COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT

Report
Restoring Profit for the
Beef Producer

(Continued)

500.

The Chairman: You have expressed caution about a co-operative whose members would invest only if their money was not to be wasted. If a strong producer group could be created, what would be a reasonable contribution to ask from the Government and the farmers?

501.

Mr Foster: It would not be possible to launch a successful co-operative in Northern Ireland until we are absolutely sure that competition for cattle is as clean and as open as we would like. There would be little point in putting any resources into a project that was designed to raise cattle prices if there were a system in place preventing the full market force — the proper collision between supply and demand — being demonstrated in the prices that farmers obtain. Although the cattle are similarly bred and sold in the same market, the prices over here are habitually 10% to 12% lower than the Great Britain average. That is far more than the cost of transporting them across to the mainland.

502.

The Chairman: You are saying that a fair playing field would be a prerequisite. There should be absolute cleanness and openness, and everyone would be sure of that.

503.

Mr Foster: Absolutely.

504.

The Chairman: You will have an opportunity when we get to that stage. Disturbing evidence has been put before us. I have two more questions. The quality of the composition of an average beef herd in Northern Ireland appears to have been deteriorating in recent years. Nevertheless, we are being told that the best of Northern Ireland beef is good enough to command a premium price in discerning markets such as Holland. You have given an excellent appraisal of what has gone wrong. Do you agree that improving the quality of the total beef herd to be of highest quality is an urgent industry objective? If you do, can you tell us what the NBA proposes should be done about this urgent matter? Who also needs to make a contribution to this goal?

505.

Mr Foster: We have just taken part with Northern Ireland organisations in an event called "Suckler 2000" at which this very problem was addressed. The contributions of the Livestock and Meat Commission and the Department of Agriculture and Rural Development were very evident on that day. I would have said that we already had a great deal of co-ordination of thought and of resource within the industry, and that this had already been demonstrated at "Suckler 2000".

506.

We may be confused about the difference between the quality of an animal and the quality of beef. The quality of the animal is what we concentrated on in our submission. We have to get past the influence of the Holstein and introduce more breeding to raise the shape of the animal, which means that after it is slaughtered, the carcass would yield more beef.

507.

If we are talking about beef quality, Northern Ireland and the rest of the UK are in a very good position to sell quality beef at premium prices on an export market. We are alone in the EU in producing beef from grass. The rest of the EU produces beef from grain. A great deal of the beef produced in Europe comes from dairy herds and Holstein bulls — pure dairy bulls.

508.

The British Isles, which of course includes Northern Ireland, have a natural niche product, capable of being sold at a premium price on world markets. In particular, the European Union would be a huge target market. We would have to produce a lot of good beef from an animal, and that requires an element of its breeding to be derived from British genes. These have a natural Hereford Shorthorn and Angus Shorthorn breeding. Both these have a natural ability to carry intramuscular fat — known as "marbling" — which adds to the taste, flavour and juiciness in a unique way. Therefore, we need to pay attention to both the weight of beef that we can take off a carcass, and the type of beef within that carcass. Attention ought to be paid to proper structures in which suckler cows possess at least half these British genes.

509.

The Chairman: Finally, your paper suggests that Department of Agriculture and Rural Development should encourage farmers to produce specialist beef heifer and suckler replacements. Could this be done now? What could the Department do to make this happen? And finally, how long would it be before the effect was felt on the herds?

510.

Mr Foster: It would take three years from today to produce a bulling heifer.

511.

The Chairman: It could start now?

512.

Mr Foster: Yes, if two animals were mated today and they had the proper breeding, there would be a bulling heifer available to a suckler calf breeder in three years’ time.

513.

Mr Bradley: Your paper supports the prospect of a Northern Ireland brand label for beef, yet it also suggests that a variety of specialist brands should be pursued. Which is your preference and why?

514.

Mr Foster: We consider the establishment of the Greenfields brand to have been a huge success. Its failure because of the export ban would be a massive disappointment. The possibility to resurrect this from Northern Ireland sources would be welcomed. However, we consider the importance of this brand to be that it establishes regular income for the people producing these animals, people who qualify for that brand. A brand allows the beef that is sold beneath it to be offered at a premium, thereby offering the possibility, if it is properly managed, to raise farm income as well as the price of the animals.

515.

It is important that as much beef as possible be sold outside commodity circles in the sense of discount-led supermarket circles. At present, Northern Ireland beef is trapped. It can only be offered at a discount in supermarkets that are selling beef on the mainland. Should a variety of brands be created inside Northern Ireland, we would not consider that to undermine a national brand such as Greenfields. But if this wider range were offered, there would be a greater chance for Northern Irish beef to be sold outside commodity circles at a premium rather than a discount.

516.

Mr Bradley: Who should be exploring this branded concept? Also, would several brands not each incur high start-up costs?

