PROCEEDINGS OF THE COMMITTEE
RELATING TO THE REPORT

(Continued)

285. There is one point about retail pricing that may have been overlooked. I am not trying to say that there is no differential, because there is; and for the reasons already stated, which are the costs. The retail prices that are often quoted are the highest retail prices or the retail prices which exclude our promotional activity. One thing which Tesco does — and I think other retailers do the same — is to drive-up the volume of sales through promotions. For example, last year we not only had the cheapest price on pork for seven years, we advertised that we had the lowest price on pork for seven years.

286. The prices to the consumer have come down. Year-on-year it has got cheaper to shop at Tesco, and this year, it will be cheaper again. Retail prices are coming down and the part played by promotions in some areas has a very significant impact on the overall retail price.

287. Mr McGettigan: I have a slightly different view, Mr Bradley. The UK grocery market is not as fragmented as it is in the rest of Europe with four main players controlling 80% of the market, and that has led to Monopolies and Merger Commission investigations and so forth. There is very close monitoring. I am not saying that people get together and decide what they will do with prices. However, they electronically monitor the prices of thousands of products each week so that the buyers will know within a fraction of a fraction of a percent how their prices compare to that of their competition. If they see prices go up elsewhere then they put their prices up, because they all need to make a profit. Ultimately, with the exception of the Co-op movement, they are accountable to the Stock Exchange.

288. Suppliers are disadvantaged by the lack of fragmentation, and the fact that so much purchasing power resides in so few people — and the smaller the supplier, the more he will be disadvantaged; the less powerful your brand, the greater the trouble you will be in. In our supermarkets — those that are owned by individual businesses — the produce areas have the highest profitability. This is because of the low profit margins that are available from Kellogg, Nestle, Unilever and the other giant multi-national companies. A handful of them provide 30% of everything that is bought in the supermarket, and they make sure that the retailers are not able to get a high profit margin.

289. So, if it costs the retailer a certain amount to run a shop, and he is only making 5% from Nestle or Unilever poducts, he will go to the less well-organised, less brand orientated, or more commodity orientated suppliers. Such considerations are fundamental to the neat running of a supermarket. Ultimately, it costs a certain amount to run a business. The costs are the same, and somebody has to pay for them. Whether the price of the products goes up or down, you will have to make the money to pay wages, and if you cannot make the money from one place you have got to make it from another.

290. The Chairman: I think that we must move to Mr Dallat for he will explode if he does not get the opportunity to ask a question on this matter.

291. Mr Dallat: Mr Chairman, it would be wrong if Mr McGettigan should dominate this rather interesting meeting.

292. In your presentation, Mr McGettigan, I got the impression that you have been very successful in the South in preserving shops and smaller communities. What can the Assembly do, or focus on, to ensure that the North does not end up like large parts of England, America and Canada, where whole communities have been wiped out sometimes by the type of promotions that Mr Kells was talking about — through sustained attacks on elements of the retail sector, whether it be the butcher, the baker or the chemist or whatever? What advice can you give us to ensure that we keep the Cookstowns, the Dungannons, the Kilreas, and the Garvaghs as separate entities and not subsumed into other large towns?

293. Mr McGettigan: You referred to the Republic of Ireland and some of the things that helped there. I do not know whether those things are transferable. After a supermarket chain called H Williams went bankrupt and a lot of people and suppliers — predominantly the farmers or their co-operatives — were stung, the Irish Government banned the practice of selling below cost price. That was done on the basis that no one could sell below cost price in any sustainable way because it favoured the big and disadvantaged the small. That was the first thing they did.

294. The second thing they did, when they saw a proliferation of planning applications for large supermarkets of 50,000 or 60,000 square feet was to put a cap on them. They said "Hold on a minute. If you build one of these and it costs £30 million or £50 million, someone is going to have to pay, because your share price sure ain’t going down."

295. The third thing they did was to get a voluntary commitment from everybody in the trade to support a defined percentage of local sourcing. At that time "local" meant "within the Republic of Ireland." They did that by reference to historical information which showed what percentage of food eaten in the Republic of Ireland was also sourced there. They then asked people to agree to maintain that level and allow monitoring to take place in order to ensure that it would not fall.

296. All of those things, coupled with the independent sector’s own professionalism, allowed for a retail fabric, and therefore an agri-food fabric, that is substantially different than might pertain, for example, in post-Wal-Mart United States.

297. Mr Dallat: So, are you saying that the Assembly could influence the future of the retail industry?

298. Mr McGettigan: It has a lot better chance than — I will not say from where. I think it could.

299. Mr Paisley Jnr: Pick a window, you are leaving.

300. Mr Gibson: I made a point in my statement that three quarters of our suppliers here in Northern Ireland have a substantial part of their business outside Northern Ireland. That has really driven their success with Marks & Spencer plc and that is what is driving their current growth. I would suggest that suppliers in Northern Ireland need to get as close to their partners in the retail trade as they can, and that they must not just focus on the local market here. There is a very substantial market outside Northern Ireland and there are some very high quality products here. It would be a mistake not to focus on exporting outside Northern Ireland.

301. The Chairman: I certainly accept that.

302. Mr Ford: I am glad that Mr Gibson came in there because he has slightly set himself up for what I want to ask him and some of his colleagues. The Co-op gave us some fairly detailed figures on the value of their purchases for sales in Northern Ireland and in GB. The four supermarket chains based in GB have all either come to Northern Ireland in recent years or expanded significantly here in recent years.

