Appendix E

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: MUSGRAVE SUPERVALU-CENTRA

7 February 2000

Contents

Paragraph

Introduction 1.1

Musgrave SuperValu-Centra Company Background 2.1

Purchasing & Sourcing Policy 3.1

Purchasing & Sourcing Policy - The Potato Sector 3.2

Consumer Marketing 4.1

Industry Initiatives with Local Producers 5.1

Developing Market Opportunities for Local Producers 6.1

Appendix 7.1

1:1 Introduction

Musgrave SuperValu-Centra welcomes the opportunity to contribute to this very important forum and is confident that the aims of the committee can be achieved in terms of a pro-active, collective response from the industry to supporting and promoting local producers at retail level.

2:1 Musgrave SuperValu-Centra Company Background

• Musgrave SuperValu-Centra is in partnership with independent retailers, providing unrivalled distribution and an extensive retail support package to retailers who trade under our franchise brands SuperValu and Centra.
• Entered NI Market in 1996 with the acquisition of 5 medium sized supermarkets.
• Currently service 33 SuperValu supermarkets and 16 Centra stores, 49 retail outlets in all, 33 of which are locally, independently owned.
• In the process of upgrading company owned stores in NI for sale to local, independent retail operators.
• Store refurbishment plans entail considerable investment in service providers throughout the Province, as well as job creation in stores.
• Combined retail t/o in NI in 1999 was £138 million stg, with group retailers servicing approximately 8% of the grocery market.
• MSVC NI offices and distribution centres established in Fortwilliam and Mallusk.
• 119 company central-office and warehouse personnel are employed in NI, with a further 2,000 employed in independent and company-owned stores.
• Independent grocery sector in ROI accounts for 48% of total sales, largely due to Musgrave Group Support, by comparison with around 29% independents' shares in NI. MSVC expansion into NI market will start process of restoring balance between the multiple and independent sectors, ensuring healthy competition and choice in the marketplace.
• Independent retailers re-invest in the local communities in which they make a living rather than withdraw profits to headquarters of a multi-national multiple group.

3:1 Current Purchasing & Sourcing Policy

• The ability to buy as a group is one of the major services supplied to independent retailers through MSVC, allowing independents to compete with multiples.
• As partners to independent community-based retailers, it is company policy to source locally, wherever possible, as the company needs thriving local economies to ensure a solid customer base for our independent operators, many of whom are based in farming communities.
• Our company deals locally with over 200 Northern Ireland suppliers.
• MSVC negotiates prices with trading partners in the various food categories, having reviewed all relevant market movements and supplier-led cost proposals.
• Recommended retail pricing is advised to all stores following review of primary competitors. However independent retailers can, and do, set their own prices occasionally.
• In Northern Ireland, almost 60% of all MSVC purchases are from local suppliers.
• The company operates a buy local policy for fresh produce, subject to seasonality. Almost 70% of fresh foods volume is produced locally.
• Local trading partners have benefited substantially from improved distribution available through MSVC eg Salad Fayre in Newtownards had a 56% sales increase in 1999 - also Dromona & Willowbrook.
• MSVC buying policy insists on 100% local sourcing in areas where we have total control on procurement: Eg
• fresh pork 100% NI
• fresh beef 100% NI
• fresh lamb 100% NI
• deli sausges 100% NI
• deli bacon 100% NI
• milk 100% NI
• eggs 100% NI
• Extensive promotion has increased fresh meat sales in the past twelve months. Promotional activity was up to 51% in 1999, with the trend to continue. 2000 began with a major SuperValu meat sale in January, including NI pork sausages promoted on TV at 2p/kg.
• We are currently in the process of rolling out a centralised distribution service for all chilled and fresh produce in NI. When fully implemented, this system will allow wider distribution of locally sourced fresh produce to all our franchise customers.
• Retail sales for fresh products in ROI increased 35% in the first year following roll-out of a similar system in 1998, with overall supplier business up 15%. Already in NI improved sales of local brands have been recorded.
• We source £11.6 million NI produce for supply into the ROI market and have targets to develop this in the coming year.
• In the Republic of Ireland, where group retail turnover is IR£1.05 billion, 70% of all purchases are from local suppliers.
• The company has won ROI trade award for support of indigenous producers, regularly tops research rankings of retailers "buying Irish" and is regularly credited in public by Govt Ministers for support of indigenous industry, the farming sector and local communities. We are pursuing a similar position in the NI market.

3:2 Purchasing & Sourcing Policy: The Potato Market

• MSVC NI sources all potato requirements for the NI market from 3 local packers:

• Wilsons
• Glens of Antrim
• Fane Valley
• Glens of Antrim and Fane Valley only supply 100% local produce of NI under their own brands and the SuperValu own-label.
• Wilsons supply branded and own-produce sourced 100% on the island of Ireland.
• White Potatoes - 100% NI
  (own-label)
• Pink Potatoes - 50% NI
  - 25% GB
  - 25% ROI

Blight problems experienced in the NI market necessitated the supply of ROI produce during 1999. Local sourcing is the preferred option which is only over-ridden when suitable supply is not available.

• All own-brand and branded potatoes in Northern Ireland are labelled by Country of origin, as is the legislative requirement. MSVC policy is also to highlight product of Northern Ireland, where possible on packaging and at point-of-sale.
• 99% of MSVC crisp sales in Northern Ireland is branded product. Almost 50% of that is supplied by Tayto NI in Tandregee, Co Armagh. SuperValu own-brand crisp sales, supplied from Co Meath, represent 1% of the NI SuperValu sales volume.

4:1 Consumer Marketing

• MSVC NI invests £1.9 million in National and local advertising annually, with additional local advertising by stores.
• Promotion of local produce includes local press, point-of-sale, national television and mailshot/brochure activity.
• A corporate instore identity kit, with artwork and dedicated point-of-sale, for all stores promotes the advertising and POS opportunities in identifying local produce.
• PONI products are all highlighted instore with dedicated POS.
• Regular promotion of local produce is conducted instore, including tastings, coupon offers, multi-buys etc.
• The fresh food trading department co-ordinates group price promotions on local produce, particularly fresh meat, on a 52 wk per year basis, to encourage sales. Eg: 25% of all pork, 25% of all lamb, 2p/kg pork sausages etc.
• Instore cookery demonstrations have been organised to promote superior quality and versatility of local produce.
• Regularly market "Season's First Local Produce" such as launch of First NI strawberries with Lester Brownlee Co of Armagh on SuperValu's stand at last year's Balmoral Show.

5:1 Industry Initiatives with Local Producers

• Collaborative projects with Ulster Pork & Bacon Forum and local suppliers, Fred C Robinson's, to market local produce and build brand identity - in-store POS campaigns, national TV advertising and brochures for "Are You Pickin' Ulster Pork?", campaign etc.
• Supplier partnerships in NI include the development of Armagh Baked Ham exclusively for SuperValu and Centra by Mourne Country Meats.
• Developed a gourmet tomato range exclusively with Greenmount College in Antrim.
• Projects with Ulster Farmers Union - sponsored trade shows/potato conference - 24 Feb 2000, Balmoral Show etc.
• UFU Chairman Will Taylor frequently attends local SuperValu store openings, as a guest of the independent owners, and has written a testimonial to SuperValu's support of local producers.
• Farming Life newspaper supplement sponsored for Balmoral Show organisers.
• Sponsor "Insight" dedicated supplement in Ulster Grocer bi-monthly, highlighting joint business initiatives with NI producers and suppliers and providing editorial space to spokespersons of producer organisations.
• Sponsored 1999 supplement in UK Grocer magazine promoting local NI supplier base and have committed to 2000 publication also.
• MSVC £3,000 bursary for Food Safety (MSc) students at the Agriculture and Food Science centre in Queens University. Recognising that farm businesses need to enhance quality management systems to optimise competitiveness and profitability and also that students from farming backgrounds need financial support to counteract high "drop-out" rate due to financial constraints.
• Musgrave SuperValu-Centra personnel make themselves available to NI producer groups and trade organisations to discuss business development and promotion.
• £3,000 awards fund presented annually in association with NIFDA (Northern Ireland Food and Drink Association) to encourage the further career development of agri-food post-graduate students.

6:1 An Approach to Developing Market Opportunities
for Local Producers

• MSVC has been central to the establishment of NIIRTA, the Northern Ireland Independent Retail Trade Association, and commits to having the Association address measures for independent traders to develop business with local producers.
• Identify key individuals from major organisations involved in producing, marketing, and retailing NI produce - eg: PONI assoc, major retailers, UFU, Govt agencies - and schedule a one day "think-tank" to present issues and examine solutions. MSVC would welcome the opportunity to be involved.
• Formalise contact with existing marketing boards for the different sectors eg: LMC meat marketing board, NIFDA etc to address sectoral issues and promote produce at trade and consumer level through dedicated marketing campaigns carried throughout the retail industry.
• Develop marketing boards, as required in other sectors, such as fruit and vegetable marketing or dairy produce.
• MSVC would dedicate suitably qualified personnel to work with each board, and alongside other retail and trade representatives, to pursue the objectives of the marketing boards.
• Establish a resource/Authority advising producers on how to satisfy current market demands, in terms of production, packing, distribution etc. The resources of highly experienced MSVC trading personnel could be made available to advise the authority.
• In the ROI we have worked closely with the Irish Farmers Assoc to build producer groups capable of supplying modern retail and consumer demands. With the already high UFU producer group standards, similar trading relationships can be effected in NI.
• We partner individual indigenous supplier companies to develop own-brand food lines for our stores - egg producers, dairy ranges etc - although new to the NI market, it is our intention to identify opportunities for similar trading and "mentoring" partnerships in the Province. (see Para 5:1 Mourne Country Meats).
• We support Government in the ROI at a very practical level, on all food supply and producer issues. For example, in 1996 during the BSE scare, we headed a Govt expert group set-up to talk down the scare at consumer level and get Irish beef back on supermarket shelves.
• The Musgrave Group Managing Director Seamus Scally is the only retail representative on a Government appointed "Agri-Food 2010" committee to address indigenous food supply and marketing. MSVC NI personnel could be made available to local Government on a similar basis.

Sheila Gilroy-Collins, Marketing Managing
Musgrave SuperValu-Centra Northern Ireland Tel: (232) 835021

Appendix F

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: SAFEWAY

12 January 2000

Procurement Policy

I refer to Dr Ian Paisley's letter of 21st December addressed to my colleague Brian McColl. I am replying on behalf of Safeway.

I will deal with each of your concerns in turn:

1. It is difficult for us as retailers to comment on the prices which potato growers receive from the packers they supply. As you are no doubt aware, the supply chain for potatoes and other types of produce has three stages. The grower supplies the packer, who packs and transports the product to the retailer's distribution centre (in our case our depot at Larne). The retailer then delivers to his own stores. The price we charge our customers, therefore, is driven by the price we have to pay the packers who supply us.

2. We do not have commercial relations with individual growers. However, what happens in the market place inevitably works its way back up the supply chain:

• The potato market has been very unstable over the past 12 months. In the first quarter of 1999, potato prices were relatively high as a result of the poor crop of 1998. From May onwards, however, a bumper crop of new potatoes came on to the market and since then prices have fallen dramatically. In Northern Ireland our biggest volume line is the 2.5kg bag of white potatoes. Our retail price for this product in Northern Ireland has fallen from £1.89 to 0.95p, or by 50%, since last Spring.
• In Northern Ireland, around 95% of the potatoes we sell are supplied to us by Glens of Antrim (GOA). The remainder are supplied by Bartletts, our Scottish supplier. Over the period since last Spring, while our retail price for 2.5kg whites has fallen by 50%, GOA's price to us is down by only 38%. In Scotland, by contrast, we have been able to reduce our retail price to 0.65p per 2.5kg bag or (66%) because our major supplier, Bartletts, have cut their price to us by a similar percentage.
• The reason, therefore, that Northern Ireland consumers are paying 0.30p more for a 2.5kg bag than Scottish consumers is not "profiteering" by retailers but the substantial difference in our supply terms between Northern Ireland and Scotland. Bartletts are currently supplying us at a price per case which is over one third lower than GOA.
• The reason for the differential is not that GOA are making "excessive" profits. The problem for them is that Northern Ireland is a small, relatively high cost market in which to operate. GOA are obliged to trade on lower volumes and therefore higher overheads than they would if they were based on the mainland. They also have higher land costs and pay more for their seed. We estimate that they are working on an average net profit margin to sales of around 5%, which is about the same as our own net margin. Clearly we could reduce our prices to Northern Ireland consumers by sourcing all our potato supplies from Bartletts in Scotland but we have decided that we must continue to play our part in supporting the agricultural economy in Northern Ireland.

3. I cannot really comment on your point about the manufacture of crisps as GOA do not supply us with this product.

4. As far as our potatoes are concerned, the country of origin is always made clear on the bag as well as the variety.

I hope this information answers the concerns you have raised, but if there is anything further you need, please let me know.

Yours sincerely

Kevin Hawkins
Director of Communications

Appendix G

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: SAINSBURY'S SUPERMARKETS LTD

9 February 2000

1. Introduction

1.1 Sainsbury's Supermarkets Ltd (Sainsbury's) is the largest subsidiary of J Sainsbury plc which also operates Savacentre hypermarkets, Homebase home and garden centres and Sainsbury's Bank in the UK plus Shaw's supermarkets in the US and Edge in Egypt.

1.2 Sainsbury's sources products from over 2,000 suppliers who provide some 12,000 food lines and 9,000 non-food lines. Each week around nine million customers shop in over 400 Sainsbury's supermarkets throughout the UK. Last year, Sainsbury's sold over £11.5 billion worth of food in the UK. £6 billion worth of this was food from the UK.

1.3 Today Sainsbury's has 100 suppliers in Northern Ireland, supplying fresh produce and product in stores to the Province and the rest of the United Kingdom. Sainsbury's has committed to doubling the value of its existing business sourced from Northern Ireland to between £150 and £200 million over the next few years and the value is now £120 million. Around 150,000 customers shop in the stores each week.

1.4 Sainsbury's potato supplier in the Province is Glens of Antrim based in Cushendall, Country Antrim. Glens employ 35 people and supply potatoes to all Sainsbury's stores in the Province. The business is worth £1 million per annum.

1.5 On 20 June 1995 Sainsbury's announced its intention to invest in Northern Ireland with an initial tranche of 7 stores costing £100 million and providing 2,200 full and part time jobs. Sixteen per cent of the first 1,000 jobs were from the long term unemployed.

1.6 There are five Sainsbury's supermarkets and petrol filling stations: Ballymena (December 1996), Forestside, South Belfast (March 1997), Coleraine (December 1997), Craigavon (March 1998) and Newry (September 1998). Sainsbury's in Armagh (December 1998) does not have a petrol filling station. Sainsbury's in Strand Road, Londonderry opened on 25 January this year providing around 350 jobs (this store does not have a petrol station). There are seven Homebase stores in the Province as well.

1.7 Sainsbury's currently awaits planning determination on a number of other applications including a flagship store Sprucefield, Lisburn and Newtownabbey. Further opportunities are being appraised to provide an ultimate portfolio in Northern Ireland of some 12-14 supermarkets.

1.8 This document outlines our Sainsbury's policy on sourcing Northern Ireland produce; margins and pricing policy and our buying policy using a number of case studies including potatoes.

2. Sainsbury's policy on sourcing Northern Ireland produce

2.1 Background

Sainsbury's is committed to UK agriculture, working with farmers to ensure high-quality, value for money food is available to consumers. Like all supermarkets we do not buy direct from farmers, we buy meat from processors and fruit, vegetables and salads from packers and pre-packers.

2.1.1 Prior to Sainsbury's announcement in June 1995 of its development plans for seven stores across Northern Ireland, the Company sourced £80 million worth of produce a year from Northern Ireland from 17 local suppliers. Sainsbury's has committed to doubling the value of its existing business sourced from Northern Ireland to between £150 and £200 million over the next few years and the value is now £120 million.

2.1.2 Today Sainsbury's has 100 suppliers in Northern Ireland, supplying fresh produce and product in stores to the Province and the rest of the United Kingdom. This is an example of the importance which the Company places on sourcing quality and will continue to work closely with the Industrial Development Board (IDB) and other agencies to increase the number of suppliers. No company is too small to supply Sainsbury's. No fee is required from companies in order to become a Sainsbury's supplier, and no penalty clauses are imposed in our supply contracts. The vast majority of our suppliers are free to trade with competitors. Legal disputes are rare.

2.1.3 It makes sound commercial sense to maximise local purchases for supply to our outlets in the Province, particularly on produce where there are both cost and freshness benefits in not having to transport goods several hundred miles from the mainland. Although there is strong demand in the Province for local products, we share the view of the General Consumer Council that consumers in the Province will buy local products only if they represent good value for money and good quality. Regarding the transportation of food, we estimate that we eliminated at least 1.6 million km last year, cut fuel consumption by 597,000 litres and cut CO2 emissions by 1,530 tonnes. Our suppliers also reduced food mileage by 480,000km.

2.2 'Meet the Buyer' conferences

To increase the supplying opportunities available to local producers, Sainsbury's has been proactive in sourcing product from Northern Ireland including three 'Meet the Buyer' sourcing conferences. The first was held in Belfast in 1995 and smaller events were held in Londonderry in April 1996 and in Newry in May 1998. Potential suppliers met Sainsbury's buyers on a one-to-one basis to talk about supplying opportunities.

2.2.1 In November 1999, we, along with the Londonderry Chamber of Commerce, ran a seminar to highlight supplying opportunities with Sainsbury's both in Northern Ireland and throughout the UK for smaller companies in the area.

2.3 'Partners in Produce' scheme

Three Northern Ireland companies - Glens of Antrim Potatoes (Cushendall, County Antrim), Sparky Pac (Comber, County Down) and Hughes Mushrooms (Dungannon, County Tyrone) became the first Northern Ireland 'Partners in Produce' when Sainsbury's launched its Partnership in Produce initiative in Northern Ireland in November 1997.

2.3.1 Partners benefit by the partnership providing them with a planned market for their produce and the security of a financially sound trading relationship so that growing and packing can be planned against clear sales programmes and with the back-up of Sainsbury's technological and research expertise.

2.3.2 Jobs have been created as a result of Sainsbury's supplying opportunities in Northern Ireland. The major share turnover of Dungannon Meats, for example is with Sainsbury's and as a result of this sustained level of business, Dungannon Meats now employs over 620 people and is one of the largest employers in the South Tyrone area.

2.3.3 We believe that the support we give to products through in-store promotion and our Partnership schemes is an effective way of helping the agricultural sector. If any supplier finds that his business is being diminished because of an initiative we are taking with other products in that same category, then we would work with him to try to develop his product range so that he had other means of increasing his income by, for example, spreading the product to more stores. It is of no benefit to Sainsbury's to see one of our suppliers in financial difficulty. We want them to succeed as much as they do. We need suppliers who are investing for the future, investing in better quality and investing in new varieties to improve choice and quality and who ensure that welfare and health and safety issues are dealt with. Last Autumn, Dungannon Meats, announced a new scheme to use bull calves for beef products to help tackle the current crisis in the sector.

2.3.4 We have looked at the possibility of supporting farmers' markets but we came up against a number of problems such as planning constraints restricting the use of our car parks for anything other than car parking.

2.4 Sainsbury's support at the Balmoral Show

In 1999 Sainsbury's participated for the fourth year at Northern Ireland's premier agricultural show - the Balmoral Show. The theme of Sainsbury's stand was 'supporting local growers and suppliers', a reaffirmation of the Company's commitment to Northern Ireland growers and suppliers and local sourcing in general.

2.4.1 At a reception for suppliers held at the stand, the Sainsbury's Outstanding Supplier Achievement Awards for local suppliers were inaugurated. The awards are for local suppliers who achieve exceptional business growth with the supermarket. The Awards illustrate both Sainsbury's and the award winners consistent commitment to quality last year. Dungannon Meats won the large company category and Glens of Antrim Potatoes won the small company award. Their combined growth in business with Sainsbury's was 350 per cent. Glens of Antrim employ 35 people and supply potatoes to all Sainsbury's stores in the Province. The business is worth £1 million per annum.

2.5 Supplier Development Programme

If there are suppliers and sources in Northern Ireland who are able to provide a product that is as good as one that we are already sourcing from the mainland or elsewhere then it makes sense in terms of freshness and delivery costs to develop that source. In February 1998 Sainsbury's launched a major Supplier Development Programme to assist Northern Ireland food companies in the development of their business with Sainsbury's. The programme, delivered by Leavercliff Associates, has given 27 local food companies a unique opportunity to understand how to work with and develop their business with Sainsbury's.

2.5.1 The programme took the form of a series of seminars covering areas such as understanding the UK market and identifying and exploiting product opportunities. Companies were supported by a number of one-to-one sessions, which looked at logistics, financial analysis and technical requirements. This programme is now complete and has resulted in these suppliers growing their business with Sainsbury's by around £12 million.

2.5.2 As a result of the Supplier Development Programme, Hughes Mushrooms of Dungannon is set to triple its business with Sainsbury's and is on target to supply mushrooms to the value of almost £5.5 million to Sainsbury's stores throughout the Province and across the rest of the UK.

2.5.3 The second Sainsbury's Development Programme was launched in March 1999 and involved 10 additional local Sainsbury's suppliers. Annual turnover by November 1999 had increased by 35 per cent for the suppliers involved. Forecast turnover for the next 12 months is predicted to be around 130 per cent.

2.6 Northern Ireland Suppliers: wider opportunities

A number of Northern Ireland companies who have become suppliers to Sainsbury's since the company began trading in Northern Ireland have subsequently become suppliers to Sainsbury's on the mainland. These include Tayto Crisps, Farm Fed Chickens, Irwin's bread, Morrows Pate and Hughes Mushrooms. Size is not a barrier to supplying the mainland market.