517.

Mr Foster: They would. There have been some spectacular brand failures because of inability to sell a consistent product. People expect repeatability from branded products. Branding requires discipline. The Greenfields brand was successful because all that had to happen was that beef was red and the cattle were grass-fed. Those were the essential qualifications. If you are selling a brand in an area that is already familiar with that product, then you will have to be more specific.

518.

Mr Savage: Would there not be high start-up costs? Would we not be better with one single brand?

519.

Mr Foster: That might well be the case, but why fight with one hand? Why not fight with two? If you have a range of secondary brands then that would offer the opportunity for a number of farmers to form an alliance with an individual processor.

520.

Mr McHugh: I welcome you, the work you are doing, and the possibilities you can create in order to improve the industry. I agree with some of what you have been saying in the press over the weekend about systems working against improving the beef industry at farm level. Do you feel that the beef industry should be investing in creating strong brands and in selling its products only to outlets such as Albert Heijn in Holland, who are prepared to work in partnership to promote and strengthen the brand in markets they serve? Can there be sufficient trust between producers and processors to make this work in premium markets?

521.

Mr Foster: It is essential that there be trust between producer and processor. That is why I mentioned stony ground. I used the word corrosive. The current relationship between the two, in Northern Ireland, is disappointing. It is corrosive and does not lend itself to fresh green shoots, which is what we are looking for.

522.

The Chairman: Should the beef industry not be investing in creating these strong brands?

523.

Mr Foster: Yes, it should.

524.

Mr Paisley Jnr: I wish to put three points to you about branding, which is a very important part of your submission. The bulk of Northern Ireland beef produce is sold in British supermarkets as their own brand. What can prevent a very powerful customer such as the supermarkets changing its supply line?

525.

Mr Foster: Nothing.

526.

Mr Paisley Jnr: Following on from that, my other point is that you say that customers would be willing to pay a premium for what they are currently getting if they are reassured about the quality of the Northern Ireland product. Is it not true that as far as most consumers are concerned, price is God? Indeed, is it not the case that price and taste are God? Is it realistic to ask consumers to pay more just because a product is branded? How would you reassure the customer that the Northern Ireland brand is a better brand for which they should pay more?

527.

Finally, on page seven of your submission, you say it is better to try and establish a single Northern Ireland label or a variety of labels. I assume you are saying that if we continue to go down this road of branding and marketing, we should really be taking on a variety of Northern Ireland labels.

528.

Mr Foster: I think so. You would be selling in a variety of markets. That does not take away from what I said. I think you can do the two things together. There is nothing to stop the discount-led multiple selling a commodity moving on to a product from Argentina, Australia or America. If you sell your own label, which is the way the majority of beef in Northern Ireland is going, then you will be extremely vulnerable.

529.

What you have got is a product that is a genuine niche product in EU terms. It could be offered in a wide variety of markets within the EU, as a niche rather than a commodity product. There will always be a commodity sector led by price, but you could put a high proportion of Northern Ireland beef onto the niche market and generate premiums in that way. It comes from grass-fed steers and heifers, not from cereal-fed dairy bulls, which are the predominant source of beef within the EU.

530.

Mr Ford: There is evidence that the price the beef processors pay to the farmers does not reflect the differential value of the better carcasses. How serious do you think that problem is and what effect is it having on the industry?

531.

Mr Foster: That is a technical question about classification and carcass yield. There is strong evidence that the price schedules currently presented by the processors, in general, result in high yield carcasses being cheaper than they ought to be, and low yield carcasses more expensive. It suggests that something is being overlooked, rather than being a deliberate policy.

532.

Mr Ford: If the prices accurately reflected quality, what effect would it have on the industry? I refer in particular to some of the things you said earlier. If you have greater numbers of the Angus and Hereford crosses available, does that mean that you will end up filling the niche markets, and this creates a situation where the beef and the dairy herd would be almost valueless?

533.

Mr Foster: No. There are a wide variety of markets for all types of animals. I must stress that beef is not bought on quality by the processor at present, it is bought on carcass yield. The cattle that yield the most beef are the most economically attractive because they reduce the unit costs of the beef processors. The Angus and Hereford are animals that, in the view of anyone interested in the beef industry, increase the value of beef by making it more palatable and attractive. However, they would not hit the top classification grades, because they have a lighter back end or rump. There is nothing you can do about that. Payment on carcass yield, through the classification process, would not encourage the inclusion of those animals in the breeding system.

534.

There are one or two cases of specialist breed-led projects, in which animals that qualify under the Aberdeen Angus certified scheme or Hereford certified scheme can get a significant premium on the basis of the quality of their beef, rather than the yield. If there was a classification system that reflected meat yield more accurately than is currently the case, more farmers would be encouraged to breed animals that yield better quality meat than they do now, and the Holstein influence would be minimised.