303. I would like to ask them the value of Northern Ireland purchases over the last five years, which they sell in Northern Ireland, and the value of Northern Ireland purchases which are sold in Great Britain. I assume I will not get an answer this morning but we could accept a written response. That entirely makes the point as to how much you, the stores, are doing to help sell the high quality product in Great Britain, which you have just described.

304. The Chairman: It would be good to have that in written evidence because we are probably going to have to look at that. There have been a lot of suggestions today that we want to explore in regard to that. That is certainly a valid point.

305. Mr Hawkins: If we were to start putting large quantities of Northern Ireland fresh eggs, milk, meat and so forth on our shelves we would immediately have the English farmers around our necks because, as I said earlier, they are in exactly the same position as many Northern Ireland farmers. They have too much supply in relation to the demand for it and they watch us very carefully, I can assure you.

306. Mr Dallat: You are selling Ayrshire milk in your stores here in Northern Ireland.

307. Mr Kells: We stock Ayrshire milk in Northern Ireland. It is produced by Erganagh Dairy.

308. The Chairman: You must be drinking it.

309. Mr Kells: Sorry, Mr Chairman, but this is quite an important point.

310. That product is produced under licence by a local company, Erganagh Dairy, of Castlederg. It does not come from Scotland. Erganagh Dairy is one of our most successful small dairy producers. It not only produces our Ayrshire milk, it produces a fantastic range of goat’s milk, which means that we no longer have to import goat’s milk from St Helen’s in Lancashire. This merely highlights the need to build more understanding.

311. There is a tremendous amount of work being done, and not just in conjunction with large producers. Our meat supplier in Northern Ireland is one of the two main suppliers to Tesco’s supermarkets throughout the whole of Great Britain. It is a major element in Tesco’s business. Our commitment to large and small suppliers in Northern Ireland is genuine. One of the things which we should be stressing today is the need to work together to build on that.

312. In response to Mr McGettigan’s point, I can reassure everyone in the room that the reason we monitor several thousand prices every week is to make sure that Tesco’s prices are cheaper, not dearer.

313. The Chairman: I think that even Mr Dallat would be quite happy as long as the Ayrshire cow ate Northern Irish grass and the milk was produced here. These facts are not generally known, and they need to be known. That is one of the aims of this Committee: to try to get the truth to the people.

314. Mr McHugh: I imagine that the retailers are quite efficient in how they do their business. In the past, I would have thought that there was massive overcapacity in milk processing. Would you like to comment on that? Even in the Republic of Ireland there are areas of overcapacity on the processing side, yet farmers are still making very little profit. Some of the farmers’ representatives claim that only £1 out of every £30 goes to farmers — this in a £70 billion industry. There is enough money in the industry to ensure a decent income for everyone, yet a vital part of the industry is disappearing, or looks as if it is about to disappear, because of market failure. How do you intend to address the question of efficiency? I listened to a programme last night on the car manufacturing industry, and was struck by the fact that the manufacturers demand a large slice of the overall price. The opposite applies to farmers. Perhaps you might like to comment on that.

315. Mr Brecknell: We at Sainsbury’s are undertaking a major review of our suppliers. When I say suppliers, I do not mean the farmers; I mean the processors and packagers. Some of our competitors have already done this and have found it very difficult. One has to analyse who is performing well and who is not performing well and make a judgement accordingly. We agree with you: overcapacity is not just a problem at farming level, it is at the processing and packaging level as well. In the next year or two we are going to see a lot of companies either combine or go out of business.

316. Mr Wilson: As a processor I can tell the Committee that our scale in Northern Ireland is about one third the size of the average processor in Great Britain engaged in a similar type of business. We need to export so that we can develop our businesses to be able to compete with Great Britain and with other countries of the European Union. The question of the scale of business is an important one for the Northern Ireland processor.

317. Mr Armstrong: Mr Wilson, I believe that only 7% of potatoes produced in Northern Ireland are sourced by your company. This might be because of the high standards for potato skins which a lot of supermarkets demand. That this year’s potatoes are not of such a high quality may be due to the poor season which we had. However, farmers do not control the weather or the quality of potatoes produced. Beauty is only skin deep, and the potato is every bit as good under that skin.

318. Mr Wilson: I agree, however we cannot control the weather and we cannot control our consumers who consider that the appearance of the potato is very important. By way of example, I have often heard it said that if people were asked to choose between an orange with a blemish and one without, they would choose the nice clean orange, even though nobody eats the skin of the orange.

319. Mr Armstrong: Is it true that you sell only 7% of potatoes from Northern Ireland?

320. Mr Wilson: No, that is absolutely wrong.

321. The Chairman: What percentage of potatoes do you import?

322. Mr Wilson: I would be happy to answer that question by way of a submission, but not in this forum. However, the figure is vastly above 7% — or even 50% or 60%.

