or adequately promoted as quality local produce.
The price differential between the carcass leaving the farm and the price obtained in the supermarket is widening to the detriment of the producer, and without due reward for the added value of quality assurance, traceability and so on.

4.2.4 Northern Ireland Poultry Federation claimed that:

The levels of loss sustained in the pig industry have been replicated in the poultry industry. However, those losses have been borne by the processing companies rather than by producers. Producers are contracted to processors who are also marketing the product. These contractual arrangements give security to producers, provide support from a larger organisation, secure returns relative to performance levels and reduce risks to producers. These arrangements have always been market-led and help to co-ordinate the different aspects of the industry.
The industry itself has had to control the volume and standards of the product on offer. If other sectors are to follow this model then there must be consideration of the extent to which the processing and marketing sectors are prepared to co-operate with producers.
Producers have invested as part of planned expansion with the support of a processor and their income is therefore protected. In this scenario there is less likelihood of unsustainable debt.
Imports from non-European sources do not incur costs borne by the industry here, such as the ban on the use of meat and bone meal, use of antibiotic growth promoters and legislation. Products not produced to the same standards as ours and at a lesser cost have an adverse impact on the average prices in the market place. In addition, these added costs to local processing are not being successfully passed on to the supermarkets or consumers.
Supermarkets do not limit themselves to purchasing and selling only those products which reach the standard required of Northern Ireland processors. If they did the Northern Ireland industry would be better placed to compete.
It is difficult for local companies to influence purchasing decisions of GB-based supermarkets due to the fact that procurement policy is generally perceived to be a Head Office function. One possible area for progress would be if retailers could review their current policy of selling products at a UK price despite this being a higher-cost production region. Selling at a 'Northern Ireland' price would provide benefits for suppliers and producers.
Supermarkets are now considered to be giving more support to local suppliers and this provides substantial volumes of business.

4.2.5 Northern Ireland Grain Trade Association claimed that:

The integration and partnerships within the poultry sector have addressed the issue of minimising costs.
The intensive sector in Northern Ireland faces input costs of between 5% and 10% higher than in Great Britain. The grain regime means that the livestock industry pays an inflated price for its raw material and gets no assistance on exports or protection on competing imports.
Only niche markets are suitable for home-grown produce as Northern Ireland cannot compete with commodity prices.
A measure which could make a difference would be the effective labelling of food products. Consumers should be educated regarding countries where products are sourced and the production methods used in these areas.
Evidence suggests that processors in Northern Ireland are losing money.
A facilitator with a 'can do' philosophy within DARD could play a leading role in bringing food industry players together for the common good.

4.2.6 Malton Bacon Factory Ltd. claimed that:

The problems faced by the pig industry started as a result of the over-supply of pigs. As the supply of UK pigs diminishes farmers are returning to profitability and losses are shifting to the processing industry once again. What is required is a 'cake' large enough to divide between producers and processors.
Welfare legislation in the UK banned production systems which incorporated stalls and tethers and heavy investment was required to implement this. This investment has caused difficulties as incomes went into a period of decline.
The pig meat industry was slow in taking up the opportunity of marketing the improved welfare that the United Kingdom's unique legislation forced upon it.
Having a viable pig farming supply base is essential and fundamental to the structure of the processor's business.
The company envisages working closely, and having contracts in place, with a Northern Ireland pig producers' co-operative within the next year.

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5. CONSIDERATION OF EVIDENCE

5.1 In considering the evidence before it the Committee addressed each of the main issues as outlined in Section 2 above.

5.2 Disparity Between Farm Gate and Retail Prices

5.2.3 In the Committee's view, retailers' net profits are not excessive at the 5-6% level quoted by companies who gave evidence. Indeed the Committee has taken advice and is reliably informed that these figures are regarded as being representative of the industry norm. This is borne out by a preliminary finding of the Competition Commission that there was " . . .at most only limited evidence of excessive profitability." The Committee does note, however, that these are net profits. Without the expansion and capital expenditure programmes undertaken by companies (which, owing to the small size of the local market, will have only marginal benefit in Northern Ireland) these profit figures would be significantly higher.

5.3 The Failure of Prices Paid to Producers to Cover Production Costs

5.5 Failure to Market Northern Ireland Products in Great Britain and Beyond, Costs of Promotional Activity and Poor Labelling Policies which Contribute to this Failure to Market

5.5.3 The Committee believes that a review by retailers of local supply, as recommended earlier in this report, (paragraph 5.4.18) should identify opportunities for such action.

5.6 Market Power of the Major Supermarket Chains, Standards Required by Producers and the Imbalance against Producers in the Operation of Quality Assurance Schemes

5.6.4 The Committee would therefore ask the Department of the Environment urgently to consider what additional steps can be taken to more stringently evaluate planning applications for new retail developments, to take greater account of displacement of small retail businesses and allow room for an independent retail sector to remain and thrive.

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6. CONCLUSIONS

a perceived difficulty of the primary producer to sell his product; and
if he can sell it, the price he receives is often insufficient to cover production costs.

6.2 There are, in turn, a number of inter-related elements which contribute to these factors. For example:

insufficient research into market conditions leading to over-production and/or failure to fully exploit the market's potential;
a failure to secure, in real marketing terms, the maximum benefits of the exceptionally high production standards under which Northern Ireland producers operate;
an absence of a comprehensive resource to assist farmers identify, produce, package and distribute products to suit both their circumstances and those of the market;
the lack of co-ordinated advice to farmers and suppliers about marketing strategies;
insufficient co-ordination among the large competing retailers and other stakeholders to ensure that local producers are both educated and assisted to compete in the global market;
competition amongst retailers driving down prices paid to suppliers, with these reductions being fully passed down to primary producers
the negotiating weakness, in relation to price, experienced by producers, particularly those who act as individuals; and
a failure by some primary producers to plan for and reach the quality standards required by the modern consumer and a lack of co-ordinated training and advice to help producers meet the ever increasing administrative responsibilities associated with these quality standards.

6.3 These factors are not helped by the current climate of suspicion and allegation, with primary producers concerned that they are unequal partners in an otherwise profitable business.

6.10 The Committee therefore commends its report and recommendations to the Assembly.

Committee for Agriculture and Rural Development: Membership and Powers

Contents

EXECUTIVE SUMMARY

PURPOSE

THE MAIN ISSUES CONSIDERED

THE COMMITTEE'S APPROACH

MAIN FINDINGS

CONCLUSIONS

RECOMMENDATIONS

RECOMMENDATIONS

BETTER ORGANISATION, CO-ORDINATION AND ADVICE

SOURCING AND IMPORTATION

TRANSPARENCY AND COMMUNICATION

GENERAL RECOMMENDATIONS

1. INTRODUCTION

2. ISSUES CONSIDERED BY THE COMMITTEE

3. RESPONSE BY RETAILERS

4. RESPONSE BY SUPPLY/MARKETING GROUPS

5. CONSIDERATION OF EVIDENCE

Committee for Agriculture and
Rural Development:
Membership and Powers