535.

Mr Dallat: Your paper states that the National Beef Association is not convinced that a co-operative is the best or most effective solution. How else would you address this issue?

536.

Mr Foster: Greenfields, which was a success, was not a co-operative-based idea. It was led by people within the industry who saw it as a means of increasing their profit. Similarly, profit-led projects could result in a wide variety of brands being undertaken. It would not be impossible for a number of processors to form an alliance, on an individual basis, with a number of producers and produce their own brand to be sold in the markets that they have chosen. That is an alternative to a co-operative.

537.

Mr Dallat: Would it be worth pursuing different models of co-operatives, so that an alternative would exist, giving farmers across Northern Ireland an equal chance at getting the best price for their money? It is well known which co-operatives failed and why. However, there were ones that have been highly successful as a result of their particular model and structure. Would it be worth pursuing further the type of co-operative that may be appropriate rather than simply dismissing the generic term, claiming that it does not work?

538.

Mr Foster: If a formula for success were identified, we would be very interested in it.

539.

Mr Bradley: The paper refers to how producers would be more responsive if they owned the processing plant. Is this a possibility? Where would the finance be found, and how could such a facility compete with other world-leading companies?

540.

Mr Foster: There is a flaw here. We were of the opinion that having a co-operative in possession of a plant would be advantageous to us. It was not considered beneficial to sell to others who may not be doing as well as they ought to, particularly to ensure that the industry would get as much income as it ought to. There would be money pitfalls here. Furthermore, it is not a path that we would stand behind forcefully.

541.

Mr Douglas: Your paper mentions the historical position of the co-op member as one who could step outside the co-operative to obtain a short-term price advantage. Would this be an insurmountable problem?

542.

Mr Foster: This was discussed at a full meeting with the National Beef Association of Northern Ireland earlier, and the general impression was that the Northern Ireland beef farmer would not be confident about other beef farmers remaining loyal to his co-operative.

543.

Mr Kane: With further reference to question five. The NBA is not convinced that a co-operative is the most effective solution. Does the NBA believe that a co-operative is flawed from the outset? It concerns me how it requires the voluntary co-operation and participation of processors who have no vested interested in the promotion of producers’ roles.

544.

Mr Foster: If a magic wand could be waved and suddenly Northern Ireland had a working co-operative, then it would be essential for the meat industry to greatly change their attitude, as well as the processing sector. If you are pragmatic, even cynical, you would not expect leopards to change their spots overnight.

545.

If you set up your own processing facility, it would remain necessary to recruit people from within that industry and maintain that culture. Without a complete change of attitude, you would be vulnerable to the bad elements in that culture existing in your own organisation.

546.

Mr Kane: Your correspondence suggests some sort of contract between our traditional production methods and the consistency of product produced. Would consistency be achieved if good practices were maintained?

547.

Mr Foster: The greatest consistency is to produce beef from grass. That is if you are selling into a niche market across the rest of the European Union, where such a product is not readily available. That would be achieving consistency. If you were selling into Britain, where there is already red meat from grass, it would be more difficult to achieve a consistent product.

548.

Consistency tends to depend on absolutely similar feeding methods being used across a large number of animals. That would only be possible if a small number of people were involved who were larger than usual businesses. There is a contradiction between establishing that, which is a good idea, and maintaining as many people as possible on the land within Northern Ireland, where the average settler herd is less than 20.

549.

The Chairman: The Department of Agriculture and Rural Development is currently involved in many aspects of the beef industry. How effective is this effort in driving the competitive position of the industry forward? What changes, if any, would you like to see in the nature and focus of the Department’s inputs to the industry?

550.

Mr Foster: Dr Paisley, I am a relatively recent visitor to Northern Ireland, and I do not think that I can answer that beyond saying that I have been impressed with the relationship that your Department of Agriculture has with its producers. There are three producers on my right who I think could answer that better.

551.

The Chairman: It will have to be brief.

552.

Mr Marquess: There needs to be an improvement in the female section of the cattle so that they may have the ground for the rearing of these better calves. Nothing has been done by the Department to improve the female side. Its attitude is that a first class bull will rear a first class calf, which is wrong. They have the wrong concept and I think they need an improvement there, they need to do something. There is no subsidy on a heifer. Well, these past few months there has been, for example, when you slaughter them you get a premium. There is a subsidy on bull calves, and there is really no incentive to carry on your heifer and to rear a really good heifer. If you had some sort of incentive for a man to produce a good heifer, I think it could be done.

553.

Mr Foster: Dr Paisley, I did not answer a question that you raised earlier. There is a new EU lure that persuades farmers to carry cattle of a hill type, which would be of a British type, on higher ground. I think it is possible to establish a stratified production system of crossbreeding, in which several calf breeders are presented with a ready-made bulling heifer that had been bred on higher ground in Northern Ireland. I think that is possible.