323. Mr Armstrong: Someone told me that we are eating less food than before. If this is true, why do we need so many supermarkets? Is it because so many people enjoy shopping and window-shopping. Perhaps you should charge people who do not buy goods for coming into your supermarkets because most people seem to enjoy shopping —

324. Mr Hawkins: I think that you are quoting me, or rather misquoting me. I did not actually say that people are eating less food but rather that their habits are changing — they are eating different kinds of foods. In the produce market there are two particular growth areas, bananas and grapes, but unfortunately, as far as I am aware, neither bananas nor grapes are grown in Northern Ireland. Stone fruit is either static or declining. This demonstrates that, across the board, people want convenience food which is quicker and easier to prepare. This is a change in habits; it is not that they are eating less, but that they are just eating differently.

325. The Chairman: There is also a great change in the eating habits of young people; many are vegetarians. I have often told farmers that they need to advertise to keep people eating meat because people are turning away from it.

326. Mr Armstrong: Perhaps they should eat more mashed potatoes and worry less about the skin.

327. Mr Kells: Mr Chairman, I wish to build upon what Mr Wilson said. In all the analysis we are doing, it is desperately important that we do not lose sight of the customer.

328. Mr Wilson mentioned that two-thirds of the potatoes sold by Tesco in Northern Ireland are washed, and yet three to five years ago hardly a washed potato was sold in Northern Ireland. So what is the reason for this change? It is because people want convenience; they want to open the bag and put the potatoes in the pot — they do not even want to have to wash them. Neither do they necessarily want varieties that taste superb but are difficult to cook; they want varieties that they can put on to cook, leave and have potatoes which are acceptable to eat. Your point, Mr Chairman, about the younger generation is particularly relevant.

329. I urge the Committee not to lose sight of the consumer. If we do, our good work will be useless. We must deliver what the consumers want; it is they who keep all of us in business.

330. Mr Wilson: The real battle is with the competition from rice and pasta. If we do not offer the consumers what they want in a potato, they will buy rice and pasta.

331. Mr Chairman, you will be delighted to hear that we used a good County Antrim woman, Jenny Bristow, to advertise our potatoes on television recently to try to promote the Northern Ireland potato-growing industry. This was a serious investment to try to encourage people to keep eating potatoes, and we have to give them the potatoes that they want.

332. Mr Gibson: There is a cyclical pricing structure in the potato market which means that when there are more than seven million tons of potatoes in the UK, the price comes down to its current level; yet last year the average potato price was three times what it is now. Every time the price goes up, the consumption of fresh potatoes is forced down, and, as Mr Wilson said, more and more customers will not come back to potatoes. A more static price and ready-prepared products are what people want, and we have to respond to that.

333. Mr McGettigan: The second part of Mr Armstrong’s question concerned the need for so many shops. Many people, including Sir John Harvey-Jones who has written about the matter and spoken on it here in Belfast, believe that there is over-capitalisation in the market and that there are too many big shops. Larger and larger stores are being built, which in themselves drive the need for higher prices and more profit, instead of allowing for smaller shops which are more convenient and which people do not have to travel so far to reach. In your jest you have touched on a point which many economists believe is valid.

334.Mr Armstrong: Everyone seems to want to produce food organically. Potatoes, in their natural state, have soil on them, as does every other product. If people want to have them the old way, in their natural state, let us have them like that.

335. The Chairman: I agree that everybody wants convenience. If one is offered washed potatoes and potatoes with soil on them, the outcome is clear. People need not wash them again. They would just put them straight into the pot. One must also remember that far more families split up today than used to be the case in my early days. I have been in the ministry for 52 years and have a wide pastoral experience. The mother was always at home. Today, most mothers work because they need to. Recently, I was talking to a farmer with a working wife and he said he had come to the conclusion that he was there to keep the animals. The animals could not keep him, so his wife had to work. This is why people want something they can prepare quickly, and if they can get it done quickly, they will go for it. My Deputy has a final question.

336. Mr Savage: This has been a very useful meeting. The people here today hold the future of agriculture in their hands. I am a farmer. Adding an extra 5p to 10p a kilo on everything could solve all of the problems in Northern Ireland’s agriculture industry. I do not want you to answer that; I want you to leave with that thought.

337. I would say to the gentleman from Tesco that I produce cattle and I go into his supermarket. There is a vast difference between the price I get for those animals and the price he receives. It is the same for all commodities, but if we are to have an agriculture industry in two or three years’ time, we need your support. There must be a joint effort between farmers and retailers.

338. I know you are all experts or perhaps, to use a word that has been used fairly often recently, spin-doctors. Both you and the farmers have an extremely important job to do, and the agriculture industry cannot go on like this. Northern Ireland is a small place and we need support and help.

339. Mr Bracknell: On the mainland, there has been a great deal of speculative growing over the last two or three years because the potato market has been so high. Farmers have come out of livestock and horticultural products and gone into potatoes, which is partly the reason why there is a glut this year. Sainsbury’s has met the Ulster Farmers’ Union every year since our arrival, and we have forecast that similar things could happen in the Province if farmers and packers do not start to grow potatoes to meet the market. It all comes from meeting the market, for a grower must have one. I should like to add that the competition commission, in its inconclusive verdict last week, said there was at best only limited evidence that excessive profits were being made by supermarkets.

340. The Chairman: In closing, I should like to express our thanks to you for coming. We believe that this exchange has been extremely helpful to us. We need that three-way partnership to which Mr Savage referred, and we must develop it more.