2.6.1 The company has sourced products from Dungannon Meats, Cuan Oysters and Denny's for around 20 years prior to developing stores in Northern Ireland. Farm Fed Chickens from Coleraine, Sainsbury's only source of corn fed chicken, has almost doubled its business with Sainsbury's since 1997 and recently won an additional contract expected to be worth £5 million annually with Sainsbury's to supply its premium range of corn fed chicken to the company's top 70 stores. Hughes Mushrooms will triple its business with Sainsbury's over the next 18 months to around £4.7 million a year.

2.7 Labelling policy

We are committed to supporting the local farming industry and have been labelling meat, fruit and vegetables as home-produced for many years. Therefore produce from Northern Ireland is marked 'Product of Northern Ireland'. By the middle of this year we will have labelling of origin on the remaining fresh meat products which include ready meals, sandwiches and delicatessen products.

2.7.1 We are looking to extend regionality across the UK and 'Products from Northern Ireland' will be incorporated into this policy. Any future labelling will be as simple as possible for ease of recognition and designed with the customer in mind

3. Sainsbury's Margins and Pricing Policy

3.1 Our primary aim is to deliver the very best competitive offer to our customers. In accordance with our view that the Province is part of a single national market we operate the same pricing policy in the Province as we do on the mainland, that is a national pricing policy with a few tweaks to reflect specific local trading conditions such as in the potato (see table 1), milk and bakery industries for example details of which are below. It is a popular misconception that retailers are making large profits at the expense of farmers.

3.1.1 The IGD announced recently the results of a survey into consumers attitudes to food prices and profits. It found that consumers had exaggerated views about profit levels. Consumers thought an average of 36 pence in every pound spent in food shops went in profit to retailers and 26 pence to manufacturers - the actual figures are 6.5p and 8.5p. [i.e. manufacturers profits are proportionately higher.]

3.1.2 The IGD research showed that there is little understanding of how industry makes or uses profits and there is an exaggerated view of how large profits are.

3.2 Farmgate and retail pricing

A large proportion of the cost which arises 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 onto the retailer. We are looking ways in which these costs can be reduced without any detrimental impact on the safety and integrity of the food we sell.

3.2.1 It has been suggested that retailers put the price paid at the farmgate as well as the retail price on goods. The only price we pay is the one to our suppliers for packed produce and produce ready for retail sale. We are not involved in the price our suppliers pay to farmers. It would be far too complicated to have different labelling. If consumers are to understand what they are being presented with, then each added cost after the farmgate, be it added by the packer, abattoir, processor or retailer, would have to be explained. It is in our interests to have profitable farmers.

3.2.2 Potato example

TABLE 1: List of commodities supplied by Northern Ireland supplier, Glens of Antrim Potatoes to stores in Northern Ireland all year compared to average prices of mainland suppliers.

	7/2/99 Cost £	Retail (pence)	%	7/8/99 Cost £	Retail (pence)	%	Present Cost £	Retai (pence)	%
Sainsbury's Loose baking potatoes
Glen's cost	11·3	49	42·3	9·6	39	38·5	7	55	33
Mainland	11·1	49	43·4	9·5	39	39·1	6·45	55	38·3
Sainsbury's King Edwards 2·5kg								1·79	44·1
Glen's cost	10	2.39	47·7	N/A	N/A	N/A	8	1·79	44·1
Mainland	10·06	2·39	47·4	8·06	1·99 (proma)		7·36	1·79	48·6
Sainsbury's White Potatoes 2·5kg
Glen's cost	9·02	1·69	33·3	6·5	95	14·5	6·25	95	17·8
Mainland	8·96	1·69	33·7	5·9	95	22·4	3·8	69	31·2
Sainsbury's Maris Piper 2·5kg	10·6	2·39	44·6	11	1·99	30·9	8·3	1·49	30·4
Glen's cost	10·6	2·39	44·6	11	1·99	30·9	8·3	1·49	30·4
Mainland	9·94	1·89	34·3	10·4	1·99	34·7	7·2	1·49	39·6
Sainsbury's Red Potatoes 2·5kg
Glen's cost	9·26	2·29	49·5	8·7	2·49	56·3	7	1·49	41·2
Mainland cost	9·3	2·29	49·2	9·02	2·49	54·7	6·44	1·49	45·9

3.2.3 Milk

Programming plans governing the amount of supply are agreed with produce suppliers. These plans are very beneficial to suppliers as it guarantees them a market for their product. Last year we launched an initiative with our three principal organic dairy suppliers and the Organic Milk Suppliers Co-operative. We have undertaken to pay a minimum price of 29·5 pence per litre over a five year rolling commitment. This is set against the purchase of minimum volumes raising to 155 million litres in 2003/4. We anticipate that organic milk will by then represent 15% of our total milk sales.

3.2.4 Sainsbury's sources all its conventional milk in the Province from local dairies. When we opened our first store, representatives of the Dairy Industry highlighted their concerns to us over the possible impact on milk rounds in the Province. We made a concession, to raise the price we would charge for 4 pint milk from a mainland retail price of 83p to 89p.

3.2.5 The Bakery Industry

Sainsbury's bakery trade with Northern Ireland suppliers has increased by £0·5 million over the past year. This represents an increase of almost 17 per cent. Sainsbury's is aware of the problems of the local bakery industry which far pre-date the arrival of Sainsbury's in the Province. There has long been serious overcapacity in the industry which is inefficient and has been unable to make reasonable profits despite high retail prices. The IDB recognises that there is overcapacity in the industry and has said that it is "unable to finance a sector which was already over capacity" (20/11/99).

We do not sell Economy bread in Northern Ireland (sold at 17p on the mainland) because it is not possible to source this locally or to sell at this price. Our decision not to stock Economy bread reflects a need to recognise the sensitivities of this sector. We provide choice and value for money in the range of bread that we offer in the Province. We sell a standard white sliced loaf which is locally sourced at 35p (on the mainland the same loaf is sold at 39p). All key sliced lines are locally sourced which accounts for 75 per cent of our bread sales in the Province. Northern Ireland bakers sent around £1 million of bread to our mainland stores last year.

Sainsbury's is committed to sourcing the core bread range from the Province and extending the range of regional lines as appropriate. Since 1997 a local baker, Irwins Bakery, has supplied bread and regional products to around 90 of our stores. This company has recently invested £5 million in a new state of the art bakery. Cake products have been the biggest growth area as additional regional suppliers have been taken on board to supply regional customer demand. Howell House bakery has shown significant progress and have returned growth of 250 per cent. Other successful local bakeries have updated their production methods, diversified towards the production of more sophisticated bread products (soda and potato farls) and have successfully exploited the demand for locally sourced products.

4. Sainsbury's Buying Policy

4.1 Seventy five per cent of the food and drink that Sainsbury sells is from the United Kingdom. In value terms, we sell about £120 million of British food and drink each week - over £6 billion per annum. Around 90 per cent of the food and drink that Sainsbury sells that could be sourced from the UK is from the UK.

4.1.1 We have to recognise that after quality, our customers rate choice as their top priority. It is our customers' requirements on varieties for sale that determine what produce and products are made available. Customers not only want products which for climatic reasons are not produced in the United Kingdom such as bananas, avocados, kiwi fruit, and pineapples, but they also want authentic products for example real Parma Ham; products which are seasonally unavailable for example strawberries at Christmas; and products which can be produced more cheaply elsewhere, for example corned beef. The increasing interest in organic produce by consumers and the potential it offered to Northern Ireland farmers were highlighted at 'Northern Ireland, the Organic Opportunity' conference sponsored by Sainsbury's.

4.1.2 Some customers want green beans, soft fruit and new seasons potatoes and lamb, for example, all year round. Either the UK alternative is not of the quality or price that they are looking for or there is no UK alternative. We cannot dictate to our consumers that they must only eat certain foods at certain times of the year. The fact is, consumers can choose to pay the cost of moving these products half way around the world and, from a competitive point of view, if we don't offer them someone else will.

4.1.3 We do work with our suppliers to maximise availability to locally sourced produce in Northern Ireland to avoid importing from the mainland or elsewhere.

4.1.4 We have to import some products which could be produced in Northern Ireland but, for a number of reasons, are not. Organic food is a prime example. We import 70 per cent of the organic foods we sell. We have to do this in order to meet the ever growing demand for organics in the UK. By doing this, however, we are helping to establish the UK market. We hope that UK producers will eventually make this market their own, substituting with local products wherever they can. Imports of food and drink to the country are not new - for many decades we've been importing tea, coffee, cocoa and oranges, for example. Forty years ago we were importing tomatoes and we've been importing apples for a number of decades.

4.1.5 Very rarely we import products that we could buy in the United Kingdom. However, levels of supply have not always been what they are today. Take for example beef. We have sourced beef from Eire for 25 years. We first went to Eire because of shortfalls in the UK. We now have long established relationships with these suppliers and feel it would not make good business sense to drop them.

4.1.6 Lack of availability can be a problem. Recently we wanted to run a promotion for UK sourced Back Bacon but found that our suppliers could not obtain sufficient product to meet the increased customer demand that such a promotion would create. The supply just was not there. Our suppliers shared in our disappointment at not being able to get this promotion off the ground having themselves invested millions of pounds in new plants to process and pack pigmeat. Meat promotions can raise sales by 1000 per cent.

4.1.7 We did run the promotion but using bacon from the UK and other sources and sold 2 million packs in one week. 60 per cent of Sainsbury's bacon is British compared with the national import level of 50 per cent.

4.2 Cheap Food Imports

Regarding prices for UK and imported goods, if there is a difference in the retail selling price of imported and domestically produced foods in our stores, it is because the cost price at which we have bought the products is different. Where costs are lower for imported product it is usually because their producers have the advantage of a better climate and/or lower input costs.

4.2.1 It would not be right for us to charge customers more for an imported product to protect a British one. Interestingly, whilst our customers are concerned about value for money, in a list of their priorities, cheapness was fifteenth.

5. Other Information

5.1 Sainsbury's is very supportive of initiatives designed to facilitate greater access to knowledge and improved understanding between the countryside, farmers, industry and retailers. For over 130 years Sainsbury's has been committed both to supporting farming in the UK and to offering customers safe, high quality and value for money food. We have no intention of changing these long standing pledges and are fully engaged ensuring there is a successful future for farming in Northern Ireland and on the mainland.

5.2 Sainsbury's believe that all parts of the food chain need to work closely together to resolve any perceived differences. Everything Sainsbury's does as a business is driven by customer demand. Our view is that supermarkets are part of the solution to the present crisis in farming and not the cause of it.

5.3 Sainsbury's SAVE Scheme

In addition to our support for farmers we are also committed to the UK's rural communities. Sainsbury's SAVE scheme (Sainsbury's Assisting Village Enterprises) scheme allows for the sale of Sainsbury's branded goods via village stores, thereby helping their viability.

5.4 Community Involvement

Ever since Sainsbury's announced its intention to invest in Northern Ireland the Company began working with community groups and charities large and small. This diversity reflects Sainsbury's strengths, not only as a company but also as a business which has its roots firmly in the community.

5.5 The Company has supported hundreds of charities and community groups around our stores from sponsoring the Belfast Festival at Queen's to funding Worktrain Ballykeel Ltd in Ballymena, a partnership that provides community based education and training in a very deprived area of the town. Other examples of community involvement, both past and present include: Early Bird Montessori Playgroup, Armagh, County Armagh; Northern Ireland Council on Disability, Belfast; St Patrick's Day Parade, Newry, County Down; Londonderry & Limavady Agricultural Show, County Londonderry; Newry Drama Festival; Antrim Games; City of Belfast International Rose Trials; Fire Victim Support Vehicle (across Northern Ireland); Loughgall Football Club.

Appendix H

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: TESCO

8 February 2000

Thank you for your letter of 28 January. I can confirm that representatives from Tesco will attend, as requested, a public meeting of the Committee for Agriculture and Rural Development on Friday 11 February, at 10.45am.

Please find attached two memoranda, one outlining Tesco procurement policy in general and one dealing specifically with potatoes.

Unfortunately, I shall not be in Northern Ireland on the 11th, but senior colleagues will be attending in my absence. The Tesco representatives at the meeting will be:-

Mr Cliff Kells Northern Ireland Commercial Category Manager
Mrs Gwynneth Cockcroft Davidson Cockcroft, Public Affairs
Mr Peter Timoney Northern Ireland Finance Manager

They will be accompanied by a representative from the Tesco designated potato supplier in Northern Ireland

Mr Angus Wilson Wilson Country Potatoes

Thank you for your helpful notes on the Committee, and its procedures. I am conscious that your original letter emphasised the need to find a way forward for the agricultural industry in Northern Ireland. With this in mind, I should like to offer our co-operation in endeavouring to find practical and sustainable solutions to the problems currently encountered in an increasingly global retail market.

We firmly believe that our position as the number one retailer in the UK has been reached as a result of our complete customer focus. We would be willing to share this consumer understanding, plus relevant research and technical expertise should the Committee feel that this could be of benefit.

We would also be pleased to participate in any discussions pertaining to the development of customer-orientated agricultural strategies and have listed some suggested topics regarding potatoes in our memorandum on the subject.

I trust that the attached submissions, and forthcoming meeting, will be of assistance to the committee in its analysis of the issues, and development of potential solutions.

Yours sincerely

ERIC BOWEN
Director, Tesco, Northern Ireland

Memorandum 1

In general Tesco does not deal directly with farmers, although there are a few exceptions. Our direct contact is normally a supplier in the form of a processor or manufacturer who has negotiated overall terms with us and who, in turn, negotiate individual terms with each farmer. However, our local procurement policy supports hundreds of farmers across the province spanning all of Northern Ireland's agricultural sectors. Suppliers range from small specialist producers right through to large companies most of whom in turn, source their raw materials locally. In addition some of these larger companies are major suppliers to Tesco GB.

Tesco Commitment to the Local Agricultural Sector

1. Our procurement policy is to source locally wherever possible. With the exception of a few speciality products our local sourcing commitment is as follows:

(a) All fresh beef

(b) All fresh lamb

(c) All fresh pork

(d) All fresh and seasonal frozen poultry

(e) All fresh fish

(f) All fresh eggs

(g) All fresh milk (including goats' milk)

(h) All fresh produce subject to season and availability

(i) All fresh bread

2. At present, Tesco spend more than £220 million per annum with local suppliers and is on target to increase this to more than £290 million by the year 2002. Tesco also has an office in Belfast supporting our 7000 local employees. All of these staff are dedicated to supporting local suppliers and producers to meet the needs of our customers.

3. Since our entry into the market, Tesco has invested heavily in store refurbishment, new stores and a new distribution infrastructure which facilitates local procurement of fresh agricultural products.

4. Over the last two years, Tesco technologists and the local Tesco team have forged links with local producers, agricultural colleges and universities with the aim of encouraging product development. We have done this through practical and financial support.

5. The company is part of a trade development group, originally set up by Tesco, consisting of representatives from DANI, IDB, LEDU, CBI and the Northern Ireland Food and Drink Association.

Memorandum 2

The last decade has witnessed fundamental change in the Northern Ireland potato market. Consumer expectations, purchasing habits and consumption patterns all continue to evolve to reflect lifestyle changes. We have sought to address these changes by working in partnership with local suppliers. This has resulted in a clear and ongoing commitment to source as much as we possibly can from indigenous potato producers.

Tesco Commitment to the Local Potato Sector

1. Our supply partner for fresh potatoes is Wilson's Country Potatoes. Since this relationship began, Wilson's Country has grown into a significant business, employing 90 local people.

2. Our policy is to source our fresh potatoes from Northern Ireland. From time to time, however, to meet customers' range and quality expectations, we supplement our local offering with imported varieties, not available locally.

3. Through Wilson's Country, we have worked with local growers to enable them to meet the specifications now demanded by our customers. This is particularly the case with washed potatoes, which now constitute almost two-thirds of our overall fresh potato sales, and is helping local growers to produce to internationally accepted standards.

4. In relation to further-processed potato products, we have developed strong relationships and growing business with key local companies in areas such as crisp and frozen chip manufacture. We do this through the promotion of indigenous local brands and, in the last year, following intensive technical support, the launch of a number of locally-produced Tesco brand products.

5. We have worked in partnership with government departments such as DANI and together with Loughry College have pioneered the development of traditional products, such as champ, into a new and convenient format, in order to meet the changing needs of our customers.

The Way Forward

Tesco are prepared to work with the committee and with the broader agricultural community to provide practical assistance in various key areas, and we would suggest the following as potential topics for discussion:

1. Development of comprehensive market data and local consumer research.

2. Provision of adequate storage to extend the season for locally-produced potatoes.

3. Further development of new products and potato varieties.

4. The development of a local (and international) marketing strategy for Northern Ireland potatoes.

5. Organic potatoes.

Appendix I

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: LIVESTOCK AND MEAT COMMISSION FOR N I

13 January 2000

Agricultural Debt

I refer to your letter of 17 December to our Chairman on the above subject. In responding to your enquiry, we should start by advising that in general our role does not involve us in having a particularly high awareness of the levels of debt within agriculture as a whole. Indeed, with the exception of a few approaches which farmers have made on a private and confidential basis for advice, our awareness of debt levels in the beef and sheepmeat sector is also limited.

It was clear in each of the individual cases where approaches have been made to us that high debt levels had been incurred through the acquisition of agricultural land for beef and sheepmeat production at prices which were clearly not sustainable on a stand-alone basis for such a business. In each case, it seemed unlikely that banks would have granted facilities for such asset purchases without having a lien on other assets of the particular farmer.

Within our particular sectors, while the levels of profitability have been substantially curtailed and the values of livestock have significantly reduced over recent years, it is still generally possible for producers to cover their costs. The transitional period to the current low prices have of course resulted in some individual cases, particularly of beef finishers, where working capital borrowings have not been fully discharged on the disposal of stock. We conclude, however, that within our sector, the most significant reason for debt problems have been where significant asset purchases have been made.

In order to explain the current situation, we have prepared the attached business model which looks at the current year prospects. The model demonstrates that for a typical Northern Ireland specialist beef farm, a small profit can be achieved, but this profit is scarcely adequate to service the investment in "liquid assets" (stock and machinery). The model concludes that the value placed on land for beef and sheepmeat production should not exceed the amount required to be invested to generate an average industrial wage of £16,000 per annum. Since the model concludes that a land area of 120 acres is necessary, it is difficult to see how a land value of more than £1,000 to £1,500 per acre is justified. With land values remaining throughout Northern Ireland at levels of three and four times this value, it is difficult to see how land, buildings or other major asset purchases can be financed.

Throughout this period of declining fortunes for beef and sheepmeat producers, you correctly identify the reluctance which Government has displayed to take up EU aid which might be available. Agrimonetary compensation is the prime example. This reluctance of course is due to the effects which it would have on the UK rebate and on the budget when the UK Exchequer is required to make a direct contribution. Agrimonetary compensation, however, is only a transitional support while currencies are undergoing change relative to one another. While it would be helpful to alleviate debt in some instances, if Government were to be persuaded to retrospectively make these payments, they do not in themselves reverse the conundrum which we face in the future. We have an industry which needs reorganisation to improve competitiveness, and yet asset values as they are at the moment do not allow that reorganisation to take place.

We recognise that the circumstances in other sectors may be different, and indeed in some sectors we understand that current costs are not being covered by market prices.

In writing, we are conscious of the evolving Govermental arrangements within Northern Ireland. We are keen, at an appropriate time, to ensure that the Committee for Agriculture and Rural Development has a suitable level of knowledge and understanding of the work of LMC. We would like therefore to extend an invitation to the Committee to visit us at our offices at Lissue House. We would propose to make presentations about the various aspects of our work and focus on some current issues within the beef and sheepmeat sectors. Perhaps you would raise the possibility of such a visit with the Committee and if there is agreement in principle, we can agree a mutually acceptable date.

We hope that these comments are helpful in your consideration of this matter.

Yours sincerely

DAVID RUTLEDGE
Chief Executive
Enc

BUSINESS MODEL - YEAR 2000

Typical Northern Ireland Specialist Beef Farm

50 Suckler Cows @ 1.0 Livestock Units each
50 Calves up to 1 year @ 0.3 Livestock Units each
50 Store Cattle 1-2 years @ 0.6 Livestock Units each
150 Cattle 95 Livestock Units

Income

Sales:

50 cattle per year
Average age at slaughter 2 years
Average carcase weight 300 kg
Average sales price (after expenses) £1.50/kg
Average grad 0+3
£450 per animal x 50 £22,500

Total £22,500

Subsidies:

Suckler Cow Premium
50 @ £115 (assumes Objective 1 supplement) £5,750
50 @ £21 (extensification) £1,050

Beef Premia
25 @ £76 first stage £1,900
25 @ £21 first stage extensification £525
25 @ £76 second stage £1,900
25 @ £21 second stage extensification £525
50 @ £17 Slaughter Premium £850
25 @ £20 Heifer Slaughter Premium £500

Total £13,000

Total Income £35,500

Costs

Cow depreciation £1,250
£25 per cow per year
Concentrates
£50 per head for cow + calf + store £2,250
Veterinary/Medicines
£5 per animal per year £750
AI Fees
50 @ £15 £750
Building Depreciation/Repairs
£50,000 @ 2% depreciation + 1% maintenance £1,500
Machinery Depreciation/Maintenance
£50,000 @ 8% depreciation + 2% maintenance £5,000
Labour
Average NI industrial wage £16,000
Fertiliser
120 acres @ 150kg/acre @ £110/tonne £2,000
Fuel, Electricity, Telephone £1,000

£30,500

Profit (Return on Assets)

Income £35,500
Costs £30,500

Profit £5,000

Asset Values

Assume asset values as follows:

Stock

50 cows @ £400 £20,000
50 calves @ £200 £10,000
50 stores @ £300 £15,000

£45,000

Suckler Cow Quota
50 @ £250 £12,000

Machinery £50,000

Total Non-Land Assets £107,500

Even to invest these "liquid assets" at current rates of just over 5% this would yield profits of c. £5,375 as against the profit of £5,000 shown above.