554.

The Chairman: Thank you very much. This session is now closed.

MINUTES OF EVIDENCE

Friday 22 September 2000

Members present:

Rev Dr Ian Paisley (Chairman)

Mr Savage (Deputy Chairman)

Mr Bradley

Mr Douglas

Mr Dallat

Mr Ford

Mr Kane

Mr McHugh

Mr Paisley Jnr

Witnesses:

Mr D Rutledge )

Dr M Tempest ) The Livestock and Meat

Mr P O’Neill ) Commission

555.

The Chairman: Gentlemen, I apologise for the delay.

556.

Perhaps you will make a statement, which will be followed by questions from Committee members and from the Chairman. We would like to have answers to all of our questions because those answers will be given to the Committee’s adviser, who has responsibility for compiling the report. We want to go through this question and answer session as quickly as possible, but without curtailing you. Our time limit is 45 minutes.

557.

Mr Rutledge, Mr O’Neill and Mr Tempest, I welcome you to the Agriculture Committee.

558.

Mr Rutledge: Thank you, Mr Chairman. We are pleased to return to give evidence to this Committee to further your quest to explore the present circumstances of the beef and pig industries. In my opening remarks I will not attempt to deal with the schedule of enquiries attached to your letter of 10 August. Instead we have submitted a comprehensive response, and I hope all members have a copy.

559.

The Chairman: Yes, thank you.

560.

Mr Rutledge: I intend to introduce the responses briefly and make a few comments under the headings contained in your enquiry: co-operation and organisation of producers; high value niche markets; quality of Northern Ireland beef; and branding.

561.

With regard to the issue of the co-operation and organisation of producers, we believe that there is benefit in encouraging such an iniative. However, we are doubtful that the suggested level of participation is achievable. While we would not discourage ambitious targets for such a group, we do not believe that 50% of producers is a realistic figure.

562.

The main opportunity for such a group is to address seriously and aggressively the existing opportunity to improve the conformation quality of Northern Ireland cattle at slaughter. We believe that it should begin with a strict protocol in relation to the sought-after livestock characteristics and develop production regimes and genetics appropriate to delivering those carcass qualities.

563.

In our response relating to high-value niche markets, we have confirmed our continuing belief that further high-value niche markets would, under the current initiative, be opened to Northern Ireland beef once the export ban is lifted or relaxed. We highlighted our concern that perhaps the biggest problem is the small proportion of our cattle at slaughter which meet the requirements of these niche markets.

564.

It is appropriate to mention that there are a number of niche opportunities in addition to those past niches among premium retailers and caterers. The Livestock and Meat Commission (LMC) has assisted Aberdeen Angus and, laterly, Hereford producers in developing markets for these specialist traditional breeds at a significant premium.

565.

The structure within the bodies promoting these breeds is similar to the one suggested in your hypothesis. We are concerned about the implications of the beef- labelling regulations for those breeds, but we are continuing to support such developments fully.

566.

Organic production currently enjoys very positive press, and there is doubtless a significant premium available for producers in this niche. It is a niche that suits some extensive producers, but it is not a solution for everyone. For example, in the Iceland group there is increasing evidence of a desire for organic produce, but there is also a reluctance to pay a great premium for it. If production and demand become more balanced, organic prices will fall more into line with current market prices. Producers who opt for this niche must ensure that there is an adequate premium to cover the inevitable loss of production and premia.

567.

Even since our written submission, a small but useful niche for bull beef production from the suckler herd has emerged. We are holding discussions with a major processor to explore the possibility of creating a fairly tightly contracted group of producers to satisfy this niche, which will be an attractive opportunity. The Livestock and Meat Commission would be concerned if too many producers went down this road, but we will support this initiative because we believe it is well defined and sensibly profitable.

568.

On the issue of conformation quality of our beef herd, there is massive potential to enhance the value of our industry through beef herd improvement. In saying this, we do not want to imply that there are not many producers who are producing top quality cattle which are well matched to the market, but there has been an overall deterioration in cattle conformation in Northern Ireland. In some other European regions and member states, the average conformation quality of cattle at slaughter is well above the level we achieve. The improvement of conformation quality is a major strategic issue for the industry if we are to regain the export market for premium beef products.

569.

Northern Ireland is held in high regard by many present and past customers for the quality of its cattle identification and traceability systems, its farm quality assurance scheme and the high level of service provided by the processing industry. We would be well positioned to gain more business from these premium customers if a larger percentage of our cattle met the higher specifications demanded by these people.

570.