341. We are in the position of being able to monitor the Government. We have powers to send for persons and papers, and we are able to monitor the Minister before and after she takes decisions. This Committee could have a great deal of influence, just as the powerful Statutory Committees at Westminster have. We are not against the people that sell the produce; we want this Committee to operate for the good of the entire industry. We need a healthy industry; there would be no point in the farmers producing a good range of produce if you cannot sell it for him.

342. We need experts at every stage. We would like you to think again about ways and means that you think this Committee could help to get the industry out of the mess it is in. Some of them may be long-term; some may be short-term, but the more ideas that we have — the more prescriptions we can get — the better we can do our job. We are very grateful to you. This has been a very helpful meeting, and we have all benefited. The next time you come I hope you will not think that we are a lot of ogres waiting to get down your necks. We are just ordinary people who have an interest in our constituents and are trying to help. This has been a most helpful meeting, and we are grateful to you for the attitude you adopted and for the forthrightness with which you gave your evidence. I look forward to receiving your future communications.

343. Thank you very much.

MINUTES OF EVIDENCE

Friday 9 June 2000

Members Present:

Rev Dr Ian Paisley (Chairman)
Mr Savage (Deputy Chairman)
Mr Armstrong
Mr Bradley
Mr Dallat
Mr Douglas
Mr Ford
Mr Kane
Mr McHugh
Mr Molloy

Witnesses:

Mr D Rutledge )
Dr M Tempest ) Livestock and Meat Commission
Mr P O’Neill )

Livestock and Meat Commission

344. The Chairman: We have the Livestock and Meat Commission with us, and we welcome Mr Rutledge, Mr ONeill and Mr Tempest. Welcome to our deliberation. Thank you for coming. We have a submission from you which I am sure you will want to go through with us, and then the rest. The position is we have a maximum of 10 minutes for you to make your submission, and then we will have half an hour of questions from the various Members of the Committee. We are attempting to run this strict on time so we will be calling on you to wind up at 10.11.

345. Mr. Rutledge: You had indicated a little bit more flexibility with the opening presentation, Mr Chairman. If you are wanting to do that very strictly, I will have to curtail my speaking notes a little bit.

346. The Chairman: That being so, and you thought you were going to be 15 minutes we will do that, but then the questions will have to be answered more concisely.

347. Mr Rutledge: Thank you.

348. The Chairman: 15 minutes then. We will finish this at about 10.16.

349. Mr Rutledge: Thank you, Gentlemen. We are pleased with the opportunity of addressing you this morning, Mr. Chairman. We will seek to deal formally with the topics as laid out in your letter of 13th May. In order to facilitate this, since we do not have overhead projection facilities, we have prepared a handout which, as you referred to, has been circulated around your Committee. By way of introduction, the Livestock and Meat Commission is a support organisation for the Northern Ireland beef and sheepmeat industries. We do not have time this morning to develop in much detail the range of activities we perform. Of course, I would like to extend an invitation to the Committee to visit with us when we can deal in detail with the range of things that we do for the industry. Suffice it for this morning that we seek to support the industry at producer, processor, wholesaler, retailer, caterer and consumer levels. We try to maintain a reasonable understanding of the dynamics of the industry and of the major issues affecting us at each of these levels. An important part of the background which addresses one of the specific points raised in your letter is understanding how values have developed over recent years. You will see in slide four of the documentation before you the dramatic fall in the farm gate value from 1995 to the low point achieved in the autumn of 1998. You will see also that the value to the producer has recovered somewhat coming into the current year. What is generally not recognised in the farming community, however, is that the value obtained by processors and the value obtained by retailers from their customers has also followed the same pattern.

350. Of course, these figures do not reveal the significantly increased costs through processing and retailing chains as a consequence of the mainly BSE-related controls imposed by government over the last two years. It has been estimated that these controls have cost our industry in the order of £50 per head for every beef animal slaughtered. Moving from values to margins. The next three slides show how margins have developed within recent years with producers, processors and retailers. These slides would tend to highlight that the major beneficiary has been, in fact, the consumer.

351. A further issue to be contemplated in any discussion of the beef and sheepmeat industry is the Agenda 2000 agreement. This is the main determinant of the operating environment of our industry over the next few years. In summary, the conclusion on the Agenda 2000 agreement was that we would over the next three years have a 20 % cumulative reduction in the market price for beef, and that this would be compensated for by an increase in subsidies payable to producers.

352. These changes are designed to move the European price closer to the world market price so as to facilitate export from Europe without subsidisation. By way of information, the world market price for commodity beef is best represented by the price obtained by the Australians, who are the world’s largest exporters of beef. When we checked this just a few weeks ago, we found that Australian steers of 240 kilogrammes in weight were leaving farms on a dead weight price equivalent to 95p sterling per kilogramme. Of course it is frightening to contemplate such a price would have to be taken by Northern Ireland producers, but there are a couple of mitigating circumstances. Firstly, the value of sterling is acknowledged to be currently at levels that are not sustainable for most industries where there is an interest in exporting. Secondly, there is some evidence that the world market price may be strengthening. You can see from slide 13 that from 1st July 2002 safety net intervention at current exchange rates is set at 97.8p per kilogramme. I am sure the proximity of this to world commodity beef prices is no coincidence.

353. There are, as I have said, increasing subsidies through beef special premium, suckler cow premium, slaughter premium, as well as extensification payments which will offset at producer level most of the reduction in price. Time does not permit me this morning to develop these in detail, other than to say that these subsidies will isolate the producers further from the market place and encourage them perhaps to produce product to collect subsidy rather than to meet a market need.

