The Northern Ireland Assembly - Report Restoring Profit for the Pig Producer

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

20. Mismatch between Supply and Demand and the Effects of Currency Fluctuations

20.1 There is no doubt that the crisis in pig-meat was triggered by the joint effects of sudden global changes in supply and demand caused by the industry’s over-correction following disease outbreaks. The increase in pork demand following the BSE crisis was compounded by the massive herd reductions in Taiwan and Holland as a result of disease in their respective herds. Locally this was exacerbated by the fire at Malton’s Ballymoney plant. In turn this triggered a severe rationalisation of processing capacity and its concentration into the ownership of Unigate.

20.2 At the same time, the strengthening pound reduced the competitiveness of Northern Ireland pig-meat.

20.3 None of these impacts was remotely within the power of Northern Ireland pig producers to alter in any meaningful way. The result of these effects, and others dealt with below, has been to drive all pig processors into severe losses and to cause many to leave the industry. An important industry sector has been very badly damaged.

21.1 There is no doubt, from the evidence taken at the earlier stage in the Committee’s Inquiry, and during the period since, that the Northern Ireland pig industry has been greatly affected by the market power of the UK supermarkets.

21.2 Pig farmers, like their beef counterparts, feel trapped in a market place which is unable to yield them a fair return for their investment and labour. Farmers are convinced by their own calculations that there is sufficient profit in the supply chain to remunerate them properly. The kind of relationship needed to make a healthy supply chain is currently denied to the industry because of the mistrust that is created by feelings of exploitation. Whether these feelings are well founded or not, the Committee is certain that they are genuinely held by those who have given evidence.

21.3 This evidence is, in a general way, strongly corroborated by the findings of the Competition Commission when they say:

"There appeared to us to be a climate of apprehension among many suppliers in their relationships with the (supermarkets). We therefore put a list of 52 alleged practices to the main parties and asked them to tell us which of them they had engaged in during the last five years. We found that a majority of these practices were carried out by many of the main parties. They included requiring or requesting from some of their suppliers non cost-related payments or discounts, sometime retrospectively; imposing charges and making changes to contractual arrangements without notice; and unreasonably transferring risks from the main party to the supplier. We believed that where the request came from the main party with buyer power it amounted to the same thing as a requirement. We conclude that five Multiples (Asda, Safeway, Sainsbury, Somerfield, and Tesco) each having at least an 8 percent share (of the market) have sufficient buyer power that 30 of the practices identified .adversely affect the competitiveness of some of their suppliers and distort competition in the supplier market for the supply of groceries."

21.4 Furthermore, the market power disparity between Malton Foods and farmer suppliers makes it possible for them to pass such charges back to the farmer through the price paid for pigs. While producers have suffered severe financial losses there is some evidence that pig processors have taken a proportion of the financial pain themselves.

21.5 Thus the market power of the supermarkets is not only plain for all to see, it is also, according to the Competition Commission, being used systematically to add to the benefits gained by the normal terms of trade.

21.6 Given that the large supermarkets not only dominate their suppliers but also collectively dominate the UK retail pork and bacon market, they have the power collectively either to raise or lower the retail price at will. They could, if they were so minded, take account of the effects of current pricing regimes on the pig farmer’s ability to survive and would have the power to act. This has already begun to happen with milk production in GB. The Committee accepts that in a free market where a very significant proportion of supplies has to be imported across a favourable currency boundary this may be easier said than done. The fact remains that the retailers have continued making good profits at a time when the producers have demonstrably been making disastrous losses.

22.1 In the Committee’s view there is an unhealthy level of mistrust between producers and processors. There are a number of factors involved:

the massively strong buyer power of Malton Foods relative to the market power of the individual farmer. In this situation the farmer has no option but to take what he is offered for his pigs;
the foot-dragging by Malton on the question of dealing with UPP, which has exemplified their use of an unassailable market position and is contrary to their statements to this Committee, and elsewhere, about their willingness to work with producer groups; and
a lack of practical options for sale open to most farmers. There is a theoretical option for farmers to sell their pigs to the small local curers and some do avail themselves of the apparently better prices offered. However, this option is very limited. A few pig producers have shipped pigs to other GB processors and may have done better there. But with a sea crossing to contend with it is not a desirable course to pursue. For practical reasons this is not open to all.