The issue of branding was discussed extensively when the red meat strategy was produced a couple of years ago. The beef and sheepmeat industries at both producer and processor level acknowledged that branding could increase the value of Northern Ireland red meat. The Scottish model demonstrates that a consistent 10% premium is available on Scottish beef in comparison with other unbranded UK produce. However, it was also acknowledged that branding and the promotion of a brand add to costs. We must be convinced that this cost will be outweighed by enhanced returns and that this revenue will be directed to those who fund the promotion of the brand. On a fundamental level, we must also be assured that the characteristics attributed to the brand, through promotion and advertisement, can be unfailingly delivered to consumers.

571.

LMC has had a prolonged, positive experience of the use of the Greenfields brand for the promotion of beef in Holland. Dutch consumers who bought Greenfields beef through the Albert Heijn group grew to appreciate the qualities of Northern Ireland steer beef, which was produced to a specification developed with the Albert Heijn group. The superior eating experience, allied to LMC’s investment in promoting the brand to consumers with the supermarket group, has resulted in the Greenfields brand being recognised in Holland as a premium beef product.

572.

One possible out-turn is that consideration might be given to a broader branding of the Northern Ireland agrifood industry where the costs might be spread broader than simply in the beef industry.

573.

Finally, I would like to mention the sheep/meat industry. I want to highlight that sheep farmers have also experienced many of the difficulties experienced by the beef and pig sector. We would urge you in your consideration of the problems of Northern Ireland agriculture to remember that the output value of Northern Ireland’s sheep production exceeds that of pigs, poultry, eggs, crops and horticulture, and in some instances by a considerable margin. Therefore we urge you not to forget that particular sector.

574.

The Chairman: Thank you very much. We now have some questions to put to you.

575.

Your paper supports the principle of a major co-operative, but suggests that it would be better to target 10% of producers initially. On that basis, I have three questions to put to you.

576.

First, what steps do you believe would be necessary to bring this about? Secondly, how would the remaining 90% be affected? Would there be an incentive to become a member, or would it be the end of the road for them? Thirdly, what resources would the LMC be prepared to devote to the establishment of such a co-operative?

577.

Mr Rutledge: We have not attempted to address in any serious way the mechanism for setting up such a group. We have taken your hypothesis, and we have responded to it. History suggests that it would be difficult to get this going. However, I believe that it might be helpful if the Government could put in some seed capital or moneys in order to incentivise people to come into such a group.

578.

In our paper we suggested very clearly that while the group initially might be exclusive, if it were to be successful others would be encouraged to join. We have said very clearly that we would want to leave it open for everybody to join the group as soon as they could meet the standards that were set in the initial phase — standards of genetics and carcass quality that are appropriate to a premium niche group.

579.

The resources of LMC are the resources of the industry. We do not have any resources other than what the industry gives to us, and, therefore, we would have to turn the question back to the industry and ask "What do you want us to have, and how do you want us to use it?"

580.

The Chairman: The creation of a well organised and market responsive producer group would undoubtedly require very significant leadership. If it were launched, it would be the leadership that would be tested and tried, and if it were going to move anywhere it would have to, at least, show some results.

581.

There are many organisations in the beef industry. Which one of them do you think should play the most major role? Is this something that LMC ought to do? As others have said, you should absolutely not remain an impartial servant of the industry, but you should give a lead to the industry.

582.

Mr Rutledge: That is an extraordinarily difficult question. We have toyed with this. We are willing to provide leadership, but we do not believe that we can lead people in a direction unless they are willing to travel in that direction. Regarding the whole issue of discussion at the red meat strategy level, the industry unanimously took the view that it was LMC’s role to co-ordinate, to administer and to lead the activities associated with the red meat strategy. We are doing that. If the industry collectively came together and agreed that this initiative was something to be taken forward in a serious manner, and if the resources were made available to us, we certainly would be willing to take on this challenge.

583.

The Chairman: If a strong producer group could be created, how do you think it should be funded? Should it be by the farmers themselves; by the farmers and processors; or should Government be expected to contribute to the funding of such a development? Your paper refers to costs of several hundred pounds per year per producer if branding were involved. Is this realistic for Northern Ireland producers, who are now at such a low ebb?

584.

Mr Rutledge: You have a number of questions there. Funding is clearly important. One would hope that such a group, if it were at producer level, would be able to produce a return for its farmer members that would encourage them to provide a significant part of the funding. As I said earlier, I believe that it is unlikely to happen unless some seed money can be found to kick-start it and get it up and running.

585.

The biggest costs, as we said in our paper, are associated with getting an executive or team in place to provide the leadership that you described. We agree wholeheartedly that leadership will be the essence of the success of any such group.

586.

Mr O’Neill: It would be essential to ensure the commitment of farmer members, and there would have to be full consultation with producers beforehand. However, we feel that it would be necessary and essential for farmers to buy into, or invest in, it to ensure their commitment to the concept — while not failing to recognise the plight that they are in at the moment.

587.