What is value of land?

Conclusions:

1. To collect extensification premia as set out in the model, the minimum area of land required is calculated as:-

2 livestock units per hectare

95 livestock units total

47.5 hectares required
(approx. 120 acres @ 2.47 acres = 1 hectare)

2. Land used for beef production has a value equivalent only to the investment necessary to generate average industrial wage of £16,000 per annum. This realistically cannot be more than £1,000-£1,500 per acre. Even assuming that, no other job is available which is a suitable match for the skills of the beef farmer.

Appendix J

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: NORTHERN IRELAND MEAT EXPORTERS' ASSOCIATION

5 January 2000

You wrote to our Chairman, Mr Colin Duffy on 17th December 1999, regarding the inquiry into the debt in the agricultural and fisheries sectors in NI. I am responding to your letter on behalf of Mr Duffy and the NI Meat Exporters' Association.

1. BACKGROUND INFORMATION

The membership of the NI Meat Exporters' Association is made up of the majority of the EC Export approved beef and lamb slaughtering and processing companies in Northern Ireland.

2. DEBT INQUIRY

While it is the brief of your committee to ascertain the level and extent of debt in the Agriculture and Fisheries sectors, that is not a subject which this Association feels competent to discuss. Our remarks will therefore be confined to pointers for the future which we believe will contribute to a strong rural economy and ensure a viable rural programme and community life.

3. DEBT RELIEF

This Association believes that now is the time for major changes to take place in Agriculture to safeguard the rural community life. Over the past three years we have seen the Pig Industry almost wiped out. This has not just been a NI problem, in fact it is a world-wide problem with over production in every country in the world. In the light of this it is not terribly sensible to give producers false hopes of better things to come when the problem exists to the magnitude it does and on such a world wide scale. Local consumers may talk of supporting home produce but when it comes to value for money that philosophy tends to be forgotten.

The beef industry is not all that different. Over 70 pieces of legislation on top of what was there before, have been introduced to the processing sector since 1996 and all of them have added cost upon cost to the industry, leaving NI one of the most uncompetitive regions of Europe. The fact that so much red tape surrounds any attempt to begin to market our way out of the situation is strangling the industry from its full export development potential. Currently less than 50% of cattle in NI have export status due to documentation and administrative problems on farms. This is a very poor image of our quality standards and our ability to demonstrate to consumers a high degree of management. It does nothing to instil confidence in those quality niche markets that we once enjoyed prior to BSE. No matter how good we think we are we need to set our sights much higher. Like every other part of the food industry farmers must accept that more accurate paperwork and maintenance of records is a necessary part of any future development of the food industry.

In recent years in the sheep sector over 50% of the annual lamb crop is smuggled to the ROI leaving processors here in a weak development position to add value and thus improve returns to farmers. In 1999 around 580,000 lambs were processed in NI out of an annual crop of around 1.5 million. The loss of levy revenue to LMC on these lambs is also a major financial problem, money which is needed by the LMC for promotional activity in respect of the sheep sector.

4. FUTURE STRATEGIES

Any future strategies to improve the situation for producers and processors must take account of the demands of the consumer whether we like it or not. There is little point in producing anything that has to be sold at a discount price just to get rid of it. All future production should be linked to quality market criteria so that the highest prices can be achieved for the maximum amount of product rather than 50% of the right product subsidising 50% of what somebody just wants to produce. For instance last year between April and September 37,700 cattle were classified in the undesirable grades for any quality specification and had to be simply traded at discount prices to find an outlet for them. While this is mainly a breed problem a further 9,400 cattle in the same period were produced at fat class 4H or 5 totally outside any quality specification and purely as a result of farm management. These facts have to be faced and action proportionate to the problem taken to improve the quality of NI production.

5. QUALITY DEMANDS

Traceability, Farm Quality Assurance, Livestock Chain Management, Farm Auditing and the Red Meat Strategy, are all part of the future food production systems and there needs to be a much more pro-active attitude on behalf of everyone to secure our own future. It may not be attractive and it may be more bothersome, but if we cannot deliver what the consumer wants then there is no point in crying for Government help. It is absolutely essential that all farmers take seriously the demands being forced upon the industry, no matter how unpalatable, to ensure that NI can have the edge in the food industry of the future. It is either that or close the door. It is no longer adequate to adopt the attitude of "I'll do it my way".

6. THE CASUALTY FACTOR

Like New Zealand and every other Agricultural country in the world that has been forced to grapple with the same problems, it has to be accepted that those who choose to ignore the demands of the consumer are writing their own exit strategy from the industry. There will be casualties but it will be confined to those who do not want to keep abreast of an efficient 21st century food production industry. It is therefore our opinion that the Government should introduce a forceful rural education programme urging everyone in the rural areas to meet the challenges of the future and rise to the demands and standards being made by those who ultimately buy their produce.

7. THE SUCCESS FACTOR

No-one has any desire to see the demise of the rural hinterland and therefore the proper management and development must be in place so that production can be adjusted to meet the current demands of quality and consistency. Farming structures probably need to change to meet the demands of the future and we believe that there is a viable future for those who decide they want to be part of it. It is our opinion too that this is the best way to insure against future debt in this sector. We accept that some of these points may be far reaching but we also believe that we do not do anyone any favours by just moving from one crisis to another. There needs to be planned development based on quality production to ensure a sustainable rural future. Production is currently fragmented and there is little by way of co-operative production and marketing. There needs to be major changes in this area so that input costs can be reduced further still to the benefit of everyone.

While these points may on the face of it seem to be a bit radical and far reaching nevertheless we believe that there has to be radical changes for everyone if we are to establish a future for NI Agriculture.

Yours sincerely

T C MATHERS

Appendix K

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: ULSTER AGRICULTURAL ORGANISATION SOCIETY LTD

14th March 2000

Thank you for sending me the terms of reference for the enquiry by the committee.

As discussed on the telephone they are probably not relevant to our Biogas project. However I do believe that we can respond to the final term of reference by outlining positive steps that have been and can be taken by producers to help alleviate the situation. It will not happen, though, without commitment and support.

Three quotations come to mind,

1890 Horace Plunkett 'Co-operatives are the children of distress'

1962 President J F Kennedy 'Farmers are the only businessmen who buy retail and sell wholesale'

1990 UAOS Conference 'Self help or self destruct'

We would be delighted to make a short presentation outlining the positive contribution marketing and purchasing co-operatives have made and can make to:

(a) the farm income;

(b) off farm employment opportunities;

(c) supply chain development.

This presentation could be combined with the one on biogas.

We look forward to the reconvening of the committee and the opportunity to put forward positive and innovative ideas.

Yours sincerely

Ian Murray
Chief Executive
UAOS LTD

Appendix L

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: NORTHERN IRELAND POULTRY FEDERATION

13 January 2000

Re: Enquiry into Debt in Agriculture

You have written individually to several of our members within the poultry meat sector. As the representative body of our industry we have been asked to formulate a common response. Individual members of our association may also wish to highlight issues separately. We would wish to make the following points.

• The levels of loss which have been sustained in the poultry meat sector over the last 2-3 years are as serious as the much publicised situation within the pig sector. The sole reason that this has not received the same publicity is that the losses have been carried by the processing companies. Producers have been sheltered from the hardship of the market place under the terms of their producer contracts with processors. However the current situation is unsustainable. If the current level of losses continue and any of the three larger companies were to go out of business, the consequences will be sudden and dramatic. The processing sector employs over 5000 people directly. In addition over 1000 farms derive some or all of their income from production of meat or breeding birds. These farms tend to be small family enterprises which would have little in the way of alternatives should their poultry unit fail; especially so with agriculture in such a depressed state.
• It must be stressed that the above scenario is not just industry scare-mongering. Recently there have been several major failures in the UK broiler sector (eg Marshall Food Group, Penwoods and Pershaws).
• Our best estimate of the level of indebtedness of poultry meat producers to cover bank borrowing and outstanding feed, day-olds and other miscellaneous items is £40m/£50m.
• Our best intelligence reports confirm that the Northern Ireland Poultry Meat industry is losing approximately £12m per annum.
• We understand the indebtedness of egg producers is in the region of £15m/£20m.
• The industry has been placed in this unprofitable situation through no fault of its own. In terms of physical efficiency, production is amongst the most efficient in the world. For example, the Northern Ireland farmer uses some 14% less feed/kg of meat produced than in the USA (source Agristats). The problems in our industry have been brought about by the following:

1. Strength of Sterling:

As with many sectors of agriculture the strong pound has resulted in a flood of imported European and third world product entering the UK at prices below local production costs. Such imports now represent nearly 40% of UK poultry meat consumption (source BPMF) compared with the situation a few years ago where an exportable surplus was produced. Indeed the processors in Northern Ireland have been obliged to use a significant amount of imported product for further processing, without which their financial problems would be much worse. Local production levels have been maintained only by virtue of the expanding overall market, subsidy of farmers by the processors and some success in developing niche markets for speciality type products such as free range and organic.

2. Feed Costs:

Northern Ireland has long suffered from a relatively higher feed cost. This stems from transport costs in importing raw materials and higher energy cost in the manufacture and distribution of feed. It is estimated that these additional costs amount to some £15/tonne compared with GB or mainland Europe. For many years the industry has managed to absorb this premium through extra efficiency and production advantages based on the high health status of its stock. However, it has now an additional cost burden which uniquely penalises the Northern Ireland industry.

3. Additional Costs:

The industry has been burdened with a plethora of additional costs in recent years which are damaging to our industry in a market where we compete with imported product, especially from non European sources, which does not have to incur these costs. Examples include the ban on the use of meat and bone meal, on the use of antibiotic growth promoters and legislation relating to animal welfare, traceability and environmental protection. The industry does not disagree with the need for some of these measures, especially where they impact on food safety, but we find it iniquitous that imported products are able to evade the need to comply with these requirements and the on costs stemming from them.

We hope we have made clear that a very real threat to the continued existence, at the very least, of the primary production sector of the Northern Ireland poultry industry exists. Such a loss would deal a savage blow to the local economy. The important role of the small family farm which our industry supports should not be underestimated. It both assists in maintaining a viable rural economy and sustaining a strongly work focused labour force which is also available to other local industries.

We request that the Assembly should urgently consider the introduction of the following measures:

1. Compensation mechanism for currency:

The industry recognises that assistance to producers has been made in an attempt to offset the current crisis in agriculture under Commission Regulation (EC) No2808/98. These forms of agrimonetary compensation to producers are not directly available to the intensive sector. Additionally we do not see the current remedies as being adequate either in scale or nature to redress the problem. In the past the financial traumas affecting trade in the food industry arising from movements in currency values have been addressed by a system of "Monetary Compensatory Amounts" (MCA's). This system was developed by the commission in the 1970's under Regulation EC 974/71. The aim of this regulation was to "remove any advantage or disadvantage to traders which can result purely from currency changes, and to act as a balancing factor in trade between countries with different currency values". We argue that the current situation is so grave that the application of a scheme along these lines, which directly relates to trade, rather than to producers is urgently required.

2. Feed Price Allowance:

We suggest a two stage programme in this respect.

• Firstly a scheme aimed at overcoming the differentiation between GB and NI perhaps via creating intervention storage within Northern Ireland or allowing imports of third country grains at tariffs which result in Northern Ireland prices replicating average UK prices - (this type of scheme is already in operation in Spain and Portugal and details are attached as Annex 1).
• In the medium term we should seek to replace direct price support for cereals with a support system for farmers which is not based on a guaranteed price for grain. This would allow grain prices to fall to world market prices and thus allow our poultry farmers to fully exploit their competitive advantage in terms of production efficiency.

It seems anomalous that the end product of the intensive livestock production chain exists in a situation where it is exposed to world-wide competition, whereas an intermediary in this chain ie, the cereal producer, enjoys the luxury of a guaranteed price for his product.

3. Interest relief scheme:

We request that grant aid towards interest payments is made available to the poultry industry. We understand that such aid is under serious consideration for pig producers in the Republic of Ireland and may also become available in Northern Ireland.

4. Support for development:

We request an increase in the allocation of funding towards assistance into capital expenditure, research and development and training for companies involved in the sector. This will help the industry maintain its position as a leader in innovation and product and process development.

The Northern Ireland Poultry Industry is highly integrated and is recognised world wide to be an extremely efficient industry.

Unlike many parts of the world practically all production is carried out by bona-fide farmers.

The nature and scale of the problem is such that political input will be required to redress the problem.

In the light of these extreme problems we request a meeting with the Chairman or with the Agricultural Committee as soon as possible to discuss these matters further.

Yours sincerely

NORTHERN IRELAND POULTRY FEDERATION

W P O'Kane OBE
Chairman
Enc.
1. Summary.
2. Annex 1 Details of "Abamiento System"

NORTHERN IRELAND POULTRY FEDERATION

Submission by Northern Ireland Poultry Federation to
Committee for Agriculture and rural development

Re: Enquiry into Debt in Agriculture

SUMMARY

The poultry industry is the largest employer in the Northern Ireland food sector. The sector has been unprofitable for several years.

The reason that this has not been highlighted is that farmers contracted to the industry have been supported by the processing companies.

With a level of loss now estimated at over £12m/annum, the situation is reaching crisis point.

The reasons for these losses are detailed.

Suggestions for remedial measures are also outlined.

Annex 1

Details of "Abamiento" system for maize/corn to Spain and Portugal

• This scheme is operated by the EU and grants the above countries the right to import non EU grain.
• Normally such imports incur a tariff which would result in the net price to the end user being much higher and so uncompetitive with grain of EU origin.
• In this case a concession allows import of a fixed quota (currently 2.2 million tonnes/year) at a much reduced tariff.
• The tariff is set so that the imported grain is sold at an identical price to that prevailing in Spain or Portugal at that time.
• Thus the price paid to local producers is not disrupted but the country is not disadvantaged by having to use more expensive imported grain.
• It is our understanding that had NI had direct representation at Brussels available in the past, then an equivalent scheme to that in Spain and Portugal would have been open to NI.

Appendix M

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: NORTHERN IRELAND GRAIN TRADE ASSOCIATION

January 2000

Following a number of lengthy reports NIGTA wishes to respond to the single question of examining alternative proposals for addressing problem of debt.

All other issues have been addressed in the past and NIGTA would suggest that the Department of Agriculture and Rural Development is best placed to produce any verifiable statistical information.

NIGTA would also contend that they are not aware of any initiatives that are being taken by the Department to alleviate debt.

NIGTA would suggest that urgent short-term measures are desperately needed to allow enough time to address the longer-term problems facing the industry.

Short-term measures should be focused on reducing the burden of debt and its ancillary costs.

NIGTA would seek a change in attitude whereby DARD should continually utilise all resources to find solutions rather than emphasise obstacles.

NIGTA would request the Minister and all members of Government utilise ingenuity in their approach to problem solving.

As secondary bankers to agriculture NIGTA members are keen to play a full role in any discussions to alleviate debt believing that there is an opportunity to reduce farm input costs further if the debt burden can be realigned.

Short term proposals

NIGTA contends that the opportunity exists to seek special terms for Northern Ireland to assist the Peace Process, but it also contends that opportunity exists to utilise self-help to reduce the problems associated with the debt burden. Immediate consideration should be given to the following:

(1) Emergency assistance for the pig industry to alleviate the losses incurred as a direct result of the fire at Lovell and Christmas. Losses of £10 million were directly attributed to the fire and were over and above the losses incurred as a result of a falling market. This figure is established by measuring the normal differential of Northern Ireland versus UK prior to the fire against the additional differential following the fire. NIGTA would contend that the European Union should recognise the benefit of backing this proposal, as close association with the Republic of Ireland on this issue would demonstrate that the Peace Process could bring advantages.

The current DARD response is that the Welfare Scheme addressed this issue, that is not the case as it only addressed the Welfare problem on farm, and it was never anticipated that the losses directly because of the fire would reach £10 million.

(2) Maximum effort by all Government departments and the IDB in particular to find a way of offering direct assistance to the poultry processors to help them retain their Northern Ireland production base.

(3) To seek a regional status to allow Monetary Compensation to be paid in Northern Ireland.

(4) To pursue the proposal of an interest relief package for Northern Ireland farmers.

(5) To immediately utilise the Ministerial position to bring about round table discussions of influential people that could materially assist the farming industry.

(6) To introduce and support an influential body based on the outline of An Bord Bia.

Longer term

To develop relations with the 'achiever' Nations in Europe to bring the Northern Ireland dimension into focus.

To develop dialogue that enhances the principals of fair-trading within the European agricultural policy.

To develop dialogue with other nations to seek support to reduce the price of grain to world prices, thus allowing the competitive production of meat products within Europe.

Appendix N

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: NORTHERN IRELAND GRAIN TRADE ASSOCIATION

June 2000

Views on integration/re-organisation of the agricultural industry

The integration and partnerships within the Poultry sector have addressed the issue of minimising cost. We would recognise that integration and/or partnerships can help sustain businesses through the difficult times.

A facilitator with a 'can do' philosophy within the Government and Department of Agriculture and Rural Development could play a leading role in bringing food industry players together for the common good.

Financial support should be sought to encourage integration.

What Government and Farmers can do to make the industry more competitive

Northern Ireland faces, currency, geographical and input cost disadvantages.

While losing money, the Poultry sector has faced these problems without stopping their technical advance and product innovation.

(A) The single biggest issue facing the industry is currency strength with particular reference to Northern Ireland, because of the land border with the Republic of Ireland. Mechanisms already exist within an EC context (monetary compensation) and where mechanisms do not exist they could be sought by government eg the Republic of Ireland's scheme in 1983 which was geared towards exporting companies.

(B) The Government should appoint a facilitator with appropriate resources to seek out opportunities and bring them to the support of the farming industry. The specialist knowledge held within DARD should be utilised as a positive force rather than the negative force that we have seen in the past. Opportunities for co-operation with other member States will occur and a facilitator working closely with the agricultural industry should be tasked to find a way through the difficulties that will also arise.

The agricultural industry needs to know that they have access to a positive thinking office within DARD. The most recent example of what might have been achieved by this approach is demonstrated by the £1m debt plan to assist the pig producers in the ROI, who were affected by the Lovell and Christmas fire.

(C) The farming sector and all manufacturing industries within Northern Ireland suffer from the high cost of electricity.

We would propose that Northern Ireland should be made a special case when applying the Climate Change Levy. The level set for Northern Ireland should be reduced to reflect the premium already being paid in Northern Ireland.

(D) The haulage and fuel industry is being decimated by the difference in fuel prices across our land border and this is having a major knock-on effect to the agricultural industry.

We would propose that Northern Ireland should seek a dispensation on diesel and road tax, for use in Northern Ireland, to allow prices to equate to ROI prices.

(E) The intensive sector in Northern Ireland face input costs of between 5% and 10% higher than GB, they face input costs of between 15% and 20% higher than the USA.

The grain regime in the EU has an intervention base price that keeps the price of grain high to support grain farmers and the EU uses restitutions to allow the export of that grain at World prices. The result is that the livestock industry pays an inflated price for its raw material and gets no assistance on exports or protection on competing imports.

In the USA the grain farmer gets world price plus a guarantee up to a minimum price. The livestock industry, get grain at world price cheapening their produce and assisting their export potential.

The Government should seek to match this system allowing the livestock producers an even playing field in a bid to export value added product.

Failure to match the American system will result in the collapse of our intensive sectors in the longer term.

(F) A long term Government Loan Scheme which would offer low interest rates and an opportunity for farmers to re-structure their business should be considered.

(G) The other issue which would make a difference would be the effective labelling of food products as having been produced in the UK (primary production). Existing proposals have been watered down due primarily to supermarket pressure. The Food Standards Agency should help educate the consumer regarding countries where products are sourced and the production methods in those areas.

The quality of produce being produced is it competitive?

Quality produce is being sold to the buyer and is therefore competitive, however the producer may be making a loss to achieve the sale.

Poultry imports are achievable at a significant discount over home produced products, and may not have been produced to the same standards as this country.

Many factors mitigate against a GB producer and additional costs burden a NI producer. Some of the added costs are Government imposed, the Government should pay compensation when they exceed EU standards.

Across a range of parameters from welfare standards (pig industry) to bacteriological status of product (poultry) to meat quality (beef and BSE status) the produce of the province is of an extremely high standard. NI cannot compete with commodity prices, only niche markets are sustainable for home-grown produce.

Where the processor fits into the price gap from the farm gate to the consumer

While the food retail index has followed inflation over the last decade, farm incomes and processor incomes have seen a major decline.

The evidence suggests that processors are losing money or not making an acceptable return. This is demonstrated by losses within the major processors in Northern Ireland and the knowledge that major PLC processors such as Glanbia, Kerry, Malton would welcome discussion with any concern interested in stepping into processing.

The contribution Co-operatives can make to the industry

Partnerships and integration within businesses can offer efficiency, however co-operatives agenda does not always equal efficiency.

Appendix O

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: WILSON'S COUNTRY LTD

23 February 2000

Please find below information required by the Committee following the proceedings on Friday, 11th February 2000.

POTATOES SOURCED BY WILSON'S COUNTRY
August 98 - July 99
	NI	ROI	GB	GB M.PIPER	CYPRUS	TOTAL
%	71	11	5	11	2
August 99 - July 00 (estimated sales)
%	73	10	5	10	2

NOTES:

1. Product from ROI is used to introduce the early new set-skin season and bridge the gap between the local old season and new season.