354. Sheepmeat was not the subject of Agenda 2000 reforms but clearly there is also pressure in this sector. Production costs for competitive meats, poultry and pig meat, are predicted to fall as the reform package envisages substantial reduction in cereal prices. In addition the inclusion of sheep in the extensification calculations will add further pressure to the mixed livestock farm.

355. Turning now to other specific issues raised in your letter, you asked for our views on integration or reorganisation of the agricultural industry. It is clear to us that within our sector significant change must take place. In our submission to you in regard to agricultural debt we sought to highlight that the average industrial wage for a Northern Ireland beef farmer could only be achieved on a holding which was over 100 acres in size.

356. As shown in slide 15, only 16 % of Northern Ireland farmers are large enough to produce this average industrial wage annually from beef farming. We must highlight that these figures do not begin to account in any serious way for a return on the assets employed. The major asset employed in beef and sheep farming is agricultural land, and it must be said that the value of land does not bear any meaningful relationship to its earning capacity. It is difficult to see, therefore, how we can achieve integration or reorganisation of our industry based on the transfer of land from small producers to larger producers. Larger producers could not realistically afford to invest at current land values.

357. While the ownership of land does not have to change in order to restructure, we would comment that conacre values, while more attractive than land acquisition, tend to give all of the margin which can be earned from the land to the owner rather than to the user.

358. Our conclusion, therefore, is that while there will be some tendency towards larger farms, the biggest reorganisation is likely to evolve around the development of part-time farming supported by other sources of income.

359. It is our estimate that over the next few years we will require the creation of the order of 10,000 full or part-time jobs in the rural areas of Northern Ireland. We believe that the majority of those farms classified in slide 17 as very small are already predominantly part-timers. It is our belief that most of the 11,000 approximately of those classified as small farms will require to be run on a part-time basis.

360. In your letter you asked about the quality of our production, and given the background that we have described it is our opinion that we are unlikely to be able to have a sustainable beef or sheepmeat industry at world commodity prices. It is imperative, we believe, that every possible step is taken to differentiate our industry. There are a number of discerning customers who attach importance to animal traceability, animal welfare, animal husbandry and care for the environment and such customers, and will favour supplies from quality farms. We contend therefore that the Northern Ireland Farm Quality Assurance scheme is an absolute imperative for any serious sheepmeat or beef producer in the region.

361. It is equally clear to us that we must focus more on maximising the value of individual animals. The premium customers seek the maximum amount of premium cuts from the animal (these are the steaks and the roasting joints), and the yield of these is maximised by improving the conformation of our livestock. In the circumstances of the genetic development of the dairy industry towards the Holstein breed from which 35% to 40 % of our cattle slaughterings are derived, we have found an alarming deterioration in the overall conformation results. Lack of profitability in the last few years has led to a lack of investment in breeding stock. We believe that this trend can be reversed with proper attention to cattle genetics, and with some restructuring of payments which may include both market price returns and subsidies to reward better breeding and finishing of cattle.

362. Another of your questions, Mr. Chairman, is in regard to a possible contribution of co-operatives in the industry. We do not have any strong opinions in regard to this subject area, other than to comment that there is little evidence so far that the co-operative movement in Northern Ireland agriculture has achieved major success.

363. The final question which you raise is what government and farmers can do to make industry more competitive. This, of course, is a very challenging question for all of us. Dealing first with farmers, we believe that sheep and cattle producers must, first of all, be highly efficient with the technical knowledge to select breeds and husbandry practices that incur the lowest costs and yield the best productivity from their particular farming environment. They must be well-trained to meet the ever growing burden of paperwork which is an essential part of the future due diligence of food production, and of maximising of course the subsidy collection from the various schemes that are available to them.

364. Within the beef and sheep meat industry farmers must achieve, as I have said, the basic quality requirement of being farm assured to have a reasonable chance of getting out of the basic commodity end of the business. Finally, from the farmers’ prospective that it is vital that the rules regarding animal traceability and identification are fully complied with. Farmers must ensure that births, movements, and deaths of livestock are properly registered and recorded.

365. Turning now to government, we firstly have to acknowledge that a major impediment to government action in our industry is the need for compliance with the State Aid rules of the European Union. There are, however, many areas where we believe government can help. First of all, I referred earlier to the strength of currency. While this may be in essence an indicator of economic success and to some degree out of the control of the government, we believe that the use of interest rates as the only lever for control of inflation is an unhelpful policy and likely to sustain currency at very high levels.

366. A major role of government is in education and training and it is clear from the foregoing that beef and sheep meat producers must be helped to achieve expertise, not only in the area of improving genetics on their farms, not only in improving efficiency and productivity, but also we believe in the area of maximising subsidy support which they can get from the regime. While in the pure sense we in the LMC are inclined against subsidisation and its affect of isolating producers from the marketplace, we recognise that a feature of competitiveness must be to maximise the take from the subsidy regime in which we live.

367. Government has a role in research and development, and we believe that much work needs to be done in this area. In particular we believe that there is a need to develop the interface between the beef and dairy industry and to harness technology which will allow us to move towards improving that part of our raw material which is a by-product of our milk producers.