The Chairman: The Committee members now have some questions. If you answer their questions as well as you answered mine — nice and cleanly — that will be helpful. I ask the Committee members not to make speeches, but to ask questions.

588.

Mr Savage: Is it your opinion that the beef industry should be investing in creating strong brands, and selling its products only to outlets such as Albert Heijn in Holland, which are prepared to work in partnership to promote and strengthen the brand in the markets they serve? Also, can there be sufficient trust between producers and processors here to make this work? That is important.

589.

Mr O’Neill: There is no doubt about the desirability of having a brand in any product that is produced. We look at colas and think of Coca Cola; we look at breakfast cereals and think of Kellogg’s. If we could achieve the same for Northern Ireland beef there is no doubt that it would put it in an enhanced premium position. That will require huge investment. It will also require — and perhaps this is the most challenging bit for our industry — the definition of the brand promise of what the consumer can expect when they buy that brand. That is the first step.

590.

You referred to the Dutch supermarket. That is a fine example of a partnership working. We suspect that that could not happen on a United Kingdom basis, but, if we think of it in an investment context, I could not say conclusively that it would not happen in a United Kingdom context. I believe that all retailers are amenable to ideas in this area. The issue comes down to how well, and to what extent, we are prepared to support, and invest in, the brand. For example, no United Kingdom retailer would dream of leaving Coca Cola, or Kellogg’s off its shelves. That is because those companies invest millions of pounds per annum to support them.

591.

Mr Savage: Would you agree that we are being led by consumers?

592.

Mr O’Neill: Absolutely.

593.

Mr Kane: Is the LMC setting standards of excellence for producers in Northern Ireland which are unrealistic and unachievable, as it is estimated that stricter grading by the LMC has pushed cattle grades down in the Province by a grade and a half? Also, changes in the LMC grading were implemented suddenly and failed to recognise the necessary time frame required by producers to apply changes in production. How does the LMC see this having an effect on the Province’s average grades?

594.

Mr Rutledge: Grading is the bane of our lives. We do not have a choice on the grading standard. Everybody who is trying to assist and work with this industry has got to realise that. We do not have a choice in the grade that we put on animals, nor does any other Member State. It is a European regulation that we adhere to. The competent authority, the Department of Agriculture and Rural Development, supervises us; they in turn are supervised by the European Commission. Whatever standard they have dictated for all Europe is the standard that we have to adhere to. The LMC does not have that choice, we simply provide a service to the industry. Are the standards being set impossible or are they realistic? They are absolutely realistic. We have only got to look at other regions of the United Kingdom, and other member states, to see the quality of cattle. I do not mean to say that we are not producing good quality cattle. Many of the cattle coming forward for slaughter are superb and as good as anywhere else in Europe, but the average is not as good as we believe it could be. There are opportunities within the specialist beef sector to get away from the influence of the Holstein which has crept into improve the performance of both the male and female of the breeding herd. There are also opportunities for improvement of that part of our slaughtering which is coming from the dairy herd.

595.

Mr Kane: Our cattle, whether the chief executive likes it or not, are equal to any other cattle or stock within the United Kingdom. It is not being downgraded in any way, but our grades are being downgraded by one and a half grades. Could the LMC chief executive tell us why this is being done?

596.

Mr Rutledge: I do not think I have to repeat what I have already said.

597.

The Chairman: Therefore you do not want to make any further comment.

598.

Mr Rutledge: We grade to a standard that is laid down through that chain that I have mentioned. We do not have a choice in the standard of the classification that is applied.

599.

Mr Douglas: You have said today that markets will improve if the ban is lifted, but at the same time you are not enthusiastic about co-operatives or their success. There is no doubt that meat plants control the price the producer receives. Are the producers being asked to continue being monopolised by these purchasers if we do not have some change through a better organisation? We will soon have no industry left unless someone is prepared to step outside the defenceless position we are in at the minute. We seem to be hiding, and nobody is prepared to take the step forward. Our industry is failing by the day.

600.

Mr O’Neill: You have said that we are not enthusiastic. It is quite the contrary; we would be very enthusiastic if this could be achieved. In our submission, we have said that we have tried to deal with the practical difficulties with achieving what would be very desirable. There is evidence on the ground — not on a Northern Ireland-wide basis, but on a small scale for particular niches. We have mentioned the Aberdeen Angus, the Herefords and the bulls that are in the process of being developed. These are examples of groups of producers coming together to produce a very tightly defined specification for a meat plant and in the process achieving a very significant premium over the standard base price. We would be very enthusiastic if it could be delivered; it is delivering that is the difficulty.

601.

The Chairman: Could you apply yourself to what my Friend has said about the monopoly. We have a limited number of meat plants. It seems that they have a stranglehold on the industry, as we get complaints at this table from farmers who want to get rid of animals, but are in the grip and vice of the producer. By holding back and not taking their animals when they want to get rid of them, they are in a situation where they are tied-in to the whim of the meat plant.