2. Maris Piper is difficult to grow in NI due to common scab and slug susceptibility, yet it is recognised by consumers as a premium tasting potato.

3. Cyprus potatoes are offered to consumers as a new potato before our local new potatoes are in season.

4. 5% GB product is imported to supplement our local crop.

5. As a company, we are actively involved in working with growers to develop local growing of Maris Piper and extending our local season, hence the increase in NI % for this season.

Regards.

Angus Wilson

Managing Director

List of Other Relevant Papers

List of Other Relevant Papers

Ulster Farmers' Union - Paper on issues to be addressed in the local agri-food supply chain

Assembly Research and Library Services - Paper on Farmgate and Retail Prices

Competition Commission's Supermarkets Inquiry - Issues Statement

ULSTER FARMERS' UNION
ISSUES TO BE ADDRESSED IN THE LOCAL AGRI-FOOD SUPPLY CHAIN

The Ulster Farmers' Union would highlight the following key issues which farmers feel need to be addressed in the local agri-food supply chain.

• Transparency

Farmers are greatly concerned at the huge mark up between farmgate and retail prices for many commodities. For example top grade beef cattle are valued at c. 174p/Kg. In the supermarket sirloin steak retails at c. £11.80/Kg. Pig producers receive about c. 68p/Kg for their pigs. Pork fillet retails at c. £8.00/Kg. More transparency is needed in the Agri-food chain to ensure fair pricing structures are in place.

• Labelling

Proper labelling of Northern Ireland produce is crucial. The retail sector has not properly addressed this issue. Primary produce can be imported to NI, processed and labelled as "sourced in Northern Ireland". The local pig industry has suffered particularly severely with exceptionally high welfare standards not being promoted. What plans have retailers to clarify labelling procedures?

• Commitment

The current strength of sterling has seen more and more produce imported to Northern Ireland. Are retailers committed to Northern Ireland suppliers and the quality they can provide, or is price the key factor? Can they confirm that the quality and welfare standards of imported product matches local produce?

• Cost

Costs of production for farmers in Northern Ireland are extremely high. Compliance to a whole range of quality assurance schemes has heaped extra cost on producers with little marketing advantage apparent and certainly no premium. Currently a farmer in Northern Ireland could spend over £600.00 registering with Quality Assurance Schemes. What future co-ordination can be introduced to maximise the benefit of these schemes and minimise the administration/cost/auditing involved?

• Supply chain management

Trust and confidence is at a very low ebb among producers in many commodities. What plans have retailers to instigate proper supply chain management and build up a more positive relationship with the primary producer?

• Regional Policy

We believe decisions taken by central policy makers, based in GB, do not always reflect the situation "on the ground" in Northern Ireland. We believe the major supermarket multiples should adopt a regional policy to better reflect market conditions in the Province.

• Promotions

We are very concerned that the cost of ad hoc promotions, particularly for fresh produce, appears to be passed back to the producer. We feel this is an unacceptable situation. Local farmers have invested heavily to meet the high standards demanded by the major multiples. Margins are now being squeezed to unsustainable levels and the impact of promotions exacerbates the problem.

ASSEMBLY RESEARCH AND LIBRARY SERVICES
FARMGATE AND RETAIL PRICES

11 January 2000

Martin Wilson

Clerk of Agriculture & Rural Development Committee

Re: Farmgate and Retail Prices

The attached tables (from an August 1999 House of Commons Research Paper) compare changes in agricultural producer prices between 1995 and 1998 with changes in retail prices over the same period. Both tables are in index form (with 1995, as the base year, set at 100).

While it is difficult to match the different items in the tables exactly, it is clear from the data that farmgate prices in the UK have fallen significantly while retail prices have generally increased. In the one area where there was a major fall in retail prices - unprocessed potatoes (-27%) - there is notably a much larger fall in the corresponding producer price - root crops (-39%). It seems that the fall in prices paid to farmers is not reflected by the prices that consumers pay in the shops.

Producer prices for Northern Ireland (see attached Table 2.8)have suffered an even greater overall fall - 27% between 1995 and 1998 compared with a 22% fall in UK producer prices over the period. As UK retail prices also apply to Northern Ireland this would suggests that the disparity between farmgate and retail prices is greater in Northern Ireland.

I hope this is helpful. Please let me know if you require any further information.

RESEARCH PAPER 99/77

Producer prices have in most cases fallen since 1995;

Index of Producer Prices of Agricultural Products (UK)
(API) 1995=100

	1995	1996	1997	1998	change 95-98
Cereals Root crops Fresh fruit Fresh vegetables Seeds Flowers and plants Other crop products Crop products Animals (for slaughter and export) Milk Eggs Animals & animal products Total of all products	100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0	101.6 59.3 112.2 99.2 85.6 106.9 105.7 92.4 102.5 100.4 119.6 102.4 98.5	81.4 39.7 102.6 87.1 64.3 107.1 95.3 76.6 90.7 88.6 102.6 90.3 85.1	70.5 60.7 102.9 96.7 62.5 101.7 94.5 78.6 75.2 77.6 94.4 77.0 77.7	-29% -39% 3% -3% -37% 2% -6% -21% -25% -22% -6% -23% -22%
Average annual figures for calendar year Source: MAFF, 16 April 1999 at website wee.maff.gov.uk

While retail prices have remained steady;

Retail food prices (UK)
RPI Component 1995=100

	1995	1996	1997	1998	change 95-98
Bread Cereals Biscuits & cakes Beef Home-killed lamb Pork Bacon Poultry Butter Cheese Eggs Fresh milk Unprocessed potatoes Fresh Vegetables Fresh fruit	100 100 100 100 100 100 100 100 100 100 100 100 100 100 100	1001.8 100.9 103.7 101 114.2 120.7 113.3 105.7 108.5 105.8 110 101.6 78.9 98.3 12.5	100.4 100.9 104.9 98.8 113.1 117.6 117.6 106 109 108.7 110 101.6 54.9 91.2 105	99.3 101 106 96.9 105 104.4 109.2 104.7 110.7 104.7 109 101.7 73.1 94.9 106.7	-1% 1% 6% -3% 5% 4% 9% 5% 11% 5% 9% 2% -27% -5% 7%
Source: ONS Database (series DOAA, DOAB, DOAC,DOAD, DOAF, DOAG, DOAH, DAOI, DOAM, DOAO, DOAP, DOAQ, DOAY, DOBA, DOBC)

It is difficult to match exactly commodity to product, but in general, while retail food prices for bread, milk, pork, lamb, cereals and even beef have changed relatively slightly and in most cases risen from 1995 to 1998, producer prices for certain commodities are showing significant falls. Producer milk prices have fallen by about animals for slaughter or export by around a quarter, cereals are down by 29% and root crops by 39%.

Table 2.7 Average producer prices^{1 of agricultural products}

£ per unit
	Unit	1994	1995	1996	1997	1998 (Provisional)
Finished steers, heifers and young bulls2,3	head	698	718	615	509	418
Finished steers, heifers and young bulls2,3	kg dwt	2.23	2.22	1.89	1.61	1.37
Calves slaughtered or exported2	head	159	154	89	69	62
Culled cows and bulls3	head	490	518	442	333	257
Culled cows and bulls3	kg dwt	1.75	1.77	1.62	1.33	1.08
Store cattle exported	head	510	528	456	417	327
Finished sheep and lambs	head	43.76	42.75	53.52	50.25	38.77
Finished sheep and lambs	kg dwt	2.15	2.04	2.56	2.45	1.96
Finished clean pigs4	head	65.79	78.92	95.27	73.75	50.60
Finished clean pigs4	kg dwt	0.95	95.27	1.31	1.03	0.71
Culled sows and boars	head	98	119	130	100	49
Milk5	litre	0.212	0.254	0.240	0.206	0.193
Eggs for consumption	dozen	0.395	0.397	0.476	0.349	0.295
Broilers	kg lwt	0.548	0.549	0.585	0.574	0.530
Potatoes: Ware maincrop6 Seed	tonne tonne	119 136	173 212	76 158	63 69	110 105
Barley	tonne	112	119	116	90	84
Wheat	tonne	114	124	125	96	88
Mushrooms	tonne	1,190	1,210	1,165	1,146	1,150
Apples	tonne	119	138	158	214	275
1. After deduction of marketing charges, commissions and levies, where applicable. 2. Includes calves processed under the Calf Processing Aid Scheme. 3. Includes cattle slaughtered under the Over Thirty Months Scheme. 4. Includes pigs slaughtered under the 1998 Pig Welfare Slaughter Scheme. 5. Before deduction of superlevy, if applicable. 6. Does not include early potatoes. Therefore, the price differs from that quoted in Table 2.26.

Table 2.8 Indices of producer prices

Indices: 1995 = 100
	Weights2	1994	1995	1996	1997	1998 (Provisional)
Finished steers and heifers3	247	100	100	85	73	62
Culled cows and bulls3	42	99	100	92	75	61
Store cattle exported	4	97	100	86	79	62
Finished sheep and lambs	56	105	100	125	120	96
Finished clean pigs	91	86	100	118	93	64
Culled sows and boars	2	83	100	107	80	41
Milk	307	83	100	95	81	76
Eggs for consumption	25	99	100	20	88	74
Broilers	60	100	100	107	105	97
Potatoes: Ware maincrop Seed	25 11	69 64	100 100	44 74	3 33	6 50
Barley	23	94	100	98	76	70
Wheat	7	92	100	101	78	71
Mushrooms	25	98	100	96	95	95
Apples	5	86	100	115	155	200
Total products index2	932	92	100	96	83	73

1. The indices relate to prices from which marketing expenses have been deducted.

2. The total products index is calculated by taking into account the significance of each item in the base period (1995). This is shown in the column of weights. Since only the main items of output are included, the total of their weights does not cover items such as production grants, compensation payments and gross fixed capital formation, it should not be regarded as a 'deflator' to be used in estimating the volume of output. (A series giving the volume of gross output is given in Table 2.3.)

3. Includes cattle slaughtered under the Over Thirty Months Scheme.

COMPETITION COMMISSION
SUPPLY OF GROCERIES FROM MULTIPLE STORES MONOPOLY INQUIRY
Issues Statement

The Competition Commission has written to 24 companies in connection with its inquiry into supermarkets, describing the progress made so far, identifying the issues which it has been examining and highlighting those which it wishes to raise with some of the companies concerned (see paragraph 12) at a series of hearings during March.

In accordance with recent practice the Commission is publishing this statement summarizing the main points raised with the companies, in order that those interested may give us their views. In view of the wide public interest in the inquiry and the uncertainty which it has generated, this statement indicates the Commission's current priorities in the inquiry.

This is, however, an interim stage in the investigation and no conclusions have as yet been reached on any matter.

The Commission has received over 200 submissions, held 35 hearings with interested parties mainly in London but also in Belfast and Birmingham; and obtained questionnaire response data from consumers, all the main grocery retailers, nearly 400 suppliers of groceries to supermarkets and 50 local authorities. It has analysed a range of critical aspects including price levels, profitability and efficiency; price competition locally and nationally; international comparisons of prices and profitability; relationships with suppliers; transmission of price changes from suppliers through to consumers, acquisition of land for supermarkets and the impact of the planning regime in the UK. The Commission has also looked at a number of other social and environment issues relating to the retailing of groceries.

Jurisdiction

The Commission has provisionally found that all the companies to whom it has written belong to one or both of two complex monopoly groups for the purposes of the Fair Trading Act 1973, in relation to the supply of groceries in the UK by supermarkets (paragraph 12 identifies these companies). One complex monopoly derives from the pricing of groceries sold by supermarkets to consumers and the other from the relationship between supermarkets and their suppliers. These findings are provisional (the companies are being invited to comment on them) and carry no implications as to whether any of the companies is operating against the public interest.

Public interest considerations

Where the Commission concludes that a complex monopoly exists, it is required to decide whether any matter arising from its investigation operates against the public interest. Below are set out the matters the Commission will wish to raise with the companies before reaching its conclusions.

1. Market definition

The Commission is primarily interested in the so-called 'one-stop shop' pattern of grocery shopping in which consumers can buy most or all of their weekly grocery requirements in a single visit to a supermarket. In this context, its provisional view is that the market comprises a large number of local catchment areas within which consumers can reach a supermarket in a relatively short period of time. However, the Commission will also wish to explore the significance of regional or national market shares of the companies concerned; and whether Northern Ireland constitutes a separate market.

2. Company profitability

The Commission has examined a range of different measures of supermarkets' overall profitability based on margins, returns on capital, and cash flow analysis, and trends in them. As appropriate, it has compared these to companies' cost of capital and returns in supermarkets in other countries. Its initial view is that, while in some respects overall profitability performance has been quite strong, there is at most only limited evidence of excessive profitability, as measured, being achieved. The Commission will, however, seek further clarification at the hearings.

3. Prices

Evidence obtained by the Commission suggests that the trend of grocery prices in recent years, while upwards, has been significantly below that for prices generally in the UK, leading to a reduction in the price of groceries in real terms. Other evidence still under consideration suggests that the trend has also been lower than for grocery prices in some comparable European countries. A detailed survey of the prices of a wide range of grocery products in several thousand stores in the UK and certain other European countries is being conducted, the results of which will in due course be submitted to the companies for comment. The Commission is also looking at data indicating how individual supermarkets' prices compare to each other.

4. Consumer satisfaction

The Commission has reviewed a number of surveys of consumers' views of supermarkets. In addition, in order to obtain an independent view and to cover certain gaps in the evidence already available, the Commission has carried out its own detailed survey. This has been used to provide insights into a number of the issues described below, but the overall picture which these surveys provide appears generally to be one of high levels of consumer satisfaction with the performance of supermarkets in the UK.

Main points for the hearings

Within this context, the Commission has identified a number of points which it wishes to raise with supermarkets. These are:

5. Market power

The Commission wishes to raise with the companies whether individual supermarkets have some local market power in catchment areas where there are few or even no competing supermarket stores. Linked to this is the question referred to in paragraph 6(a) below, whether the extent of local market competition affects the prices which consumers pay.

6. Price competition

Surveys indicate that consumers have regard to range, quality, service and price when buying groceries. It is primarily matters relating to pricing which the Commission wishes to raise, including:

a. whether price competition might be excessively concentrated on a relatively small number of frequently purchased items; and at stores which face the most local competition;

b. whether price changes by suppliers have been rapidly and fully passed through to consumers; and

c. whether the pattern of prices and margins across different types of product, including branded and own label products, is related to costs to the extent that would be expected in a fully competitive market. This would include products persistently sold at a loss, which may benefit consumers in the short term but which may distort competition and consumer choice, and may adversely affect the supply or availability of such products in the longer term.

7. Costs and efficiency

The Commission is also considering the cost structure and efficiency of supermarkets. Three issues which arise from this are:

a. Whether some supermarkets have been able to maintain too high a level of costs, with consumers paying more than would otherwise be the case.

b. The extent of economies of scale in the industry, at store level but more particularly at regional and national level, and what impact this has on prices and competition.

c. Whether some forms of competition between supermarkets, primarily for sites and in provision of any facilities which do not cover their costs, has unduly raised prices to consumers.

8. Land and location issues

The Commission has been looking at prices paid for land acquired for supermarket development and at prices paid for land acquired for other types of retail development. It wishes to explore whether prices paid for land for supermarket development are higher and if so, whether such higher prices sustain, or are sustained by, higher prices for grocery products than would otherwise be the case. This could result in high prices even though profits were not excessive. A related issue is whether supermarkets seek to restrict competitors' access to suitable sites for stores.

9. Relationships with suppliers

The Commission has received evidence from both supermarkets and suppliers on their commercial relationships. It will wish to discuss whether supermarkets have excessive buying power or not, and if so, whether this:

a. lowers the price of products to consumers;

b. prevents efficient suppliers from earning a reasonable return;

c. leads to higher prices than otherwise of products sold by suppliers to other retailers;

d. damages the longer-term competitiveness of the grocery supply base, or some parts of it, in the UK; and

e. reduces consumer choice.

In particular, because the great majority of groceries are bought from supermarkets, fair and reasonable access to supermarket shelves may often be a precondition for an efficient supplier to survive and prosper. The Commission will therefore wish to focus specifically on the terms and conditions governing access to supermarket shelves and whether these are in any way unfairly discriminatory, either as between different suppliers or as between supermarkets' own-label products and those of other suppliers.

Other issues

10. Social, environmental and planning matters

The Commission has sought views on the objectives, role and impact of the planning regime in the UK in relation to supermarkets. These, together with questions of access to grocery outlets by lower income and less mobile consumers, the impact of large grocery retail developments on local communities and related environmental issues, will also be raised.

11. Recent and prospective developments

The Commission will wish to discuss with the companies the most recent, and prospective, performance of the supermarkets, and the extent to which the nature and degree of competition may be changing. This will include the emergence of Internet and other forms of home shopping and the entry of Wal-Mart into the UK market, and any effects these may be expected to have on the competitive situation.

The companies

12. The Commission has considered the market positions of the 24 companies that between them make up the two complex monopolies, in particular their national, regional and local market shares, together with data on the number of their larger stores. In the light of this, the Commission's provisional view is that, in relation to 19 of them, it would be unlikely to conclude that their behaviour operated against the public interest, and the Commission currently has no plans to arrange public interest hearings with any of them. These are Aldi Stores Ltd; Anglia Regional Co-operative Society Ltd; Budgens Stores Ltd; Colchester and East Essex Co-operative Society Ltd; CRS Ltd; CWS Ltd; E H Booth & Co Ltd; Iceland Frozen Foods plc; Lidl UK GmbH; Marks & Spencer plc; Midlands Co-operative Society Ltd; Netto Foodstores Ltd; Oxford, Swindon and Gloucester Co-operative Society Ltd; Plymouth and South Devon Co-operative Society Ltd; Scottish Midland Co-operative Society Ltd; Somerfield plc; United Norwest Co-operatives; Waitrose Ltd; and Yorkshire Co-operatives Ltd. This provisional view carries no implication that any of the activities of the other five companies, ASDA Group plc; Sainsbury Supermarkets Ltd; Wm Morrison Supermarkets plc; Safeway plc; and Tesco plc are or will be viewed as operating against the public interest. The Commission looks forward to discussing the issues with these five companies in March.

Views invited

Any person interested in these matters is invited to comment on any of the issues raised in this statement.

---

Email: info.office@ni-assembly.gov.uk f EU or product of SE Asia. Such declarations must only be used where records show that there is blending or variation of the source of the product over a period of 12 months.

Where on the label and what size should the origin declaration be?

Usually the declaration can be included anywhere on the pack provided it is in a clear and legible format.

Where the name of a food includes a place name, this may mislead the consumer as to the origin of the product. Some place names used in the name of the food are the place where the food was made, eg Dutch gouda or Scottish salmon. Others may refer to a particular type of product where the customary name incorporates a place name but the product is not/no longer produced exclusively there, eg Cornish pastie or Eccles cake. It is never clear cut with names like these, especially with those products which may be associated with a certain quality/premium product, eg Cornish ice cream or Devon toffee, whether the consumer interprets the place as the place of origin or a reference to a particular quality.

Where the name of a food or its brand or trade name refers to a place other than where the food is made, the place of origin must be made absolutely clear.

Appendix B

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: DUNNES STORES LIMITED

03 February 2000

I am replying to your letter of 28 January addressed to Mr Eddie Kane. Regrettably, due to previous commitments it is not possible to have our suitable company representative at the meeting planned for 10.45 on Friday 11 February.

Dunnes Stores position in respect of potatoes is that we source all our potatoes sold in our Northern Ireland Stores from Wilsons Potatoes and Vitafresh, Newry.

Dunnes Stores has always had a policy in respect of its Northern Ireland Stores of supporting locally sourced products and this position is well understood by our numerous suppliers particularly those suppliers backing into the Agri-business sector such as Moy Park, O'Kane poultry, Dungannon Meats and Wilson Potatoes.

In recent times we have been conscious that this position has not always been fully appreciated by our customers so we have embarked on a series of advertising activities and in store theme promotions to highlight, for the benefit of our customers, products and produce which is sourced from Northern Ireland Food Processors.

Yours sincerely

GERRY McLORNAN

Appendix C

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: MARKS & SPENCER

18th January 2000

I am writing to confirm our telephone conversation of 11th January that I will appear before the Committee with Mr Angus Wilson from Wilson's Country Fresh, our potato supplier, at your convenience. We would be pleased to explain our approach to the retailing of potatoes in more detail to the Committee. We thought it might be helpful to make a few comments in advance to describe more generally the way in which Marks & Spencer has developed the food business over a period of many years.

Marks & Spencer has a well established record of giving support to the communities in which we trade and this includes, where possible, local sourcing. In this regard we buy a significant proportion of the fresh potatoes sold in our Northern Irish stores from Northern Irish growers. We have been buying our potatoes since 1994 from Wilson's Country Fresh with whom we are developing a long term relationship, a key element in the success of our food business. The success of this relationship to date has allowed us to dramatically increase the tonnage of potatoes that we buy in Northern Ireland.

Marks & Spencer's objective is to set leading standards in food retailing and we do not look to sell large volumes of cheap potatoes. To this end we buy particular potato varieties that customers tell us are the best, and we are constantly looking to procure the cream of the crop in these varieties. Whilst we are not trading a commodity product but a speciality vegetable, the prices we pay will be affected by the volatility of the international potato market, an issue which we and our suppliers must manage. Our customers demand quality and value. Retail prices must reflect supply costs but may also be constrained by what the customers are willing to pay.

With regard to crisping, Marks & Spencer is not involved in producing crisps or sourcing crisping potatoes from Northern Ireland and therefore we cannot comment on any possible impact on local producers.