368. We would like government where it is possible within the regime to support quality production within the national envelope. In particular under Agenda 2000 it is possible to direct some subsidisation towards quality livestock. We believe that that would be strategically beneficial.

369. The Chairman: Mr Rutledge, you have one minute left.

370. Mr Rutledge: We encourage government to direct rural development funds in support of quality improvements on livestock farms. We would expect government to encourage and to ensure a level playing field for our industry. Finally, we would of course continue to believe that from a strategic perspective our beef industry needs to have open to it again the opportunity to develop exports. The advancement of low incidence status for Northern Ireland, while not a panacea for our industry and certainly not a status that we would want at any cost, in particular if there were unworkable conditions, we believe that it is the major opportunity for government to advance the prospects for the entire industry.

371. I hope very briefly, Chairman, I have covered the headings that were given to us in your letter. Of course, we would be happy to dialogue with you on anything arising from that or from any other matters that are within our particular field of interest.

372. The Chairman: I just want to put a couple of general questions to you before my colleagues come in on this particular matter. In summing up you have given some of the answers to us, but in what ways do you believe farming structures need now to change to meet the demands of the future, and how do you see those changes can be brought about. I am thinking of the contribution of the farmers themselves and the contribution of government, and the contribution of yourselves and marketing the produce.

373. Mr Rutledge: Okay, that is a massive amount contained within that, Mr. Chairman.

374. The Chairman: Let me explain: We have to get a report before the Assembly and we need to be able to tell in our report as briefly as we can why we are coming to these conclusions. Therefore these summaries are essential to our work.

375. Mr Rutledge: Well, first of all on the structure, we believe that there will be a tendency for the smaller farms to be unable to sustain, as they have traditionally done, the family, the farming family. I think there is almost an inevitability therefore that part-time farming will become a major feature. We have to think within our industry of how we can better facilitate people being part-time participants in the industry. Regrettably, of course, the more part-timers there are, the more difficult it is to deal with the quality issues that will be helpful in the marketing of our produce. We believe, as I have said in the statement, Chairman, that we need to take seriously the issue of improving the quality of livestock from farms. That of course requires attention to detail, that is more difficult to achieve as people become part-time.

376. The Chairman: That is the farmer’s duty. They will have to face up, in your opinion, to the fact that they need greater integration in the actual farms. What do you think the government can do to bring this about, or should do.

377. Mr Rutledge: First of all, the headings that I was giving you in regard to government, they have got to provide within the rules that are laid down the training and support to farmers to ensure that they have the necessary technical knowledge to advance the quality of product coming from their farms. As I have said, they have also got to have the wherewithal, the knowledge, and the support to maximise their take from the subsidy regimes that they have to deal with.

378. Government, of course, further down the chain have to try to be as lightfooted as they reasonably can, again within the European rules in terms of the burden of controls and bureaucracy that at the end of the day costs money for our industry.

379. The Chairman: Then what can you do for them?

380. Mr Rutledge: What can we do for them? Obviously from the marketing perspective I assume is what you are talking about. Obviously our role is to support the businesses of the industry in finding the best markets. We have, with the industry and with government, produced some couple of years ago a strategy that focuses on premium products for premium markets. We believe that we can be of assistance in seeking out those premium markets, conducting market research and bringing to the commercial operators within the industry the best opportunities for our industry. Of course, we are also operating at the other end of the scale with the producers, encouraging them to get products to meet those premium markets. There is a chicken and egg situation here where we have to ensure that we have sufficient of the quality product to meet these opportunities.

381. The Chairman: We well understand that.

382. Mr ONeill: Chairman, we are confident that Northern Ireland beef and lamb can find its way into the very best of the world markets if we can have this low incidence status that is currently on the table at the moment for discussion put in place. But the fact remains, even with getting our produce into the very best markets, the fact remains that for Northern Ireland farmers that probably won’t be enough to sustain the industry as structured at the moment. If we might just go back a bit. I think that the big challenge going forward is that 10,000 jobs in the rural communities of Northern Ireland can be found that will enable part-time farming to be sustained alongside another means of deriving the necessary income.

383. The Chairman: Mr Tempest, do you want to blow up a storm amongst us?

384. Dr Tempest: There is also a move in the last three years and certain trends have become evident. The small farms have tended to remain fairly static, the medium farms have reduced as a proportion of the total farming, and large farms have actually increased by 12 % over the last three years, so you can begin to see the signs of a change. It seems to us that in the long term there will two major types of farming activity. One would be small part-time type farms and the other will be large farms that generate enough income to support one or two families. The middle guy will probably be the one that suffers most. Clearly, to support my colleague, the major issue of government in the increase in part-time farming is to create the environment which will create jobs in the rural community.

385. The Chairman: Thank you very much. We have three of our members — my vice chairman George Savage, Mr Billy Armstrong, and Mr Francie Molloy will now come in. George?

386. Mr Savage: Chairman, I would like to ask our three representatives, the farmers tell us that they are not making money, the supermarkets, the retailers tell us that they are taking a hit on their profit margins. What about the middle men, are they in danger of going out of business like the farmers. I remember, Mr. Rutledge, speaking to you over a year ago at Balmoral Show and I had two bits of paper in my pocket from grading of cattle (I haven’t forgotten this), there was the same cattle that came out of the same shed and went to two different factories, two different papers all together; grades. I think there is far too many grades of cattle in your Department. I think you have got do something about that. As we move on, the farmer has borne the brunt of this over this two or three year period. What has your Department done to try to help it.