602.

Mr Kane: That is a fact too, Chairman.

603.

Mr Rutledge: We have to be neutral in these matters, and we are.

604.

It is a fact, however, that if we see rushes of cattle coming forward in an unplanned manner, then the supply/demand goes out of balance. It may be the processors, the retailers or indeed the consumers who are not eating enough — but who do you blame for this? One of the possible benefits of a co-operative would be a better planned arrival of cattle in slaughter halls. That would prevent fluctuations in supply undermining and creating a situation that the market cannot absorb. There are currently a lot of cattle coming forward, more than is needed to satisfy the market that we have. Come November it may be the opposite.

605.

The Chairman: Do you get complaints from farmers?

606.

Mr Rutledge: Absolutely.

607.

The Chairman: Are farmers not complaining to you, as they are to us, that at times there seems to be a move to have a build-up or a backlog of cattle, and at other times there seems to be a move not to have that? Now five meat plants, in a very small area where there is a lot of cattle, have a very big influence.

608.

Dr Tempest: The one thing that we do not understand, is that there are meat plants in Great Britain that are offering what seems to be a higher price for cattle. Why is there not a massive movement cattle to those meat plants?

609.

The Chairman: Do you understand that transport is a difficulty?

610.

Dr Tempest: We understand, at the moment, that the prices being paid in Great Britain are about £75 more a head and the transport costs are about £30. That still leaves a substantial difference, so we can not explain why farmers are not shifting those cattle to those abattoirs.

611.

The Chairman: Let me put this to you as it has been put to me as Chairman of this Committee. The meat plants across there demand that those animals arrive at a certain time. If they do not arrive at that time then they are punished. All this major profit that you are talking about could be down the drain if your animals arrive late.

612.

Dr Tempest: That is all about planned intake and planned deliveries to factories.

613.

The Chairman: No. It rests with Almighty God what sort of weather we have, and what can be a very choppy sea crossing. These cattle are not going over in the sort of boats that have club class travel. They have to face the elements and, let there be no doubt, if there is a delay then they are punished.

614.

It is an interesting point and certainly needs further development, but we must move on.

615.

Mr Bradley: In section six your paper raises a worry regarding the production of bull beef. Is this reversible if there is no change in the way subsidies are paid out?

616.

Dr Tempest: There is, as our chief executive mentioned in his introduction, an apparent niche beginning to develop for continental bulls. There are two markets, one is for dairy-bred bulls, which is basically for manufacturing, and there appears to be one for continental bred bulls. We do not know what the size the market is yet, but we believe that it is a niche worth exploring.

617.

Mr Rutledge: Philosophically, we worry that too many people may be incentivised, by the Agenda 2000 Reforms, to move into bulls. The use of natural resources in Northern Ireland — our ability to produce grass — is where we should be concentrating. The extensively-produced steer should be the major feature of our industry.

618.

While we are supportive of niches, we believe that the better good of the industry is served by the steer.

619.

However, we do see a dilemma in the short-term, where the subsidy regime, and particularly the constraints imposed by the extensification rules on stocking rates, is moving people towards the bull, which can be finished at nearly half the age of a steer. That allows cattle to move through more quickly. We are worried about that.

620.

Mr Savage: The reason farmers went into bull beef is that they were getting it from their calves because they did not want to shoot them. That is the only reason that they have reared them, and now bull beef has come onto the —

621.

Mr Rutledge: That is essentially the Holstein.

622.

Mr Savage: I work with bull beef and mine comes from continental-bred Holstein. However, that is the reason why people went into it.

623.

Mr Rutledge: The combination of better feed conversion of the animal if it remains entire, and the subsidy regime, is drawing people down that road. However, we believe that from a branding or a marketing perspective, the uniqueness of what we can do with steers is better for our industry in the long-term.

624.

Mr Savage: This is a short-term.

625.

Mr Dallat: Your paper mentions the commissioning of a market researcher to investigate and quantify niche markets. When are they expected to report?

626.

Mr O’Neill: That person has been in place since late spring this year. Visits have already been made to three European countries, with one trip beyond Europe and another one planned for the autumn. Reports are compiled on an ongoing basis. Those are made available to interested parties in the industry. Reports of visits made have been disseminated to the industry.

627.

Mr Ford: I want to tease out what I took up with the National Beef Association — the evidence that beef processors are not reflecting the differential value of higher quality carcasses in the prices they pay. The references in your paper are different, but if the price more accurately reflected those values, what effect do you think that would have on the development of the industry?

628.