We hope that we shall be able to help the Committee to clarify some of the issues relating to potatoes. With regard to the more general question of farmers' debt, the terms of reference of the current inquiry are wide ranging. We have insufficient experience of these matters in Northern Ireland for us to make any meaningful contribution and regret that we cannot be of further assistance to the Committee.

Yours sincerely

 

D A GIBSON
Senior Buyer - Potato Department

Appendix D

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: MARKS & SPENCER

7 February 2000

I am writing in response to your letter of 28th January 2000 requesting a memorandum on Marks & Spencer's policy towards and relationships with primary producers in Northern Ireland.

1. Marks & Spencer is proud of its long-term relationship with Northern Ireland. The first Marks & Spencer store in Northern Ireland opened in Belfast thirty-three years ago. Our retail operation is now very significant with seven stores and a major distribution depot, which currently employ over 1600 people. We have invested £65m in this operation over the last five years.

2. Marks and Spencer also has a significant food supply base operation in Northern Ireland, for more than forty years we have been partners with your important agri-food sector. However, our contacts with your business community go beyond stores and suppliers. Through Business in the Community Marks & Spencer people gladly supply expertise to small food enterprises. We are pleased to be on the Queens University Advisory Board and to support the agricultural industry with a major exhibit at the Royal Ulster Agricultural Society Annual Show each May.

3. The success of Marks & Spencer's food business is based on our range of high quality and highly innovative products produced by the best suppliers, that differentiate us from the high volume supermarkets. Our policy of developing collaborative supplier relationships and the excellent quality of Northern Ireland products has led to a highly successful partnership with strong sales and volume growth.

4. As I highlighted to you in my letter of 18th of January we have been buying potatoes in Northern Ireland from Wilson's Country Fresh since 1994. These potatoes are being sold in our stores in Northern Ireland and Eire and this year we will also be selling some across the rest of Europe. Wilson's Country Fresh's business is growing dramatically in tonnage and value terms with Marks & Spencer.

5. Avondale Food Ltd is an important supplier to several departments in our food business. Avondale's business with Marks and Spencer is growing dramatically, 50% of their business is now sold in the rest of Europe, and they have several new lines which are soon to be launched which will continue their strong growth.

6. An important supplier to our dairy business is Dromona Quality Foods, they now supply 60% of all the butter sold by Marks & Spencer in Europe. Similarly, all of the milk Marks & Spencer sell in Northern Ireland is produced in Northern Ireland.

7. We have a substantial business with O'Kanes who have supplied us with poultry for over thirty years. The extremely high standards of innovation at O'Kanes has been critical in achieving our pre-eminence in the chilled poultry business. We currently buy some 4 million chickens and 30,000 turkeys from O'Kanes each year. O'Kanes have become the largest importer of lemons into Northern Ireland and the Marks & Spencer Lemon Chicken is one of our star lines across Europe.

8. In the meat industry we have a similarly strong story. 10% of all Northern Irish steer carcasses are supplied into the Marks & Spencer food business.

9. Our policy in Marks and Spencer is to source the best quality and value foods from our suppliers. We are not a supermarket, but rather a food retailer who offers a range of innovative, high quality products which represent good value for money. Our approach is to work closely with a supplier to jointly develop a product, an approach that leads to close working partnerships. Our suppliers are paid promptly, assisting their business' cash flow.

10. The continuing success of our retail operation and supplier partnerships in Northern Ireland is based on our ability to work with the best suppliers to create highly innovative and differential products. We have every confidence that after over three decades of business in Northern Ireland Marks and Spencer and its suppliers have a strong future in both Northern Ireland and across our European business.

Yours sincerely

D. Gibson
Senior Buyer - Potato Department

Appendix E

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: MUSGRAVE SUPERVALU-CENTRA

7 February 2000

Contents

Paragraph

Introduction 1.1

Musgrave SuperValu-Centra Company Background 2.1

Purchasing & Sourcing Policy 3.1

Purchasing & Sourcing Policy - The Potato Sector 3.2

Consumer Marketing 4.1

Industry Initiatives with Local Producers 5.1

Developing Market Opportunities for Local Producers 6.1

Appendix 7.1

1:1 Introduction

Musgrave SuperValu-Centra welcomes the opportunity to contribute to this very important forum and is confident that the aims of the committee can be achieved in terms of a pro-active, collective response from the industry to supporting and promoting local producers at retail level.

2:1 Musgrave SuperValu-Centra Company Background

• Musgrave SuperValu-Centra is in partnership with independent retailers, providing unrivalled distribution and an extensive retail support package to retailers who trade under our franchise brands SuperValu and Centra.
• Entered NI Market in 1996 with the acquisition of 5 medium sized supermarkets.
• Currently service 33 SuperValu supermarkets and 16 Centra stores, 49 retail outlets in all, 33 of which are locally, independently owned.
• In the process of upgrading company owned stores in NI for sale to local, independent retail operators.
• Store refurbishment plans entail considerable investment in service providers throughout the Province, as well as job creation in stores.
• Combined retail t/o in NI in 1999 was £138 million stg, with group retailers servicing approximately 8% of the grocery market.
• MSVC NI offices and distribution centres established in Fortwilliam and Mallusk.
• 119 company central-office and warehouse personnel are employed in NI, with a further 2,000 employed in independent and company-owned stores.
• Independent grocery sector in ROI accounts for 48% of total sales, largely due to Musgrave Group Support, by comparison with around 29% independents' shares in NI. MSVC expansion into NI market will start process of restoring balance between the multiple and independent sectors, ensuring healthy competition and choice in the marketplace.
• Independent retailers re-invest in the local communities in which they make a living rather than withdraw profits to headquarters of a multi-national multiple group.

3:1 Current Purchasing & Sourcing Policy

• The ability to buy as a group is one of the major services supplied to independent retailers through MSVC, allowing independents to compete with multiples.
• As partners to independent community-based retailers, it is company policy to source locally, wherever possible, as the company needs thriving local economies to ensure a solid customer base for our independent operators, many of whom are based in farming communities.
• Our company deals locally with over 200 Northern Ireland suppliers.
• MSVC negotiates prices with trading partners in the various food categories, having reviewed all relevant market movements and supplier-led cost proposals.
• Recommended retail pricing is advised to all stores following review of primary competitors. However independent retailers can, and do, set their own prices occasionally.
• In Northern Ireland, almost 60% of all MSVC purchases are from local suppliers.
• The company operates a buy local policy for fresh produce, subject to seasonality. Almost 70% of fresh foods volume is produced locally.
• Local trading partners have benefited substantially from improved distribution available through MSVC eg Salad Fayre in Newtownards had a 56% sales increase in 1999 - also Dromona & Willowbrook.
• MSVC buying policy insists on 100% local sourcing in areas where we have total control on procurement: Eg
• fresh pork 100% NI
• fresh beef 100% NI
• fresh lamb 100% NI
• deli sausges 100% NI
• deli bacon 100% NI
• milk 100% NI
• eggs 100% NI
• Extensive promotion has increased fresh meat sales in the past twelve months. Promotional activity was up to 51% in 1999, with the trend to continue. 2000 began with a major SuperValu meat sale in January, including NI pork sausages promoted on TV at 2p/kg.
• We are currently in the process of rolling out a centralised distribution service for all chilled and fresh produce in NI. When fully implemented, this system will allow wider distribution of locally sourced fresh produce to all our franchise customers.
• Retail sales for fresh products in ROI increased 35% in the first year following roll-out of a similar system in 1998, with overall supplier business up 15%. Already in NI improved sales of local brands have been recorded.
• We source £11.6 million NI produce for supply into the ROI market and have targets to develop this in the coming year.
• In the Republic of Ireland, where group retail turnover is IR£1.05 billion, 70% of all purchases are from local suppliers.
• The company has won ROI trade award for support of indigenous producers, regularly tops research rankings of retailers "buying Irish" and is regularly credited in public by Govt Ministers for support of indigenous industry, the farming sector and local communities. We are pursuing a similar position in the NI market.

3:2 Purchasing & Sourcing Policy: The Potato Market

• MSVC NI sources all potato requirements for the NI market from 3 local packers:

• Wilsons
• Glens of Antrim
• Fane Valley
• Glens of Antrim and Fane Valley only supply 100% local produce of NI under their own brands and the SuperValu own-label.
• Wilsons supply branded and own-produce sourced 100% on the island of Ireland.
• White Potatoes - 100% NI
  (own-label)
• Pink Potatoes - 50% NI
  - 25% GB
  - 25% ROI

Blight problems experienced in the NI market necessitated the supply of ROI produce during 1999. Local sourcing is the preferred option which is only over-ridden when suitable supply is not available.

• All own-brand and branded potatoes in Northern Ireland are labelled by Country of origin, as is the legislative requirement. MSVC policy is also to highlight product of Northern Ireland, where possible on packaging and at point-of-sale.
• 99% of MSVC crisp sales in Northern Ireland is branded product. Almost 50% of that is supplied by Tayto NI in Tandregee, Co Armagh. SuperValu own-brand crisp sales, supplied from Co Meath, represent 1% of the NI SuperValu sales volume.

4:1 Consumer Marketing

• MSVC NI invests £1.9 million in National and local advertising annually, with additional local advertising by stores.
• Promotion of local produce includes local press, point-of-sale, national television and mailshot/brochure activity.
• A corporate instore identity kit, with artwork and dedicated point-of-sale, for all stores promotes the advertising and POS opportunities in identifying local produce.
• PONI products are all highlighted instore with dedicated POS.
• Regular promotion of local produce is conducted instore, including tastings, coupon offers, multi-buys etc.
• The fresh food trading department co-ordinates group price promotions on local produce, particularly fresh meat, on a 52 wk per year basis, to encourage sales. Eg: 25% of all pork, 25% of all lamb, 2p/kg pork sausages etc.
• Instore cookery demonstrations have been organised to promote superior quality and versatility of local produce.
• Regularly market "Season's First Local Produce" such as launch of First NI strawberries with Lester Brownlee Co of Armagh on SuperValu's stand at last year's Balmoral Show.

5:1 Industry Initiatives with Local Producers

• Collaborative projects with Ulster Pork & Bacon Forum and local suppliers, Fred C Robinson's, to market local produce and build brand identity - in-store POS campaigns, national TV advertising and brochures for "Are You Pickin' Ulster Pork?", campaign etc.
• Supplier partnerships in NI include the development of Armagh Baked Ham exclusively for SuperValu and Centra by Mourne Country Meats.
• Developed a gourmet tomato range exclusively with Greenmount College in Antrim.
• Projects with Ulster Farmers Union - sponsored trade shows/potato conference - 24 Feb 2000, Balmoral Show etc.
• UFU Chairman Will Taylor frequently attends local SuperValu store openings, as a guest of the independent owners, and has written a testimonial to SuperValu's support of local producers.
• Farming Life newspaper supplement sponsored for Balmoral Show organisers.
• Sponsor "Insight" dedicated supplement in Ulster Grocer bi-monthly, highlighting joint business initiatives with NI producers and suppliers and providing editorial space to spokespersons of producer organisations.
• Sponsored 1999 supplement in UK Grocer magazine promoting local NI supplier base and have committed to 2000 publication also.
• MSVC £3,000 bursary for Food Safety (MSc) students at the Agriculture and Food Science centre in Queens University. Recognising that farm businesses need to enhance quality management systems to optimise competitiveness and profitability and also that students from farming backgrounds need financial support to counteract high "drop-out" rate due to financial constraints.
• Musgrave SuperValu-Centra personnel make themselves available to NI producer groups and trade organisations to discuss business development and promotion.
• £3,000 awards fund presented annually in association with NIFDA (Northern Ireland Food and Drink Association) to encourage the further career development of agri-food post-graduate students.

6:1 An Approach to Developing Market Opportunities
for Local Producers

• MSVC has been central to the establishment of NIIRTA, the Northern Ireland Independent Retail Trade Association, and commits to having the Association address measures for independent traders to develop business with local producers.
• Identify key individuals from major organisations involved in producing, marketing, and retailing NI produce - eg: PONI assoc, major retailers, UFU, Govt agencies - and schedule a one day "think-tank" to present issues and examine solutions. MSVC would welcome the opportunity to be involved.
• Formalise contact with existing marketing boards for the different sectors eg: LMC meat marketing board, NIFDA etc to address sectoral issues and promote produce at trade and consumer level through dedicated marketing campaigns carried throughout the retail industry.
• Develop marketing boards, as required in other sectors, such as fruit and vegetable marketing or dairy produce.
• MSVC would dedicate suitably qualified personnel to work with each board, and alongside other retail and trade representatives, to pursue the objectives of the marketing boards.
• Establish a resource/Authority advising producers on how to satisfy current market demands, in terms of production, packing, distribution etc. The resources of highly experienced MSVC trading personnel could be made available to advise the authority.
• In the ROI we have worked closely with the Irish Farmers Assoc to build producer groups capable of supplying modern retail and consumer demands. With the already high UFU producer group standards, similar trading relationships can be effected in NI.
• We partner individual indigenous supplier companies to develop own-brand food lines for our stores - egg producers, dairy ranges etc - although new to the NI market, it is our intention to identify opportunities for similar trading and "mentoring" partnerships in the Province. (see Para 5:1 Mourne Country Meats).
• We support Government in the ROI at a very practical level, on all food supply and producer issues. For example, in 1996 during the BSE scare, we headed a Govt expert group set-up to talk down the scare at consumer level and get Irish beef back on supermarket shelves.
• The Musgrave Group Managing Director Seamus Scally is the only retail representative on a Government appointed "Agri-Food 2010" committee to address indigenous food supply and marketing. MSVC NI personnel could be made available to local Government on a similar basis.

Sheila Gilroy-Collins, Marketing Managing
Musgrave SuperValu-Centra Northern Ireland Tel: (232) 835021

Appendix F

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: SAFEWAY

12 January 2000

Procurement Policy

I refer to Dr Ian Paisley's letter of 21st December addressed to my colleague Brian McColl. I am replying on behalf of Safeway.

I will deal with each of your concerns in turn:

1. It is difficult for us as retailers to comment on the prices which potato growers receive from the packers they supply. As you are no doubt aware, the supply chain for potatoes and other types of produce has three stages. The grower supplies the packer, who packs and transports the product to the retailer's distribution centre (in our case our depot at Larne). The retailer then delivers to his own stores. The price we charge our customers, therefore, is driven by the price we have to pay the packers who supply us.

2. We do not have commercial relations with individual growers. However, what happens in the market place inevitably works its way back up the supply chain:

• The potato market has been very unstable over the past 12 months. In the first quarter of 1999, potato prices were relatively high as a result of the poor crop of 1998. From May onwards, however, a bumper crop of new potatoes came on to the market and since then prices have fallen dramatically. In Northern Ireland our biggest volume line is the 2.5kg bag of white potatoes. Our retail price for this product in Northern Ireland has fallen from £1.89 to 0.95p, or by 50%, since last Spring.
• In Northern Ireland, around 95% of the potatoes we sell are supplied to us by Glens of Antrim (GOA). The remainder are supplied by Bartletts, our Scottish supplier. Over the period since last Spring, while our retail price for 2.5kg whites has fallen by 50%, GOA's price to us is down by only 38%. In Scotland, by contrast, we have been able to reduce our retail price to 0.65p per 2.5kg bag or (66%) because our major supplier, Bartletts, have cut their price to us by a similar percentage.
• The reason, therefore, that Northern Ireland consumers are paying 0.30p more for a 2.5kg bag than Scottish consumers is not "profiteering" by retailers but the substantial difference in our supply terms between Northern Ireland and Scotland. Bartletts are currently supplying us at a price per case which is over one third lower than GOA.
• The reason for the differential is not that GOA are making "excessive" profits. The problem for them is that Northern Ireland is a small, relatively high cost market in which to operate. GOA are obliged to trade on lower volumes and therefore higher overheads than they would if they were based on the mainland. They also have higher land costs and pay more for their seed. We estimate that they are working on an average net profit margin to sales of around 5%, which is about the same as our own net margin. Clearly we could reduce our prices to Northern Ireland consumers by sourcing all our potato supplies from Bartletts in Scotland but we have decided that we must continue to play our part in supporting the agricultural economy in Northern Ireland.

3. I cannot really comment on your point about the manufacture of crisps as GOA do not supply us with this product.

4. As far as our potatoes are concerned, the country of origin is always made clear on the bag as well as the variety.

I hope this information answers the concerns you have raised, but if there is anything further you need, please let me know.

Yours sincerely

Kevin Hawkins
Director of Communications

Appendix G

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: SAINSBURY'S SUPERMARKETS LTD

9 February 2000

1. Introduction

1.1 Sainsbury's Supermarkets Ltd (Sainsbury's) is the largest subsidiary of J Sainsbury plc which also operates Savacentre hypermarkets, Homebase home and garden centres and Sainsbury's Bank in the UK plus Shaw's supermarkets in the US and Edge in Egypt.

1.2 Sainsbury's sources products from over 2,000 suppliers who provide some 12,000 food lines and 9,000 non-food lines. Each week around nine million customers shop in over 400 Sainsbury's supermarkets throughout the UK. Last year, Sainsbury's sold over £11.5 billion worth of food in the UK. £6 billion worth of this was food from the UK.

1.3 Today Sainsbury's has 100 suppliers in Northern Ireland, supplying fresh produce and product in stores to the Province and the rest of the United Kingdom. Sainsbury's has committed to doubling the value of its existing business sourced from Northern Ireland to between £150 and £200 million over the next few years and the value is now £120 million. Around 150,000 customers shop in the stores each week.

1.4 Sainsbury's potato supplier in the Province is Glens of Antrim based in Cushendall, Country Antrim. Glens employ 35 people and supply potatoes to all Sainsbury's stores in the Province. The business is worth £1 million per annum.

1.5 On 20 June 1995 Sainsbury's announced its intention to invest in Northern Ireland with an initial tranche of 7 stores costing £100 million and providing 2,200 full and part time jobs. Sixteen per cent of the first 1,000 jobs were from the long term unemployed.

1.6 There are five Sainsbury's supermarkets and petrol filling stations: Ballymena (December 1996), Forestside, South Belfast (March 1997), Coleraine (December 1997), Craigavon (March 1998) and Newry (September 1998). Sainsbury's in Armagh (December 1998) does not have a petrol filling station. Sainsbury's in Strand Road, Londonderry opened on 25 January this year providing around 350 jobs (this store does not have a petrol station). There are seven Homebase stores in the Province as well.

1.7 Sainsbury's currently awaits planning determination on a number of other applications including a flagship store Sprucefield, Lisburn and Newtownabbey. Further opportunities are being appraised to provide an ultimate portfolio in Northern Ireland of some 12-14 supermarkets.

1.8 This document outlines our Sainsbury's policy on sourcing Northern Ireland produce; margins and pricing policy and our buying policy using a number of case studies including potatoes.

2. Sainsbury's policy on sourcing Northern Ireland produce

2.1 Background

Sainsbury's is committed to UK agriculture, working with farmers to ensure high-quality, value for money food is available to consumers. Like all supermarkets we do not buy direct from farmers, we buy meat from processors and fruit, vegetables and salads from packers and pre-packers.

2.1.1 Prior to Sainsbury's announcement in June 1995 of its development plans for seven stores across Northern Ireland, the Company sourced £80 million worth of produce a year from Northern Ireland from 17 local suppliers. Sainsbury's has committed to doubling the value of its existing business sourced from Northern Ireland to between £150 and £200 million over the next few years and the value is now £120 million.

2.1.2 Today Sainsbury's has 100 suppliers in Northern Ireland, supplying fresh produce and product in stores to the Province and the rest of the United Kingdom. This is an example of the importance which the Company places on sourcing quality and will continue to work closely with the Industrial Development Board (IDB) and other agencies to increase the number of suppliers. No company is too small to supply Sainsbury's. No fee is required from companies in order to become a Sainsbury's supplier, and no penalty clauses are imposed in our supply contracts. The vast majority of our suppliers are free to trade with competitors. Legal disputes are rare.

2.1.3 It makes sound commercial sense to maximise local purchases for supply to our outlets in the Province, particularly on produce where there are both cost and freshness benefits in not having to transport goods several hundred miles from the mainland. Although there is strong demand in the Province for local products, we share the view of the General Consumer Council that consumers in the Province will buy local products only if they represent good value for money and good quality. Regarding the transportation of food, we estimate that we eliminated at least 1.6 million km last year, cut fuel consumption by 597,000 litres and cut CO2 emissions by 1,530 tonnes. Our suppliers also reduced food mileage by 480,000km.

2.2 'Meet the Buyer' conferences

To increase the supplying opportunities available to local producers, Sainsbury's has been proactive in sourcing product from Northern Ireland including three 'Meet the Buyer' sourcing conferences. The first was held in Belfast in 1995 and smaller events were held in Londonderry in April 1996 and in Newry in May 1998. Potential suppliers met Sainsbury's buyers on a one-to-one basis to talk about supplying opportunities.

2.2.1 In November 1999, we, along with the Londonderry Chamber of Commerce, ran a seminar to highlight supplying opportunities with Sainsbury's both in Northern Ireland and throughout the UK for smaller companies in the area.

2.3 'Partners in Produce' scheme

Three Northern Ireland companies - Glens of Antrim Potatoes (Cushendall, County Antrim), Sparky Pac (Comber, County Down) and Hughes Mushrooms (Dungannon, County Tyrone) became the first Northern Ireland 'Partners in Produce' when Sainsbury's launched its Partnership in Produce initiative in Northern Ireland in November 1997.

2.3.1 Partners benefit by the partnership providing them with a planned market for their produce and the security of a financially sound trading relationship so that growing and packing can be planned against clear sales programmes and with the back-up of Sainsbury's technological and research expertise.