387.Mr Rutledge: Okay, you raised a number of issues there. First of all, we have in the tabulation produced some information in regard to processors as a whole in GB. There is certainly some evidence that Northern Ireland processors have been profitable through this period where farmers have not, and certainly that does create a resentment. We do not have specific detailed knowledge of the profitability of processors in Northern Ireland. What we have given you in the handout is GB figures. The issue of grades is very contentious. The classification or grading of cattle is done in Northern Ireland as it is done in every Member State in compliance with the European grid. You are allowed subdivisions within the major EUROP 1, 2, 3, 4, 5 classifications. An operation of some subdivisions is permitted under the legislation within Northern Ireland. We have not got the option as a lot of people think we have of putting arbitrary grades on cattle. It is a massive undertaking to train people, to try to ensure that they are current and to try to ensure that all of the Member States are grading or classifying in an exactly similar manner. We try as best as we as human beings can do it. We also acknowledge that where there is doubt in a particular animal, where it is on the margin between grades, that we tend to favour the farmer. We continue to do that where we can. I think people have got to acknowledge the farmers are not the only people who complain to us. The processors will complain to us that we are grading too leniently. I suppose when they are both complaining to us we think we are probably doing it about right. We do not have the prerogative to arbitrarily change the grading standard, that is laid down, it is controlled by the competent authority, by government who supervise our activities in this area.

388. If the industry had the aspiration of reducing some of the subgrades we would be happy to go along with that, but then you get into a very complex debate as to whether that would be beneficial. Some people talk within the "o" range of conformation, instead of having three we could have only one, but I suppose a lot of customer specifications are saying we want U and R grade cattle, but most of them would take the O plus. If we went to a general O grade we might lose out some of that opportunity with some of the premium customers who we serve. So there are two sides to that debate in reducing some of the subdivisions.

389. Dr Tempest: There are two other issues.

390. The Chairman: We are running tight on time.

391. Mr Savage: The producers that export their cattle to Scotland, there are three grades over there, and we are all part of the UK here. I am not really fussy about what the grades are in the UK, I am concerned about what the grades are here in Northern Ireland. You are people who are employed here to look after the farmers in Northern Ireland. That is what we have got to do. We have got to back up the farmer because they have been at the receiving end for far too long. Unless something is done about it, unless something is done to protect them, they are not going to be here and when they are not here we do not need you people.

392. Dr Tempest: With all due respect, there are more than three grades in Scotland. It is basically the same EUROP grid.

393. The Chairman: With respect to Dr Tempest they are not all the same, there is a difference. You are talking about a subtle difference but it is a difference.

394. Dr Tempest: The O grade, there are two categories of O grade in GB and we have three categories of O grade but basically the EUROP 1, 2, 3, 4, 5 is, in essence, the same. As Mr Rutledge is saying, it is laid down in legislation. What the debate in the industry is at the moment, if you can imagine that we have seven conformation classes and six fat classes which give 42 squares on a grid, inevitably there are almost 42 different prices. We believe that the issue is not the number of grades but the number of price bands across that grid. Our information which we determined a couple of winters ago on saleable meat yield would show a lot of those grades could be banded together for the same payment. The other issue that government could do for us is to take heed of the recent report from the Republic in the assessment of three different machines for objective classification. That will have to go before the European Commission at some stage, but we believe there is merit in moving from what in essence is a subjective system to one with all the technology that we have these days to begin harnessing an objective system of classification which will predict saleable meat yields.

395. The Chairman: Well, we will have to move from that and give a great deal of thought to what you have said and we will have to consider that. Mr Armstrong?

396. Mr Armstrong: Right, as an exporting area what way do you see forward to achieve our BSE status and get us back to the level of what we were before BSE came in here? Looking back to pre-BSE days Northern Ireland was an area of high quality products with high health status, so BSE grading has knocked the bottom out of all our farmers whether pigs, dairy or whatever. What can you do to achieve us to get that status and what way do you see the way forward?

397. Mr Rutledge: I think that getting that status, as we have said, was a vital step forward. We agree with you we must re-engage as soon as we can in exports. Now that is not going to be easy, currency is against us and there’s other issues. I think there is a lot that we can all do. First of all, there is a consultation going to be launched very soon throughout the UK on the proposal for Northern Ireland to move to a low incidence status. I think that there is a lot to be done to ensure that within the UK we get support from our peers across the water whether at producer, processor, retailer whatever level. So I think that there is in the short term, once this consultation paper is launched, I think there is a lot of work for all of us to do to ensure that we harness all the support we can get to ensure that within the UK we have a unanimous view. The Minister, for the moment, is on side with it. We need to ensure that we sustain that. Obviously having achieved that, my colleague has already said to you, we actually do not see any impediment to making progress with the sorts of customers that we dealt with prior to 1996. We have good contacts there, we do not believe that there will be any fundamental problem. There will be no long term taint of product from Northern Ireland. The major issue, once we get that status, will be the commercial one, making business profitable and again that is to do with currencies, with the extra costs on our industry that our competitors do not have to bear. We believe that every week there are parts of an animal that could be sold better in another market if we had the opportunity to go. The strength of a low incidence status, Mr. Chairman, as it is being pursued is that every plant would be able to export something even if it is only the trimmings for pet food. Those, even currently, can get a better price in other European countries. So it is all adding a little bit to the value of the animal that hopefully will allow us to rejuvenate and to get some money back down the line to the producers.