Mr Rutledge: From a strategic perspective it would be better in the long-term if the lower-grade cattle attracted a lower relative price to bring about a greater differentiation. However, it is not for us to determine where the average market level is going to be. Following the proposition in your paper for the highest quality and for a group to produce that, we believe that there ought to be a reward for them in the market place that reflects the meat yield. There are opportunities for improving the payment structures in that regard. However, it may mean that those with the lower-grade cattle may suffer if the top end goes up a little. That is unless the average goes up.

629.

Mr Ford: What will that do to the dairy-bred beef sector?

630.

Mr Rutledge: That there are two sides to that, and a long-term debate. There are opportunities for improving the output of calves from the dairy sector. If we get exports open up again, they will go to the veal trade. There are also opportunities for improving the quality of the beef from those that remain. There are opportunities for using technology to get a better and more productive animal. We are now seeing the opportunity of sexed semen coming in. Embryo transplantation, and associated technologies, may be harnessed in the future to allow us to get a prime and very valuable calf from a dairy cow, if we do the right sort of development work.

631.

Mr Paisley Jnr: Today, in camera, we heard evidence of a possible cartel operating in Northern Ireland. The allegations, which where explosive, indicated who was involved, when they were involved, why they were involved and how they were involved. Given those allegations, it seems improbable to me that your organisation is not aware of a possible cartel. Do you believe there has been a cartel or do you believe that price fixing is part of the standard marketing regulation in the industry.

632.

Mr Rutledge: First of all, we do not know whether there is a cartel as we are not privy to the evidence that may have been presented to you. If there were such evidence and wrongdoing, we would urge that it be sorted out — that it be brought out in the open and dealt with.

633.

The Office of Fair Trading has investigated it and found no evidence, although there is a lot of circumstantial evidence that might support such an allegation. If we can find hard evidence of wrong doing, certainly we will want that dealt with. However, if we examine price reporting and prices that are reported, there is also circumstantial evidence that would support an opposite view.

634.

The Chairman: The Office of Fair Trading has admitted that there was a time when there was a cartel working; it does not say that it is working now. Had you any evidence of that at that time?

635.

Mr Rutledge: We have no evidence. We have price reporting statistics so that we can see what is being paid for all of the animals — as is required to be reported under the European regulations. We can see that there is diversity in the prices paid for cattle. That diversity sometimes can be surprisingly wide.

636.

In recent weeks we have looked at some of the price reporting, and there is not a consistent price. A cartel would suggest that every animal be robustly paid at the same price — which is not happening. I emphasise again that we do not know whether there is a cartel. We can tell you that there is circumstantial evidence on both sides, but there is no hard evidence. If hard evidence comes forward and if there is wrongdoing it must be dealt with, because in the long-term it is not good for our industry to have such practices.

637.

The Chairman: The Office of Fair Trading has said that it is convinced that there was a cartel, but you are saying that to your knowledge you had no evidence of that.

638.

Mr Rutledge: We would not have such evidence. When the Office of Fair Trading examined this we provided them with price reporting information. We collect such information on behalf of the intervention board for European reporting. We sought the permission of our client, the intervention board, and we passed the entire price reporting data to them.

639.

The thing that causes me some consternation, however, is that at the time that you say that a cartel operated, Northern Ireland beef prices to farmers were in the top quartile in Europe. At the time before the export ban there was very intense competition for cattle. What has happened in the meantime may produce evidence to the contrary, but at this time we were saying "Let us stop and look at this sensibly". From time to time we were the highest price in Europe.

640.

Mr Paisley Jnr: You have suggested that if there were a cartel operating during that time it could have affected the grading system, and if it affected the grading system, it affected the prices. Surely that implicates your organisation, directly or indirectly, as being used by that cartel, whether you like it or not?

641.

Mr Rutledge: I do not follow your link to the grading system.

642.

Mr Paisley Jnr: It must affect the price paid to the farmer.

643.

Mr Rutledge: The grade of the animal affects the price paid for it. It is not the system.

644.

Mr Paisley Jnr: Therefore you do not think that it is the system —

645.

Mr Rutledge: The system, whether it is right or wrong, is determined by the European Commission and is under its supervision, and it is the competent authority supervising the standards that we apply. The grade of the animal is the grade of the animal, and the pricing structure has evolved around that.

646.

Mr Paisley Jnr: Could the cartel have affected that in any way?

647.

Mr Rutledge: I do not see the linkage between the grade that is put on the animal and cartel activity. There is a misconception, we are not influenced by meat plants or by farmers towards the grade we put on the animal. If we were, then we would be incompetent; we would not be able to do the job that is required under the law. We put the grade as honestly and genuinely as we can on every animal.

648.

Mr Paisley Jnr: If the supply line were being manipulated, surely that would affect the grade you are putting on it?

649.

Mr Rutledge: I am not exactly sure that I can make that link. The animal comes down the slaughter line and we put a grade on it.

<< Prev       Next >>