2.3.2 Jobs have been created as a result of Sainsbury's supplying opportunities in Northern Ireland. The major share turnover of Dungannon Meats, for example is with Sainsbury's and as a result of this sustained level of business, Dungannon Meats now employs over 620 people and is one of the largest employers in the South Tyrone area.

2.3.3 We believe that the support we give to products through in-store promotion and our Partnership schemes is an effective way of helping the agricultural sector. If any supplier finds that his business is being diminished because of an initiative we are taking with other products in that same category, then we would work with him to try to develop his product range so that he had other means of increasing his income by, for example, spreading the product to more stores. It is of no benefit to Sainsbury's to see one of our suppliers in financial difficulty. We want them to succeed as much as they do. We need suppliers who are investing for the future, investing in better quality and investing in new varieties to improve choice and quality and who ensure that welfare and health and safety issues are dealt with. Last Autumn, Dungannon Meats, announced a new scheme to use bull calves for beef products to help tackle the current crisis in the sector.

2.3.4 We have looked at the possibility of supporting farmers' markets but we came up against a number of problems such as planning constraints restricting the use of our car parks for anything other than car parking.

2.4 Sainsbury's support at the Balmoral Show

In 1999 Sainsbury's participated for the fourth year at Northern Ireland's premier agricultural show - the Balmoral Show. The theme of Sainsbury's stand was 'supporting local growers and suppliers', a reaffirmation of the Company's commitment to Northern Ireland growers and suppliers and local sourcing in general.

2.4.1 At a reception for suppliers held at the stand, the Sainsbury's Outstanding Supplier Achievement Awards for local suppliers were inaugurated. The awards are for local suppliers who achieve exceptional business growth with the supermarket. The Awards illustrate both Sainsbury's and the award winners consistent commitment to quality last year. Dungannon Meats won the large company category and Glens of Antrim Potatoes won the small company award. Their combined growth in business with Sainsbury's was 350 per cent. Glens of Antrim employ 35 people and supply potatoes to all Sainsbury's stores in the Province. The business is worth £1 million per annum.

2.5 Supplier Development Programme

If there are suppliers and sources in Northern Ireland who are able to provide a product that is as good as one that we are already sourcing from the mainland or elsewhere then it makes sense in terms of freshness and delivery costs to develop that source. In February 1998 Sainsbury's launched a major Supplier Development Programme to assist Northern Ireland food companies in the development of their business with Sainsbury's. The programme, delivered by Leavercliff Associates, has given 27 local food companies a unique opportunity to understand how to work with and develop their business with Sainsbury's.

2.5.1 The programme took the form of a series of seminars covering areas such as understanding the UK market and identifying and exploiting product opportunities. Companies were supported by a number of one-to-one sessions, which looked at logistics, financial analysis and technical requirements. This programme is now complete and has resulted in these suppliers growing their business with Sainsbury's by around £12 million.

2.5.2 As a result of the Supplier Development Programme, Hughes Mushrooms of Dungannon is set to triple its business with Sainsbury's and is on target to supply mushrooms to the value of almost £5.5 million to Sainsbury's stores throughout the Province and across the rest of the UK.

2.5.3 The second Sainsbury's Development Programme was launched in March 1999 and involved 10 additional local Sainsbury's suppliers. Annual turnover by November 1999 had increased by 35 per cent for the suppliers involved. Forecast turnover for the next 12 months is predicted to be around 130 per cent.

2.6 Northern Ireland Suppliers: wider opportunities

A number of Northern Ireland companies who have become suppliers to Sainsbury's since the company began trading in Northern Ireland have subsequently become suppliers to Sainsbury's on the mainland. These include Tayto Crisps, Farm Fed Chickens, Irwin's bread, Morrows Pate and Hughes Mushrooms. Size is not a barrier to supplying the mainland market.

2.6.1 The company has sourced products from Dungannon Meats, Cuan Oysters and Denny's for around 20 years prior to developing stores in Northern Ireland. Farm Fed Chickens from Coleraine, Sainsbury's only source of corn fed chicken, has almost doubled its business with Sainsbury's since 1997 and recently won an additional contract expected to be worth £5 million annually with Sainsbury's to supply its premium range of corn fed chicken to the company's top 70 stores. Hughes Mushrooms will triple its business with Sainsbury's over the next 18 months to around £4.7 million a year.

2.7 Labelling policy

We are committed to supporting the local farming industry and have been labelling meat, fruit and vegetables as home-produced for many years. Therefore produce from Northern Ireland is marked 'Product of Northern Ireland'. By the middle of this year we will have labelling of origin on the remaining fresh meat products which include ready meals, sandwiches and delicatessen products.

2.7.1 We are looking to extend regionality across the UK and 'Products from Northern Ireland' will be incorporated into this policy. Any future labelling will be as simple as possible for ease of recognition and designed with the customer in mind

3. Sainsbury's Margins and Pricing Policy

3.1 Our primary aim is to deliver the very best competitive offer to our customers. In accordance with our view that the Province is part of a single national market we operate the same pricing policy in the Province as we do on the mainland, that is a national pricing policy with a few tweaks to reflect specific local trading conditions such as in the potato (see table 1), milk and bakery industries for example details of which are below. It is a popular misconception that retailers are making large profits at the expense of farmers.

3.1.1 The IGD announced recently the results of a survey into consumers attitudes to food prices and profits. It found that consumers had exaggerated views about profit levels. Consumers thought an average of 36 pence in every pound spent in food shops went in profit to retailers and 26 pence to manufacturers - the actual figures are 6.5p and 8.5p. [i.e. manufacturers profits are proportionately higher.]

3.1.2 The IGD research showed that there is little understanding of how industry makes or uses profits and there is an exaggerated view of how large profits are.

3.2 Farmgate and retail pricing

A large proportion of the cost which arises 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 onto the retailer. We are looking ways in which these costs can be reduced without any detrimental impact on the safety and integrity of the food we sell.

3.2.1 It has been suggested that retailers put the price paid at the farmgate as well as the retail price on goods. The only price we pay is the one to our suppliers for packed produce and produce ready for retail sale. We are not involved in the price our suppliers pay to farmers. It would be far too complicated to have different labelling. If consumers are to understand what they are being presented with, then each added cost after the farmgate, be it added by the packer, abattoir, processor or retailer, would have to be explained. It is in our interests to have profitable farmers.

3.2.2 Potato example

TABLE 1: List of commodities supplied by Northern Ireland supplier, Glens of Antrim Potatoes to stores in Northern Ireland all year compared to average prices of mainland suppliers.

	7/2/99 Cost £	Retail (pence)	%	7/8/99 Cost £	Retail (pence)	%	Present Cost £	Retai (pence)	%
Sainsbury's Loose baking potatoes
Glen's cost	11·3	49	42·3	9·6	39	38·5	7	55	33
Mainland	11·1	49	43·4	9·5	39	39·1	6·45	55	38·3
Sainsbury's King Edwards 2·5kg								1·79	44·1
Glen's cost	10	2.39	47·7	N/A	N/A	N/A	8	1·79	44·1
Mainland	10·06	2·39	47·4	8·06	1·99 (proma)		7·36	1·79	48·6
Sainsbury's White Potatoes 2·5kg
Glen's cost	9·02	1·69	33·3	6·5	95	14·5	6·25	95	17·8
Mainland	8·96	1·69	33·7	5·9	95	22·4	3·8	69	31·2
Sainsbury's Maris Piper 2·5kg	10·6	2·39	44·6	11	1·99	30·9	8·3	1·49	30·4
Glen's cost	10·6	2·39	44·6	11	1·99	30·9	8·3	1·49	30·4
Mainland	9·94	1·89	34·3	10·4	1·99	34·7	7·2	1·49	39·6
Sainsbury's Red Potatoes 2·5kg
Glen's cost	9·26	2·29	49·5	8·7	2·49	56·3	7	1·49	41·2
Mainland cost	9·3	2·29	49·2	9·02	2·49	54·7	6·44	1·49	45·9

3.2.3 Milk

Programming plans governing the amount of supply are agreed with produce suppliers. These plans are very beneficial to suppliers as it guarantees them a market for their product. Last year we launched an initiative with our three principal organic dairy suppliers and the Organic Milk Suppliers Co-operative. We have undertaken to pay a minimum price of 29·5 pence per litre over a five year rolling commitment. This is set against the purchase of minimum volumes raising to 155 million litres in 2003/4. We anticipate that organic milk will by then represent 15% of our total milk sales.

3.2.4 Sainsbury's sources all its conventional milk in the Province from local dairies. When we opened our first store, representatives of the Dairy Industry highlighted their concerns to us over the possible impact on milk rounds in the Province. We made a concession, to raise the price we would charge for 4 pint milk from a mainland retail price of 83p to 89p.

3.2.5 The Bakery Industry

Sainsbury's bakery trade with Northern Ireland suppliers has increased by £0·5 million over the past year. This represents an increase of almost 17 per cent. Sainsbury's is aware of the problems of the local bakery industry which far pre-date the arrival of Sainsbury's in the Province. There has long been serious overcapacity in the industry which is inefficient and has been unable to make reasonable profits despite high retail prices. The IDB recognises that there is overcapacity in the industry and has said that it is "unable to finance a sector which was already over capacity" (20/11/99).

We do not sell Economy bread in Northern Ireland (sold at 17p on the mainland) because it is not possible to source this locally or to sell at this price. Our decision not to stock Economy bread reflects a need to recognise the sensitivities of this sector. We provide choice and value for money in the range of bread that we offer in the Province. We sell a standard white sliced loaf which is locally sourced at 35p (on the mainland the same loaf is sold at 39p). All key sliced lines are locally sourced which accounts for 75 per cent of our bread sales in the Province. Northern Ireland bakers sent around £1 million of bread to our mainland stores last year.

Sainsbury's is committed to sourcing the core bread range from the Province and extending the range of regional lines as appropriate. Since 1997 a local baker, Irwins Bakery, has supplied bread and regional products to around 90 of our stores. This company has recently invested £5 million in a new state of the art bakery. Cake products have been the biggest growth area as additional regional suppliers have been taken on board to supply regional customer demand. Howell House bakery has shown significant progress and have returned growth of 250 per cent. Other successful local bakeries have updated their production methods, diversified towards the production of more sophisticated bread products (soda and potato farls) and have successfully exploited the demand for locally sourced products.

4. Sainsbury's Buying Policy

4.1 Seventy five per cent of the food and drink that Sainsbury sells is from the United Kingdom. In value terms, we sell about £120 million of British food and drink each week - over £6 billion per annum. Around 90 per cent of the food and drink that Sainsbury sells that could be sourced from the UK is from the UK.

4.1.1 We have to recognise that after quality, our customers rate choice as their top priority. It is our customers' requirements on varieties for sale that determine what produce and products are made available. Customers not only want products which for climatic reasons are not produced in the United Kingdom such as bananas, avocados, kiwi fruit, and pineapples, but they also want authentic products for example real Parma Ham; products which are seasonally unavailable for example strawberries at Christmas; and products which can be produced more cheaply elsewhere, for example corned beef. The increasing interest in organic produce by consumers and the potential it offered to Northern Ireland farmers were highlighted at 'Northern Ireland, the Organic Opportunity' conference sponsored by Sainsbury's.

4.1.2 Some customers want green beans, soft fruit and new seasons potatoes and lamb, for example, all year round. Either the UK alternative is not of the quality or price that they are looking for or there is no UK alternative. We cannot dictate to our consumers that they must only eat certain foods at certain times of the year. The fact is, consumers can choose to pay the cost of moving these products half way around the world and, from a competitive point of view, if we don't offer them someone else will.

4.1.3 We do work with our suppliers to maximise availability to locally sourced produce in Northern Ireland to avoid importing from the mainland or elsewhere.

4.1.4 We have to import some products which could be produced in Northern Ireland but, for a number of reasons, are not. Organic food is a prime example. We import 70 per cent of the organic foods we sell. We have to do this in order to meet the ever growing demand for organics in the UK. By doing this, however, we are helping to establish the UK market. We hope that UK producers will eventually make this market their own, substituting with local products wherever they can. Imports of food and drink to the country are not new - for many decades we've been importing tea, coffee, cocoa and oranges, for example. Forty years ago we were importing tomatoes and we've been importing apples for a number of decades.

4.1.5 Very rarely we import products that we could buy in the United Kingdom. However, levels of supply have not always been what they are today. Take for example beef. We have sourced beef from Eire for 25 years. We first went to Eire because of shortfalls in the UK. We now have long established relationships with these suppliers and feel it would not make good business sense to drop them.

4.1.6 Lack of availability can be a problem. Recently we wanted to run a promotion for UK sourced Back Bacon but found that our suppliers could not obtain sufficient product to meet the increased customer demand that such a promotion would create. The supply just was not there. Our suppliers shared in our disappointment at not being able to get this promotion off the ground having themselves invested millions of pounds in new plants to process and pack pigmeat. Meat promotions can raise sales by 1000 per cent.

4.1.7 We did run the promotion but using bacon from the UK and other sources and sold 2 million packs in one week. 60 per cent of Sainsbury's bacon is British compared with the national import level of 50 per cent.

4.2 Cheap Food Imports

Regarding prices for UK and imported goods, if there is a difference in the retail selling price of imported and domestically produced foods in our stores, it is because the cost price at which we have bought the products is different. Where costs are lower for imported product it is usually because their producers have the advantage of a better climate and/or lower input costs.

4.2.1 It would not be right for us to charge customers more for an imported product to protect a British one. Interestingly, whilst our customers are concerned about value for money, in a list of their priorities, cheapness was fifteenth.

5. Other Information

5.1 Sainsbury's is very supportive of initiatives designed to facilitate greater access to knowledge and improved understanding between the countryside, farmers, industry and retailers. For over 130 years Sainsbury's has been committed both to supporting farming in the UK and to offering customers safe, high quality and value for money food. We have no intention of changing these long standing pledges and are fully engaged ensuring there is a successful future for farming in Northern Ireland and on the mainland.

5.2 Sainsbury's believe that all parts of the food chain need to work closely together to resolve any perceived differences. Everything Sainsbury's does as a business is driven by customer demand. Our view is that supermarkets are part of the solution to the present crisis in farming and not the cause of it.

5.3 Sainsbury's SAVE Scheme

In addition to our support for farmers we are also committed to the UK's rural communities. Sainsbury's SAVE scheme (Sainsbury's Assisting Village Enterprises) scheme allows for the sale of Sainsbury's branded goods via village stores, thereby helping their viability.

5.4 Community Involvement

Ever since Sainsbury's announced its intention to invest in Northern Ireland the Company began working with community groups and charities large and small. This diversity reflects Sainsbury's strengths, not only as a company but also as a business which has its roots firmly in the community.

5.5 The Company has supported hundreds of charities and community groups around our stores from sponsoring the Belfast Festival at Queen's to funding Worktrain Ballykeel Ltd in Ballymena, a partnership that provides community based education and training in a very deprived area of the town. Other examples of community involvement, both past and present include: Early Bird Montessori Playgroup, Armagh, County Armagh; Northern Ireland Council on Disability, Belfast; St Patrick's Day Parade, Newry, County Down; Londonderry & Limavady Agricultural Show, County Londonderry; Newry Drama Festival; Antrim Games; City of Belfast International Rose Trials; Fire Victim Support Vehicle (across Northern Ireland); Loughgall Football Club.

Appendix H

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: TESCO

8 February 2000

Thank you for your letter of 28 January. I can confirm that representatives from Tesco will attend, as requested, a public meeting of the Committee for Agriculture and Rural Development on Friday 11 February, at 10.45am.

Please find attached two memoranda, one outlining Tesco procurement policy in general and one dealing specifically with potatoes.

Unfortunately, I shall not be in Northern Ireland on the 11th, but senior colleagues will be attending in my absence. The Tesco representatives at the meeting will be:-

Mr Cliff Kells Northern Ireland Commercial Category Manager
Mrs Gwynneth Cockcroft Davidson Cockcroft, Public Affairs
Mr Peter Timoney Northern Ireland Finance Manager

They will be accompanied by a representative from the Tesco designated potato supplier in Northern Ireland

Mr Angus Wilson Wilson Country Potatoes

Thank you for your helpful notes on the Committee, and its procedures. I am conscious that your original letter emphasised the need to find a way forward for the agricultural industry in Northern Ireland. With this in mind, I should like to offer our co-operation in endeavouring to find practical and sustainable solutions to the problems currently encountered in an increasingly global retail market.

We firmly believe that our position as the number one retailer in the UK has been reached as a result of our complete customer focus. We would be willing to share this consumer understanding, plus relevant research and technical expertise should the Committee feel that this could be of benefit.

We would also be pleased to participate in any discussions pertaining to the development of customer-orientated agricultural strategies and have listed some suggested topics regarding potatoes in our memorandum on the subject.

I trust that the attached submissions, and forthcoming meeting, will be of assistance to the committee in its analysis of the issues, and development of potential solutions.

Yours sincerely

 

ERIC BOWEN
Director, Tesco, Northern Ireland

Memorandum 1

In general Tesco does not deal directly with farmers, although there are a few exceptions. Our direct contact is normally a supplier in the form of a processor or manufacturer who has negotiated overall terms with us and who, in turn, negotiate individual terms with each farmer. However, our local procurement policy supports hundreds of farmers across the province spanning all of Northern Ireland's agricultural sectors. Suppliers range from small specialist producers right through to large companies most of whom in turn, source their raw materials locally. In addition some of these larger companies are major suppliers to Tesco GB.

Tesco Commitment to the Local Agricultural Sector

1. Our procurement policy is to source locally wherever possible. With the exception of a few speciality products our local sourcing commitment is as follows:

(a) All fresh beef

(b) All fresh lamb

(c) All fresh pork

(d) All fresh and seasonal frozen poultry

(e) All fresh fish

(f) All fresh eggs

(g) All fresh milk (including goats' milk)

(h) All fresh produce subject to season and availability

(i) All fresh bread

2. At present, Tesco spend more than £220 million per annum with local suppliers and is on target to increase this to more than £290 million by the year 2002. Tesco also has an office in Belfast supporting our 7000 local employees. All of these staff are dedicated to supporting local suppliers and producers to meet the needs of our customers.

3. Since our entry into the market, Tesco has invested heavily in store refurbishment, new stores and a new distribution infrastructure which facilitates local procurement of fresh agricultural products.

4. Over the last two years, Tesco technologists and the local Tesco team have forged links with local producers, agricultural colleges and universities with the aim of encouraging product development. We have done this through practical and financial support.

5. The company is part of a trade development group, originally set up by Tesco, consisting of representatives from DANI, IDB, LEDU, CBI and the Northern Ireland Food and Drink Association.

Memorandum 2

The last decade has witnessed fundamental change in the Northern Ireland potato market. Consumer expectations, purchasing habits and consumption patterns all continue to evolve to reflect lifestyle changes. We have sought to address these changes by working in partnership with local suppliers. This has resulted in a clear and ongoing commitment to source as much as we possibly can from indigenous potato producers.

Tesco Commitment to the Local Potato Sector

1. Our supply partner for fresh potatoes is Wilson's Country Potatoes. Since this relationship began, Wilson's Country has grown into a significant business, employing 90 local people.

2. Our policy is to source our fresh potatoes from Northern Ireland. From time to time, however, to meet customers' range and quality expectations, we supplement our local offering with imported varieties, not available locally.

3. Through Wilson's Country, we have worked with local growers to enable them to meet the specifications now demanded by our customers. This is particularly the case with washed potatoes, which now constitute almost two-thirds of our overall fresh potato sales, and is helping local growers to produce to internationally accepted standards.

4. In relation to further-processed potato products, we have developed strong relationships and growing business with key local companies in areas such as crisp and frozen chip manufacture. We do this through the promotion of indigenous local brands and, in the last year, following intensive technical support, the launch of a number of locally-produced Tesco brand products.

5. We have worked in partnership with government departments such as DANI and together with Loughry College have pioneered the development of traditional products, such as champ, into a new and convenient format, in order to meet the changing needs of our customers.

The Way Forward

Tesco are prepared to work with the committee and with the broader agricultural community to provide practical assistance in various key areas, and we would suggest the following as potential topics for discussion:

1. Development of comprehensive market data and local consumer research.

2. Provision of adequate storage to extend the season for locally-produced potatoes.

3. Further development of new products and potato varieties.

4. The development of a local (and international) marketing strategy for Northern Ireland potatoes.

5. Organic potatoes.

Appendix I

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: LIVESTOCK AND MEAT COMMISSION FOR N I

13 January 2000

Agricultural Debt

I refer to your letter of 17 December to our Chairman on the above subject. In responding to your enquiry, we should start by advising that in general our role does not involve us in having a particularly high awareness of the levels of debt within agriculture as a whole. Indeed, with the exception of a few approaches which farmers have made on a private and confidential basis for advice, our awareness of debt levels in the beef and sheepmeat sector is also limited.

It was clear in each of the individual cases where approaches have been made to us that high debt levels had been incurred through the acquisition of agricultural land for beef and sheepmeat production at prices which were clearly not sustainable on a stand-alone basis for such a business. In each case, it seemed unlikely that banks would have granted facilities for such asset purchases without having a lien on other assets of the particular farmer.

Within our particular sectors, while the levels of profitability have been substantially curtailed and the values of livestock have significantly reduced over recent years, it is still generally possible for producers to cover their costs. The transitional period to the current low prices have of course resulted in some individual cases, particularly of beef finishers, where working capital borrowings have not been fully discharged on the disposal of stock. We conclude, however, that within our sector, the most significant reason for debt problems have been where significant asset purchases have been made.