398. The Chairman: You want a supplementary?

399. Mr Armstrong: There would be a problem then of areas that were not low BSE, their product coming into the supermarkets in high situations, how would you see that problem being resolved?

400. Mr Rutledge: Well again the detail of the proposal being worked upon is seeking to facilitate that because the product coming in and offered for retail sale is actually not exportable to any greater extent than it is at the moment. At the moment there really is no restriction on someone coming in from another member state and buying some beef across the counter in a local supermarket and taking it home with them. So therefore certainly our argument is very strongly that retail sales should not be affected, retail sales of product coming in from GB, if logic has got anything to do with this (sometimes that is in doubt) then there is no logic for preventing that trade continuing.

401. The Chairman: Right we have to move now.

402. Mr Molloy: Thank you, Mr Chairman. Thank you very much Mr. Rutledge. I appreciate your role does not involve having direct awareness of the level of debt within the industry. However from your perspective what would you see the banks or the Government doing to help the industry and do you consider they have been flexible enough within it?

403. Mr Rutledge: You are right, it is not a territory that we are intimately involved with. Yes, we have calls from time to time from farmers who have debt problems. They have come ringing mainly for advice; should I sell my cattle now or hold them? That is a very difficult situation for us to be in because again we cannot get involved in running individual’s businesses for them. All we can do is tell them what the outlook is and he must make his own business decisions. So to that extent we are sort of on the edge of the whole debt issue. Certainly people have paid for land prices that are simply not sustainable and they have accumulated debts in better times that they are still living with. That is very, very tough and there are people — I suppose it is not a good answer on an industry basis, but from an individual point of view, land values have held up very, very well, therefore for the moment anyhow, in disposing of some of the land to release debts, there are opportunities there. Again, we would understand dealing with the specifics of your question, the banks have been reasonably supportive but at the end of day they are accountable to shareholders so there is clearly going to be a limit as to how long they can sustain unviable debts if there are unviable debts.

404. Mr Molloy: On the lines of the fairness touched on beforehand, the farmers often feel that they are actually at the wrong end of the scope, is there a means actually of increasing the fairness and transparency between the producer and the processor? Very much the farmers feel that they are at the mercy of the processor in that particular line and that when you go for the best market and prime goods are farmers being actually rewarded in that way? Is there a means of showing farmers the unfairness of that?

405. Mr Rutledge: First of all you are right, the farmer is the weakest, he is the smallest of the chain coming from the massive power of the multiple retailer through the less powerful but fairly powerful processing industry through to the individual farmers, the very, very weak sellers. You used the right word, our view is the more transparency we can get into the trading relationships the better. Having said that, I think that it would be very difficult to contemplate a scenario whereby our major customers and the prices they were paying for individual products were published. I suspect that might be a disincentive for them to trade with us if we went down that road, it is something that needs to be handled fairly carefully. Of course we would like to have the maximum amount of transparency on the trading between farmers and processors and certainly we will do all that we can to encourage that.

406. The Chairman: Mr Rutledge, if I might come in here just on this one, to say that a farmer could dispose of ground, I mean, could if he was not a large farmer mean that he would then go into part-time farming to try and get out of this which would not be at all, I am sure, wanted by a farmer?

407. The other thing is that ground is very valuable if you have planning permission on it and planning permission rurally is very, very difficult, it is ridiculously difficult and discriminates. So we do not see any way out of a farmer really getting rid of his debts on that particular — what would you say to me if I was a farmer and say you are asking me to sell part of my heritage, that is going to put me on a lower scale eventually and all I would get for it as land, while the price of land is good, and I mean it is holding up fairly well and you have said that, but that means you would put themselves out completely?

408. Mr Rutledge: I answered the question in the context of people if they have a debt burden that they cannot cope with, there is the way out. Okay, yes land is very, very valuable with planning permission but agricultural land has still held its value very well. I mean, the difficulty is, Chairman, in looking forward for all of us, is to how do you square this circle of the farmers wanting to pursue a way of life, wanting to sustain a livelihood from the land which is what they know and understand and yet the forces, the commerciality, everything militating against them? It is a conundrum, I do not think as yet we have an absolute solution to it. I haven’t heard anyone else coming up with a long term solution.

409. Dr Tempest: The investment that the farmer makes in his land and his other assets are generally regarded as his pension fund, to dispose of those now to get rid of current debt leaves him in a difficult situation in the future. Having said that we have many farmers that are coming to us at the moment that are saying: I cannot survive much longer than this summer, I will go out of production myself and I will let my land out as conacre. If he does that he is looking for some employment.

410. The Chairman: But the other thing is that many farmers I know have actually paid out what they have put past for pensions to pay debt, so they have nothing in the kitty whatsoever.

411. Dr Tempest: Only their land.

412. The Chairman: We have to bring that to an end. I would like to thank you for coming to see us and giving us your time in answering the questions. We have got through quite a bit of ground here. We have now to plough it over and harrow it and put in, I trust, fertile seed and I trust it will be good land, and try to get answers to these questions.

413. Mr Rutledge: Thank you Chairman.

414. The Chairman: The Northern Ireland Meat Exporters are coming now.

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