In order to explain the current situation, we have prepared the attached business model which looks at the current year prospects. The model demonstrates that for a typical Northern Ireland specialist beef farm, a small profit can be achieved, but this profit is scarcely adequate to service the investment in "liquid assets" (stock and machinery). The model concludes that the value placed on land for beef and sheepmeat production should not exceed the amount required to be invested to generate an average industrial wage of £16,000 per annum. Since the model concludes that a land area of 120 acres is necessary, it is difficult to see how a land value of more than £1,000 to £1,500 per acre is justified. With land values remaining throughout Northern Ireland at levels of three and four times this value, it is difficult to see how land, buildings or other major asset purchases can be financed.

Throughout this period of declining fortunes for beef and sheepmeat producers, you correctly identify the reluctance which Government has displayed to take up EU aid which might be available. Agrimonetary compensation is the prime example. This reluctance of course is due to the effects which it would have on the UK rebate and on the budget when the UK Exchequer is required to make a direct contribution. Agrimonetary compensation, however, is only a transitional support while currencies are undergoing change relative to one another. While it would be helpful to alleviate debt in some instances, if Government were to be persuaded to retrospectively make these payments, they do not in themselves reverse the conundrum which we face in the future. We have an industry which needs reorganisation to improve competitiveness, and yet asset values as they are at the moment do not allow that reorganisation to take place.

We recognise that the circumstances in other sectors may be different, and indeed in some sectors we understand that current costs are not being covered by market prices.

In writing, we are conscious of the evolving Govermental arrangements within Northern Ireland. We are keen, at an appropriate time, to ensure that the Committee for Agriculture and Rural Development has a suitable level of knowledge and understanding of the work of LMC. We would like therefore to extend an invitation to the Committee to visit us at our offices at Lissue House. We would propose to make presentations about the various aspects of our work and focus on some current issues within the beef and sheepmeat sectors. Perhaps you would raise the possibility of such a visit with the Committee and if there is agreement in principle, we can agree a mutually acceptable date.

We hope that these comments are helpful in your consideration of this matter.

Yours sincerely

DAVID RUTLEDGE
Chief Executive
Enc

BUSINESS MODEL - YEAR 2000

Typical Northern Ireland Specialist Beef Farm

50 Suckler Cows @ 1.0 Livestock Units each
50 Calves up to 1 year @ 0.3 Livestock Units each
50 Store Cattle 1-2 years @ 0.6 Livestock Units each
150 Cattle 95 Livestock Units

Income

Sales:

50 cattle per year
Average age at slaughter 2 years
Average carcase weight 300 kg
Average sales price (after expenses) £1.50/kg
Average grad 0+3
£450 per animal x 50 £22,500

Total £22,500

Subsidies:

Suckler Cow Premium
50 @ £115 (assumes Objective 1 supplement) £5,750
50 @ £21 (extensification) £1,050

Beef Premia
25 @ £76 first stage £1,900
25 @ £21 first stage extensification £525
25 @ £76 second stage £1,900
25 @ £21 second stage extensification £525
50 @ £17 Slaughter Premium £850
25 @ £20 Heifer Slaughter Premium £500

Total £13,000

Total Income £35,500

Costs

Cow depreciation £1,250
£25 per cow per year
Concentrates
£50 per head for cow + calf + store £2,250
Veterinary/Medicines
£5 per animal per year £750
AI Fees
50 @ £15 £750
Building Depreciation/Repairs
£50,000 @ 2% depreciation + 1% maintenance £1,500
Machinery Depreciation/Maintenance
£50,000 @ 8% depreciation + 2% maintenance £5,000
Labour
Average NI industrial wage £16,000
Fertiliser
120 acres @ 150kg/acre @ £110/tonne £2,000
Fuel, Electricity, Telephone £1,000

£30,500

Profit (Return on Assets)

Income £35,500
Costs £30,500

Profit £5,000

Asset Values

Assume asset values as follows:

Stock

50 cows @ £400 £20,000
50 calves @ £200 £10,000
50 stores @ £300 £15,000

£45,000

Suckler Cow Quota
50 @ £250 £12,000

Machinery £50,000

Total Non-Land Assets £107,500

Even to invest these "liquid assets" at current rates of just over 5% this would yield profits of c. £5,375 as against the profit of £5,000 shown above.

What is value of land?

Conclusions:

1. To collect extensification premia as set out in the model, the minimum area of land required is calculated as:-

2 livestock units per hectare

95 livestock units total

47.5 hectares required
(approx. 120 acres @ 2.47 acres = 1 hectare)

2. Land used for beef production has a value equivalent only to the investment necessary to generate average industrial wage of £16,000 per annum. This realistically cannot be more than £1,000-£1,500 per acre. Even assuming that, no other job is available which is a suitable match for the skills of the beef farmer.

Appendix J

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: NORTHERN IRELAND MEAT EXPORTERS' ASSOCIATION

5 January 2000

You wrote to our Chairman, Mr Colin Duffy on 17th December 1999, regarding the inquiry into the debt in the agricultural and fisheries sectors in NI. I am responding to your letter on behalf of Mr Duffy and the NI Meat Exporters' Association.

1. BACKGROUND INFORMATION

The membership of the NI Meat Exporters' Association is made up of the majority of the EC Export approved beef and lamb slaughtering and processing companies in Northern Ireland.

2. DEBT INQUIRY

While it is the brief of your committee to ascertain the level and extent of debt in the Agriculture and Fisheries sectors, that is not a subject which this Association feels competent to discuss. Our remarks will therefore be confined to pointers for the future which we believe will contribute to a strong rural economy and ensure a viable rural programme and community life.

3. DEBT RELIEF

This Association believes that now is the time for major changes to take place in Agriculture to safeguard the rural community life. Over the past three years we have seen the Pig Industry almost wiped out. This has not just been a NI problem, in fact it is a world-wide problem with over production in every country in the world. In the light of this it is not terribly sensible to give producers false hopes of better things to come when the problem exists to the magnitude it does and on such a world wide scale. Local consumers may talk of supporting home produce but when it comes to value for money that philosophy tends to be forgotten.

The beef industry is not all that different. Over 70 pieces of legislation on top of what was there before, have been introduced to the processing sector since 1996 and all of them have added cost upon cost to the industry, leaving NI one of the most uncompetitive regions of Europe. The fact that so much red tape surrounds any attempt to begin to market our way out of the situation is strangling the industry from its full export development potential. Currently less than 50% of cattle in NI have export status due to documentation and administrative problems on farms. This is a very poor image of our quality standards and our ability to demonstrate to consumers a high degree of management. It does nothing to instil confidence in those quality niche markets that we once enjoyed prior to BSE. No matter how good we think we are we need to set our sights much higher. Like every other part of the food industry farmers must accept that more accurate paperwork and maintenance of records is a necessary part of any future development of the food industry.

In recent years in the sheep sector over 50% of the annual lamb crop is smuggled to the ROI leaving processors here in a weak development position to add value and thus improve returns to farmers. In 1999 around 580,000 lambs were processed in NI out of an annual crop of around 1.5 million. The loss of levy revenue to LMC on these lambs is also a major financial problem, money which is needed by the LMC for promotional activity in respect of the sheep sector.

4. FUTURE STRATEGIES

Any future strategies to improve the situation for producers and processors must take account of the demands of the consumer whether we like it or not. There is little point in producing anything that has to be sold at a discount price just to get rid of it. All future production should be linked to quality market criteria so that the highest prices can be achieved for the maximum amount of product rather than 50% of the right product subsidising 50% of what somebody just wants to produce. For instance last year between April and September 37,700 cattle were classified in the undesirable grades for any quality specification and had to be simply traded at discount prices to find an outlet for them. While this is mainly a breed problem a further 9,400 cattle in the same period were produced at fat class 4H or 5 totally outside any quality specification and purely as a result of farm management. These facts have to be faced and action proportionate to the problem taken to improve the quality of NI production.

5. QUALITY DEMANDS

Traceability, Farm Quality Assurance, Livestock Chain Management, Farm Auditing and the Red Meat Strategy, are all part of the future food production systems and there needs to be a much more pro-active attitude on behalf of everyone to secure our own future. It may not be attractive and it may be more bothersome, but if we cannot deliver what the consumer wants then there is no point in crying for Government help. It is absolutely essential that all farmers take seriously the demands being forced upon the industry, no matter how unpalatable, to ensure that NI can have the edge in the food industry of the future. It is either that or close the door. It is no longer adequate to adopt the attitude of "I'll do it my way".

6. THE CASUALTY FACTOR

Like New Zealand and every other Agricultural country in the world that has been forced to grapple with the same problems, it has to be accepted that those who choose to ignore the demands of the consumer are writing their own exit strategy from the industry. There will be casualties but it will be confined to those who do not want to keep abreast of an efficient 21st century food production industry. It is therefore our opinion that the Government should introduce a forceful rural education programme urging everyone in the rural areas to meet the challenges of the future and rise to the demands and standards being made by those who ultimately buy their produce.

7. THE SUCCESS FACTOR

No-one has any desire to see the demise of the rural hinterland and therefore the proper management and development must be in place so that production can be adjusted to meet the current demands of quality and consistency. Farming structures probably need to change to meet the demands of the future and we believe that there is a viable future for those who decide they want to be part of it. It is our opinion too that this is the best way to insure against future debt in this sector. We accept that some of these points may be far reaching but we also believe that we do not do anyone any favours by just moving from one crisis to another. There needs to be planned development based on quality production to ensure a sustainable rural future. Production is currently fragmented and there is little by way of co-operative production and marketing. There needs to be major changes in this area so that input costs can be reduced further still to the benefit of everyone.

While these points may on the face of it seem to be a bit radical and far reaching nevertheless we believe that there has to be radical changes for everyone if we are to establish a future for NI Agriculture.

Yours sincerely

T C MATHERS

Appendix K

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: ULSTER AGRICULTURAL ORGANISATION SOCIETY LTD

14th March 2000

Thank you for sending me the terms of reference for the enquiry by the committee.

As discussed on the telephone they are probably not relevant to our Biogas project. However I do believe that we can respond to the final term of reference by outlining positive steps that have been and can be taken by producers to help alleviate the situation. It will not happen, though, without commitment and support.

Three quotations come to mind,

1890 Horace Plunkett 'Co-operatives are the children of distress'

1962 President J F Kennedy 'Farmers are the only businessmen who buy retail and sell wholesale'

1990 UAOS Conference 'Self help or self destruct'

We would be delighted to make a short presentation outlining the positive contribution marketing and purchasing co-operatives have made and can make to:

(a) the farm income;

(b) off farm employment opportunities;

(c) supply chain development.

This presentation could be combined with the one on biogas.

We look forward to the reconvening of the committee and the opportunity to put forward positive and innovative ideas.

Yours sincerely

Ian Murray
Chief Executive
UAOS LTD

Appendix L

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: NORTHERN IRELAND POULTRY FEDERATION

13 January 2000

Re: Enquiry into Debt in Agriculture

You have written individually to several of our members within the poultry meat sector. As the representative body of our industry we have been asked to formulate a common response. Individual members of our association may also wish to highlight issues separately. We would wish to make the following points.

• The levels of loss which have been sustained in the poultry meat sector over the last 2-3 years are as serious as the much publicised situation within the pig sector. The sole reason that this has not received the same publicity is that the losses have been carried by the processing companies. Producers have been sheltered from the hardship of the market place under the terms of their producer contracts with processors. However the current situation is unsustainable. If the current level of losses continue and any of the three larger companies were to go out of business, the consequences will be sudden and dramatic. The processing sector employs over 5000 people directly. In addition over 1000 farms derive some or all of their income from production of meat or breeding birds. These farms tend to be small family enterprises which would have little in the way of alternatives should their poultry unit fail; especially so with agriculture in such a depressed state.
• It must be stressed that the above scenario is not just industry scare-mongering. Recently there have been several major failures in the UK broiler sector (eg Marshall Food Group, Penwoods and Pershaws).
• Our best estimate of the level of indebtedness of poultry meat producers to cover bank borrowing and outstanding feed, day-olds and other miscellaneous items is £40m/£50m.
• Our best intelligence reports confirm that the Northern Ireland Poultry Meat industry is losing approximately £12m per annum.
• We understand the indebtedness of egg producers is in the region of £15m/£20m.
• The industry has been placed in this unprofitable situation through no fault of its own. In terms of physical efficiency, production is amongst the most efficient in the world. For example, the Northern Ireland farmer uses some 14% less feed/kg of meat produced than in the USA (source Agristats). The problems in our industry have been brought about by the following:

1. Strength of Sterling:

As with many sectors of agriculture the strong pound has resulted in a flood of imported European and third world product entering the UK at prices below local production costs. Such imports now represent nearly 40% of UK poultry meat consumption (source BPMF) compared with the situation a few years ago where an exportable surplus was produced. Indeed the processors in Northern Ireland have been obliged to use a significant amount of imported product for further processing, without which their financial problems would be much worse. Local production levels have been maintained only by virtue of the expanding overall market, subsidy of farmers by the processors and some success in developing niche markets for speciality type products such as free range and organic.

2. Feed Costs:

Northern Ireland has long suffered from a relatively higher feed cost. This stems from transport costs in importing raw materials and higher energy cost in the manufacture and distribution of feed. It is estimated that these additional costs amount to some £15/tonne compared with GB or mainland Europe. For many years the industry has managed to absorb this premium through extra efficiency and production advantages based on the high health status of its stock. However, it has now an additional cost burden which uniquely penalises the Northern Ireland industry.

3. Additional Costs:

The industry has been burdened with a plethora of additional costs in recent years which are damaging to our industry in a market where we compete with imported product, especially from non European sources, which does not have to incur these costs. Examples include the ban on the use of meat and bone meal, on the use of antibiotic growth promoters and legislation relating to animal welfare, traceability and environmental protection. The industry does not disagree with the need for some of these measures, especially where they impact on food safety, but we find it iniquitous that imported products are able to evade the need to comply with these requirements and the on costs stemming from them.

We hope we have made clear that a very real threat to the continued existence, at the very least, of the primary production sector of the Northern Ireland poultry industry exists. Such a loss would deal a savage blow to the local economy. The important role of the small family farm which our industry supports should not be underestimated. It both assists in maintaining a viable rural economy and sustaining a strongly work focused labour force which is also available to other local industries.

We request that the Assembly should urgently consider the introduction of the following measures:

1. Compensation mechanism for currency:

The industry recognises that assistance to producers has been made in an attempt to offset the current crisis in agriculture under Commission Regulation (EC) No2808/98. These forms of agrimonetary compensation to producers are not directly available to the intensive sector. Additionally we do not see the current remedies as being adequate either in scale or nature to redress the problem. In the past the financial traumas affecting trade in the food industry arising from movements in currency values have been addressed by a system of "Monetary Compensatory Amounts" (MCA's). This system was developed by the commission in the 1970's under Regulation EC 974/71. The aim of this regulation was to "remove any advantage or disadvantage to traders which can result purely from currency changes, and to act as a balancing factor in trade between countries with different currency values". We argue that the current situation is so grave that the application of a scheme along these lines, which directly relates to trade, rather than to producers is urgently required.

2. Feed Price Allowance:

We suggest a two stage programme in this respect.

• Firstly a scheme aimed at overcoming the differentiation between GB and NI perhaps via creating intervention storage within Northern Ireland or allowing imports of third country grains at tariffs which result in Northern Ireland prices replicating average UK prices - (this type of scheme is already in operation in Spain and Portugal and details are attached as Annex 1).
• In the medium term we should seek to replace direct price support for cereals with a support system for farmers which is not based on a guaranteed price for grain. This would allow grain prices to fall to world market prices and thus allow our poultry farmers to fully exploit their competitive advantage in terms of production efficiency.

It seems anomalous that the end product of the intensive livestock production chain exists in a situation where it is exposed to world-wide competition, whereas an intermediary in this chain ie, the cereal producer, enjoys the luxury of a guaranteed price for his product.

3. Interest relief scheme:

We request that grant aid towards interest payments is made available to the poultry industry. We understand that such aid is under serious consideration for pig producers in the Republic of Ireland and may also become available in Northern Ireland.

4. Support for development:

We request an increase in the allocation of funding towards assistance into capital expenditure, research and development and training for companies involved in the sector. This will help the industry maintain its position as a leader in innovation and product and process development.

The Northern Ireland Poultry Industry is highly integrated and is recognised world wide to be an extremely efficient industry.

Unlike many parts of the world practically all production is carried out by bona-fide farmers.

The nature and scale of the problem is such that political input will be required to redress the problem.

In the light of these extreme problems we request a meeting with the Chairman or with the Agricultural Committee as soon as possible to discuss these matters further.

Yours sincerely

NORTHERN IRELAND POULTRY FEDERATION

W P O'Kane OBE
Chairman
Enc.
1. Summary.
2. Annex 1 Details of "Abamiento System"

NORTHERN IRELAND POULTRY FEDERATION

Submission by Northern Ireland Poultry Federation to
Committee for Agriculture and rural development

Re: Enquiry into Debt in Agriculture

SUMMARY

The poultry industry is the largest employer in the Northern Ireland food sector. The sector has been unprofitable for several years.

The reason that this has not been highlighted is that farmers contracted to the industry have been supported by the processing companies.

With a level of loss now estimated at over £12m/annum, the situation is reaching crisis point.

The reasons for these losses are detailed.

Suggestions for remedial measures are also outlined.

Annex 1

Details of "Abamiento" system for maize/corn to Spain and Portugal

• This scheme is operated by the EU and grants the above countries the right to import non EU grain.
• Normally such imports incur a tariff which would result in the net price to the end user being much higher and so uncompetitive with grain of EU origin.
• In this case a concession allows import of a fixed quota (currently 2.2 million tonnes/year) at a much reduced tariff.
• The tariff is set so that the imported grain is sold at an identical price to that prevailing in Spain or Portugal at that time.
• Thus the price paid to local producers is not disrupted but the country is not disadvantaged by having to use more expensive imported grain.
• It is our understanding that had NI had direct representation at Brussels available in the past, then an equivalent scheme to that in Spain and Portugal would have been open to NI.

Appendix M

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: NORTHERN IRELAND GRAIN TRADE ASSOCIATION

January 2000

Following a number of lengthy reports NIGTA wishes to respond to the single question of examining alternative proposals for addressing problem of debt.

All other issues have been addressed in the past and NIGTA would suggest that the Department of Agriculture and Rural Development is best placed to produce any verifiable statistical information.

NIGTA would also contend that they are not aware of any initiatives that are being taken by the Department to alleviate debt.

NIGTA would suggest that urgent short-term measures are desperately needed to allow enough time to address the longer-term problems facing the industry.

Short-term measures should be focused on reducing the burden of debt and its ancillary costs.

NIGTA would seek a change in attitude whereby DARD should continually utilise all resources to find solutions rather than emphasise obstacles.

NIGTA would request the Minister and all members of Government utilise ingenuity in their approach to problem solving.

As secondary bankers to agriculture NIGTA members are keen to play a full role in any discussions to alleviate debt believing that there is an opportunity to reduce farm input costs further if the debt burden can be realigned.

Short term proposals

NIGTA contends that the opportunity exists to seek special terms for Northern Ireland to assist the Peace Process, but it also contends that opportunity exists to utilise self-help to reduce the problems associated with the debt burden. Immediate consideration should be given to the following:

(1) Emergency assistance for the pig industry to alleviate the losses incurred as a direct result of the fire at Lovell and Christmas. Losses of £10 million were directly attributed to the fire and were over and above the losses incurred as a result of a falling market. This figure is established by measuring the normal differential of Northern Ireland versus UK prior to the fire against the additional differential following the fire. NIGTA would contend that the European Union should recognise the benefit of backing this proposal, as close association with the Republic of Ireland on this issue would demonstrate that the Peace Process could bring advantages.

The current DARD response is that the Welfare Scheme addressed this issue, that is not the case as it only addressed the Welfare problem on farm, and it was never anticipated that the losses directly because of the fire would reach £10 million.

(2) Maximum effort by all Government departments and the IDB in particular to find a way of offering direct assistance to the poultry processors to help them retain their Northern Ireland production base.

(3) To seek a regional status to allow Monetary Compensation to be paid in Northern Ireland.

(4) To pursue the proposal of an interest relief package for Northern Ireland farmers.

(5) To immediately utilise the Ministerial position to bring about round table discussions of influential people that could materially assist the farming industry.

(6) To introduce and support an influential body based on the outline of An Bord Bia.

Longer term

To develop relations with the 'achiever' Nations in Europe to bring the Northern Ireland dimension into focus.

To develop dialogue that enhances the principals of fair-trading within the European agricultural policy.

To develop dialogue with other nations to seek support to reduce the price of grain to world prices, thus allowing the competitive production of meat products within Europe.

Appendix N

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: NORTHERN IRELAND GRAIN TRADE ASSOCIATION

June 2000

Views on integration/re-organisation of the agricultural industry

The integration and partnerships within the Poultry sector have addressed the issue of minimising cost. We would recognise that integration and/or partnerships can help sustain businesses through the difficult times.

A facilitator with a 'can do' philosophy within the Government and Department of Agriculture and Rural Development could play a leading role in bringing food industry players together for the common good.

Financial support should be sought to encourage integration.

What Government and Farmers can do to make the industry more competitive

Northern Ireland faces, currency, geographical and input cost disadvantages.

While losing money, the Poultry sector has faced these problems without stopping their technical advance and product innovation.

(A) The single biggest issue facing the industry is currency strength with particular reference to Northern Ireland, because of the land border with the Republic of Ireland. Mechanisms already exist within an EC context (monetary compensation) and where mechanisms do not exist they could be sought by government eg the Republic of Ireland's scheme in 1983 which was geared towards exporting companies.

(B) The Government should appoint a facilitator with appropriate resources to seek out opportunities and bring them to the support of the farming industry. The specialist knowledge held within DARD should be utilised as a positive force rather than the negative force that we have seen in the past. Opportunities for co-operation with other member States will occur and a facilitator working closely with the agricultural industry should be tasked to find a way through the difficulties that will also arise.

The agricultural industry needs to know that they have access to a positive thinking office within DARD. The most recent example of what might have been achieved by this approach is demonstrated by the £1m debt plan to assist the pig producers in the ROI, who were affected by the Lovell and Christmas fire.

(C) The farming sector and all manufacturing industries within Northern Ireland suffer from the high cost of electricity.

We would propose that Northern Ireland should be made a special case when applying the Climate Change Levy. The level set for Northern Ireland should be reduced to reflect the premium already being paid in Northern Ireland.

(D) The haulage and fuel industry is being decimated by the difference in fuel prices across our land border and this is having a major knock-on effect to the agricultural industry.

We would propose that Northern Ireland should seek a dispensation on diesel and road tax, for use in Northern Ireland, to allow prices to equate to ROI prices.

(E) The intensive sector in Northern Ireland face input costs of between 5% and 10% higher than GB, they face input costs of between 15% and 20% higher than the USA.

The grain regime in the EU has an intervention base price that keeps the price of grain high to support grain farmers and the EU uses restitutions to allow the export of that grain at World prices. The result is that the livestock industry pays an inflated price for its raw material and gets no assistance on exports or protection on competing imports.

In the USA the grain farmer gets world price plus a guarantee up to a minimum price. The livestock industry, get grain at world price cheapening their produce and assisting their export potential.

The Government should seek to match this system allowing the livestock producers an even playing field in a bid to export value added product.

Failure to match the American system will result in the collapse of our intensive sectors in the longer term.

(F) A long term Government Loan Scheme which would offer low interest rates and an opportunity for farmers to re-structure their business should be considered.

(G) The other issue which would make a difference would be the effective labelling of food products as having been produced in the UK (primary production). Existing proposals have been watered down due primarily to supermarket pressure. The Food Standards Agency should help educate the consumer regarding countries where products are sourced and the production methods in those areas.

The quality of produce being produced is it competitive?

Quality produce is being sold to the buyer and is therefore competitive, however the producer may be making a loss to achieve the sale.

Poultry imports are achievable at a significant discount over home produced products, and may not have been produced to the same standards as this country.

Many factors mitigate against a GB producer and additional costs burden a NI producer. Some of the added costs are Government imposed, the Government should pay compensation when they exceed EU standards.

Across a range of parameters from welfare standards (pig industry) to bacteriological status of product (poultry) to meat quality (beef and BSE status) the produce of the province is of an extremely high standard. NI cannot compete with commodity prices, only niche markets are sustainable for home-grown produce.

Where the processor fits into the price gap from the farm gate to the consumer

While the food retail index has followed inflation over the last decade, farm incomes and processor incomes have seen a major decline.

The evidence suggests that processors are losing money or not making an acceptable return. This is demonstrated by losses within the major processors in Northern Ireland and the knowledge that major PLC processors such as Glanbia, Kerry, Malton would welcome discussion with any concern interested in stepping into processing.

The contribution Co-operatives can make to the industry

Partnerships and integration within businesses can offer efficiency, however co-operatives agenda does not always equal efficiency.

Appendix O

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: WILSON'S COUNTRY LTD

23 February 2000

Please find below information required by the Committee following the proceedings on Friday, 11th February 2000.

POTATOES SOURCED BY WILSON'S COUNTRY
August 98 - July 99
	NI	ROI	GB	GB M.PIPER	CYPRUS	TOTAL
%	71	11	5	11	2
August 99 - July 00 (estimated sales)
%	73	10	5	10	2

NOTES:

1. Product from ROI is used to introduce the early new set-skin season and bridge the gap between the local old season and new season.

2. Maris Piper is difficult to grow in NI due to common scab and slug susceptibility, yet it is recognised by consumers as a premium tasting potato.

3. Cyprus potatoes are offered to consumers as a new potato before our local new potatoes are in season.

4. 5% GB product is imported to supplement our local crop.

5. As a company, we are actively involved in working with growers to develop local growing of Maris Piper and extending our local season, hence the increase in NI % for this season.

Regards.

Angus Wilson

Managing Director

List of Other Relevant Papers

List of Other Relevant Papers

Ulster Farmers' Union - Paper on issues to be addressed in the local agri-food supply chain

Assembly Research and Library Services - Paper on Farmgate and Retail Prices

Competition Commission's Supermarkets Inquiry - Issues Statement

ULSTER FARMERS' UNION
ISSUES TO BE ADDRESSED IN THE LOCAL AGRI-FOOD SUPPLY CHAIN

The Ulster Farmers' Union would highlight the following key issues which farmers feel need to be addressed in the local agri-food supply chain.

• Transparency

Farmers are greatly concerned at the huge mark up between farmgate and retail prices for many commodities. For example top grade beef cattle are valued at c. 174p/Kg. In the supermarket sirloin steak retails at c. £11.80/Kg. Pig producers receive about c. 68p/Kg for their pigs. Pork fillet retails at c. £8.00/Kg. More transparency is needed in the Agri-food chain to ensure fair pricing structures are in place.

• Labelling

Proper labelling of Northern Ireland produce is crucial. The retail sector has not properly addressed this issue. Primary produce can be imported to NI, processed and labelled as "sourced in Northern Ireland". The local pig industry has suffered particularly severely with exceptionally high welfare standards not being promoted. What plans have retailers to clarify labelling procedures?

• Commitment

The current strength of sterling has seen more and more produce imported to Northern Ireland. Are retailers committed to Northern Ireland suppliers and the quality they can provide, or is price the key factor? Can they confirm that the quality and welfare standards of imported product matches local produce?

• Cost

Costs of production for farmers in Northern Ireland are extremely high. Compliance to a whole range of quality assurance schemes has heaped extra cost on producers with little marketing advantage apparent and certainly no premium. Currently a farmer in Northern Ireland could spend over £600.00 registering with Quality Assurance Schemes. What future co-ordination can be introduced to maximise the benefit of these schemes and minimise the administration/cost/auditing involved?

• Supply chain management

Trust and confidence is at a very low ebb among producers in many commodities. What plans have retailers to instigate proper supply chain management and build up a more positive relationship with the primary producer?

• Regional Policy

We believe decisions taken by central policy makers, based in GB, do not always reflect the situation "on the ground" in Northern Ireland. We believe the major supermarket multiples should adopt a regional policy to better reflect market conditions in the Province.

• Promotions

We are very concerned that the cost of ad hoc promotions, particularly for fresh produce, appears to be passed back to the producer. We feel this is an unacceptable situation. Local farmers have invested heavily to meet the high standards demanded by the major multiples. Margins are now being squeezed to unsustainable levels and the impact of promotions exacerbates the problem.

ASSEMBLY RESEARCH AND LIBRARY SERVICES
FARMGATE AND RETAIL PRICES

11 January 2000

Martin Wilson

Clerk of Agriculture & Rural Development Committee

Re: Farmgate and Retail Prices

The attached tables (from an August 1999 House of Commons Research Paper) compare changes in agricultural producer prices between 1995 and 1998 with changes in retail prices over the same period. Both tables are in index form (with 1995, as the base year, set at 100).

While it is difficult to match the different items in the tables exactly, it is clear from the data that farmgate prices in the UK have fallen significantly while retail prices have generally increased. In the one area where there was a major fall in retail prices - unprocessed potatoes (-27%) - there is notably a much larger fall in the corresponding producer price - root crops (-39%). It seems that the fall in prices paid to farmers is not reflected by the prices that consumers pay in the shops.

Producer prices for Northern Ireland (see attached Table 2.8)have suffered an even greater overall fall - 27% between 1995 and 1998 compared with a 22% fall in UK producer prices over the period. As UK retail prices also apply to Northern Ireland this would suggests that the disparity between farmgate and retail prices is greater in Northern Ireland.

I hope this is helpful. Please let me know if you require any further information.

RESEARCH PAPER 99/77

Producer prices have in most cases fallen since 1995;

Index of Producer Prices of Agricultural Products (UK)
(API) 1995=100

	1995	1996	1997	1998	change 95-98
Cereals Root crops Fresh fruit Fresh vegetables Seeds Flowers and plants Other crop products Crop products Animals (for slaughter and export) Milk Eggs Animals & animal products Total of all products	100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0	101.6 59.3 112.2 99.2 85.6 106.9 105.7 92.4 102.5 100.4 119.6 102.4 98.5	81.4 39.7 102.6 87.1 64.3 107.1 95.3 76.6 90.7 88.6 102.6 90.3 85.1	70.5 60.7 102.9 96.7 62.5 101.7 94.5 78.6 75.2 77.6 94.4 77.0 77.7	-29% -39% 3% -3% -37% 2% -6% -21% -25% -22% -6% -23% -22%
Average annual figures for calendar year Source: MAFF, 16 April 1999 at website wee.maff.gov.uk

While retail prices have remained steady;

Retail food prices (UK)
RPI Component 1995=100

	1995	1996	1997	1998	change 95-98
Bread Cereals Biscuits & cakes Beef Home-killed lamb Pork Bacon Poultry Butter Cheese Eggs Fresh milk Unprocessed potatoes Fresh Vegetables Fresh fruit	100 100 100 100 100 100 100 100 100 100 100 100 100 100 100	1001.8 100.9 103.7 101 114.2 120.7 113.3 105.7 108.5 105.8 110 101.6 78.9 98.3 12.5	100.4 100.9 104.9 98.8 113.1 117.6 117.6 106 109 108.7 110 101.6 54.9 91.2 105	99.3 101 106 96.9 105 104.4 109.2 104.7 110.7 104.7 109 101.7 73.1 94.9 106.7	-1% 1% 6% -3% 5% 4% 9% 5% 11% 5% 9% 2% -27% -5% 7%
Source: ONS Database (series DOAA, DOAB, DOAC,DOAD, DOAF, DOAG, DOAH, DAOI, DOAM, DOAO, DOAP, DOAQ, DOAY, DOBA, DOBC)

It is difficult to match exactly commodity to product, but in general, while retail food prices for bread, milk, pork, lamb, cereals and even beef have changed relatively slightly and in most cases risen from 1995 to 1998, producer prices for certain commodities are showing significant falls. Producer milk prices have fallen by about animals for slaughter or export by around a quarter, cereals are down by 29% and root crops by 39%.

Table 2.7 Average producer prices^{1 of agricultural products}

£ per unit
	Unit	1994	1995	1996	1997	1998 (Provisional)
Finished steers, heifers and young bulls2,3	head	698	718	615	509	418
Finished steers, heifers and young bulls2,3	kg dwt	2.23	2.22	1.89	1.61	1.37
Calves slaughtered or exported2	head	159	154	89	69	62
Culled cows and bulls3	head	490	518	442	333	257
Culled cows and bulls3	kg dwt	1.75	1.77	1.62	1.33	1.08
Store cattle exported	head	510	528	456	417	327
Finished sheep and lambs	head	43.76	42.75	53.52	50.25	38.77
Finished sheep and lambs	kg dwt	2.15	2.04	2.56	2.45	1.96
Finished clean pigs4	head	65.79	78.92	95.27	73.75	50.60
Finished clean pigs4	kg dwt	0.95	95.27	1.31	1.03	0.71
Culled sows and boars	head	98	119	130	100	49
Milk5	litre	0.212	0.254	0.240	0.206	0.193
Eggs for consumption	dozen	0.395	0.397	0.476	0.349	0.295
Broilers	kg lwt	0.548	0.549	0.585	0.574	0.530
Potatoes: Ware maincrop6 Seed	tonne tonne	119 136	173 212	76 158	63 69	110 105
Barley	tonne	112	119	116	90	84
Wheat	tonne	114	124	125	96	88
Mushrooms	tonne	1,190	1,210	1,165	1,146	1,150
Apples	tonne	119	138	158	214	275
1. After deduction of marketing charges, commissions and levies, where applicable. 2. Includes calves processed under the Calf Processing Aid Scheme. 3. Includes cattle slaughtered under the Over Thirty Months Scheme. 4. Includes pigs slaughtered under the 1998 Pig Welfare Slaughter Scheme. 5. Before deduction of superlevy, if applicable. 6. Does not include early potatoes. Therefore, the price differs from that quoted in Table 2.26.

Table 2.8 Indices of producer prices

Indices: 1995 = 100
	Weights2	1994	1995	1996	1997	1998 (Provisional)
Finished steers and heifers3	247	100	100	85	73	62
Culled cows and bulls3	42	99	100	92	75	61
Store cattle exported	4	97	100	86	79	62
Finished sheep and lambs	56	105	100	125	120	96
Finished clean pigs	91	86	100	118	93	64
Culled sows and boars	2	83	100	107	80	41
Milk	307	83	100	95	81	76
Eggs for consumption	25	99	100	20	88	74
Broilers	60	100	100	107	105	97
Potatoes: Ware maincrop Seed	25 11	69 64	100 100	44 74	3 33	6 50
Barley	23	94	100	98	76	70
Wheat	7	92	100	101	78	71
Mushrooms	25	98	100	96	95	95
Apples	5	86	100	115	155	200
Total products index2	932	92	100	96	83	73

1. The indices relate to prices from which marketing expenses have been deducted.

2. The total products index is calculated by taking into account the significance of each item in the base period (1995). This is shown in the column of weights. Since only the main items of output are included, the total of their weights does not cover items such as production grants, compensation payments and gross fixed capital formation, it should not be regarded as a 'deflator' to be used in estimating the volume of output. (A series giving the volume of gross output is given in Table 2.3.)

3. Includes cattle slaughtered under the Over Thirty Months Scheme.

COMPETITION COMMISSION
SUPPLY OF GROCERIES FROM MULTIPLE STORES MONOPOLY INQUIRY
Issues Statement

The Competition Commission has written to 24 companies in connection with its inquiry into supermarkets, describing the progress made so far, identifying the issues which it has been examining and highlighting those which it wishes to raise with some of the companies concerned (see paragraph 12) at a series of hearings during March.

In accordance with recent practice the Commission is publishing this statement summarizing the main points raised with the companies, in order that those interested may give us their views. In view of the wide public interest in the inquiry and the uncertainty which it has generated, this statement indicates the Commission's current priorities in the inquiry.

This is, however, an interim stage in the investigation and no conclusions have as yet been reached on any matter.

The Commission has received over 200 submissions, held 35 hearings with interested parties mainly in London but also in Belfast and Birmingham; and obtained questionnaire response data from consumers, all the main grocery retailers, nearly 400 suppliers of groceries to supermarkets and 50 local authorities. It has analysed a range of critical aspects including price levels, profitability and efficiency; price competition locally and nationally; international comparisons of prices and profitability; relationships with suppliers; transmission of price changes from suppliers through to consumers, acquisition of land for supermarkets and the impact of the planning regime in the UK. The Commission has also looked at a number of other social and environment issues relating to the retailing of groceries.

Jurisdiction

The Commission has provisionally found that all the companies to whom it has written belong to one or both of two complex monopoly groups for the purposes of the Fair Trading Act 1973, in relation to the supply of groceries in the UK by supermarkets (paragraph 12 identifies these companies). One complex monopoly derives from the pricing of groceries sold by supermarkets to consumers and the other from the relationship between supermarkets and their suppliers. These findings are provisional (the companies are being invited to comment on them) and carry no implications as to whether any of the companies is operating against the public interest.

Public interest considerations

Where the Commission concludes that a complex monopoly exists, it is required to decide whether any matter arising from its investigation operates against the public interest. Below are set out the matters the Commission will wish to raise with the companies before reaching its conclusions.

1. Market definition

The Commission is primarily interested in the so-called 'one-stop shop' pattern of grocery shopping in which consumers can buy most or all of their weekly grocery requirements in a single visit to a supermarket. In this context, its provisional view is that the market comprises a large number of local catchment areas within which consumers can reach a supermarket in a relatively short period of time. However, the Commission will also wish to explore the significance of regional or national market shares of the companies concerned; and whether Northern Ireland constitutes a separate market.

2. Company profitability

The Commission has examined a range of different measures of supermarkets' overall profitability based on margins, returns on capital, and cash flow analysis, and trends in them. As appropriate, it has compared these to companies' cost of capital and returns in supermarkets in other countries. Its initial view is that, while in some respects overall profitability performance has been quite strong, there is at most only limited evidence of excessive profitability, as measured, being achieved. The Commission will, however, seek further clarification at the hearings.

3. Prices

Evidence obtained by the Commission suggests that the trend of grocery prices in recent years, while upwards, has been significantly below that for prices generally in the UK, leading to a reduction in the price of groceries in real terms. Other evidence still under consideration suggests that the trend has also been lower than for grocery prices in some comparable European countries. A detailed survey of the prices of a wide range of grocery products in several thousand stores in the UK and certain other European countries is being conducted, the results of which will in due course be submitted to the companies for comment. The Commission is also looking at data indicating how individual supermarkets' prices compare to each other.

4. Consumer satisfaction

The Commission has reviewed a number of surveys of consumers' views of supermarkets. In addition, in order to obtain an independent view and to cover certain gaps in the evidence already available, the Commission has carried out its own detailed survey. This has been used to provide insights into a number of the issues described below, but the overall picture which these surveys provide appears generally to be one of high levels of consumer satisfaction with the performance of supermarkets in the UK.

Main points for the hearings

Within this context, the Commission has identified a number of points which it wishes to raise with supermarkets. These are:

5. Market power

The Commission wishes to raise with the companies whether individual supermarkets have some local market power in catchment areas where there are few or even no competing supermarket stores. Linked to this is the question referred to in paragraph 6(a) below, whether the extent of local market competition affects the prices which consumers pay.

6. Price competition

Surveys indicate that consumers have regard to range, quality, service and price when buying groceries. It is primarily matters relating to pricing which the Commission wishes to raise, including:

a. whether price competition might be excessively concentrated on a relatively small number of frequently purchased items; and at stores which face the most local competition;

b. whether price changes by suppliers have been rapidly and fully passed through to consumers; and

c. whether the pattern of prices and margins across different types of product, including branded and own label products, is related to costs to the extent that would be expected in a fully competitive market. This would include products persistently sold at a loss, which may benefit consumers in the short term but which may distort competition and consumer choice, and may adversely affect the supply or availability of such products in the longer term.

7. Costs and efficiency

The Commission is also considering the cost structure and efficiency of supermarkets. Three issues which arise from this are:

a. Whether some supermarkets have been able to maintain too high a level of costs, with consumers paying more than would otherwise be the case.

b. The extent of economies of scale in the industry, at store level but more particularly at regional and national level, and what impact this has on prices and competition.

c. Whether some forms of competition between supermarkets, primarily for sites and in provision of any facilities which do not cover their costs, has unduly raised prices to consumers.

8. Land and location issues

The Commission has been looking at prices paid for land acquired for supermarket development and at prices paid for land acquired for other types of retail development. It wishes to explore whether prices paid for land for supermarket development are higher and if so, whether such higher prices sustain, or are sustained by, higher prices for grocery products than would otherwise be the case. This could result in high prices even though profits were not excessive. A related issue is whether supermarkets seek to restrict competitors' access to suitable sites for stores.

9. Relationships with suppliers

The Commission has received evidence from both supermarkets and suppliers on their commercial relationships. It will wish to discuss whether supermarkets have excessive buying power or not, and if so, whether this:

a. lowers the price of products to consumers;

b. prevents efficient suppliers from earning a reasonable return;

c. leads to higher prices than otherwise of products sold by suppliers to other retailers;

d. damages the longer-term competitiveness of the grocery supply base, or some parts of it, in the UK; and

e. reduces consumer choice.

In particular, because the great majority of groceries are bought from supermarkets, fair and reasonable access to supermarket shelves may often be a precondition for an efficient supplier to survive and prosper. The Commission will therefore wish to focus specifically on the terms and conditions governing access to supermarket shelves and whether these are in any way unfairly discriminatory, either as between different suppliers or as between supermarkets' own-label products and those of other suppliers.

Other issues

10. Social, environmental and planning matters

The Commission has sought views on the objectives, role and impact of the planning regime in the UK in relation to supermarkets. These, together with questions of access to grocery outlets by lower income and less mobile consumers, the impact of large grocery retail developments on local communities and related environmental issues, will also be raised.

11. Recent and prospective developments

The Commission will wish to discuss with the companies the most recent, and prospective, performance of the supermarkets, and the extent to which the nature and degree of competition may be changing. This will include the emergence of Internet and other forms of home shopping and the entry of Wal-Mart into the UK market, and any effects these may be expected to have on the competitive situation.

The companies

12. The Commission has considered the market positions of the 24 companies that between them make up the two complex monopolies, in particular their national, regional and local market shares, together with data on the number of their larger stores. In the light of this, the Commission's provisional view is that, in relation to 19 of them, it would be unlikely to conclude that their behaviour operated against the public interest, and the Commission currently has no plans to arrange public interest hearings with any of them. These are Aldi Stores Ltd; Anglia Regional Co-operative Society Ltd; Budgens Stores Ltd; Colchester and East Essex Co-operative Society Ltd; CRS Ltd; CWS Ltd; E H Booth & Co Ltd; Iceland Frozen Foods plc; Lidl UK GmbH; Marks & Spencer plc; Midlands Co-operative Society Ltd; Netto Foodstores Ltd; Oxford, Swindon and Gloucester Co-operative Society Ltd; Plymouth and South Devon Co-operative Society Ltd; Scottish Midland Co-operative Society Ltd; Somerfield plc; United Norwest Co-operatives; Waitrose Ltd; and Yorkshire Co-operatives Ltd. This provisional view carries no implication that any of the activities of the other five companies, ASDA Group plc; Sainsbury Supermarkets Ltd; Wm Morrison Supermarkets plc; Safeway plc; and Tesco plc are or will be viewed as operating against the public interest. The Commission looks forward to discussing the issues with these five companies in March.

Views invited

Any person interested in these matters is invited to comment on any of the issues raised in this statement.