22.2 The Committee noted the explanation, provided by Malton, of the difference in prices paid for pig-meat between Northern Ireland and Great Britain. While the reasons given may indeed have some effect on the price, the Committee is not convinced by the arguments made. Indeed the company’s own admission that contracts, rather than spot pricing, in Britain accounted for part of the price difference, speaks volumes about what appears to be the real reason for avoiding such contracts in Northern Ireland.

23.1 All parties agree in their evidence to the Committee that improved co-operation throughout the food chain is a requirement for a successful industry. The UPP initiative is an important development in this regard. This initiative has been financially supported by the Department although there has been little achieved in early discussions with Malton Foods who seem, to the Committee, to be stalling.

23.2 The Committee sought views on the formation of the co-operative and find strong support from the two main unions as well as verbal support from Malton and the Ulster Curers’ Association. The latter body is openly cautious in its support, fearing a reversal of the market power equation.

24.1 All of the industry participants are united in believing that the "BSE Tax", which is estimated at £5.26 per pig, is not only unfair but a potentially serious handicap in a low margin industry facing imports from European countries where this "tax" does not apply. The Committee agrees.

24.2 During the Inquiry the Committee learned that the British Pig Industry Support Group had lost their claim for compensation against the government alleging discrimination against the pig industry. This was an unfortunate, if not unexpected, outcome from the producers’ point of view.

24.3 Equally the costs incurred in coping with the UK’s other unilateral impositions in the field of welfare fall into the same category. This has been and remains a costly exercise.

25.1 It is clear to the Committee that in times of crisis the pig farmers looked to their Government for support. The evidence suggests that farmers have been very disappointed in the Government’s response.

25.2 Of particular concern to farmers is what they see as a more favourable response from the Republic of Ireland Government, and they look on enviously at the maximum payment of IR£12,000 per producer. The Ulster Farmers’ Union rejects the Department’s assertion that a similar scheme could not be implemented in Northern Ireland because of similarities with the Department’s original welfare scheme. The Committee believes that the schemes are very different and would support the farmers’ position.

25.3 There has also been disappointment with the time it has taken to implement the restructuring scheme announced on 30 March 2000. Farmers who needed immediate assistance have, as this Report is written, still to receive a single penny.

25.4 The Committee also shares producers’ concerns that a UK-wide scheme fails to address the difficulties faced by local producers.

26.1 The Committee noted that both producers and processors felt that DARD had a role to play in improving co-operation and communication between these two elements of the supply chain. This closer co-operation could lead to a reduction in the relatively high level of condemnations.

27.1 It is clear to the Committee that the issue of farm debt in the pig sector has several fundamental causes, some outside the control of the parties in Northern Ireland and others capable of being remedied.

27.2 The industry and the Department will have to continue to work together to create the improvement needed. One potential outcome could be the resolution of the problem of relatively high condemnations in Northern Ireland processing plants.

28.1 The pig industry, global in its reach and unfettered by other than the normal regulations applying to trade in food products, has a cyclical tendency which seems beyond the ability of participants to alter. Northern Ireland is a small part of this global equation.

28.2 This crisis has been caused by the coincidence of a number of major factors which severely disrupted and exaggerated the normal cyclical trend. As a result there was a severe demand surplus in Europe, at a time when currency movements affected the terms of trade adversely for UK producers. UK pig production was driven into severe loss making.

29.1 These losses were further exacerbated by the impact of the so called "BSE Tax", (the extra cost of protein to substitute for porcine meat and bone meal imposed by the UK Government as part of their response to BSE). This is reliably estimated as a cost penalty of £5.26 per pig. Although the judicial review against the UK government regarding BSE costs was lost, the Committee concludes that there was at least a moral obligation for compensation to be offered to producers who were suffering through no fault of their own.

29.2 The Committee hopes that the (albeit temporary) European-wide ban on the use of meat and bone meal will at least help to ‘level the playing field’ with competitors. This was considered as essential by almost all of the industry. The Committee would ask the UK Government to lobby other member states to ensure that the ban is as rigorously enforced as it is in Northern Ireland.

29.3 Additionally, the industry was at the same time bearing the costs (estimated at £220 million for the UK) of altering housing to comply with UK husbandry regulations. Both of these costs were unilaterally applied by the UK Government and were not replicated in competitor countries.

30.1 This was further aggravated in Northern Ireland by the destruction of the Malton plant at Ballymoney. Malton’s response to this crisis resulted in their taking over the whole of the major processing capacity in Northern Ireland thus creating a virtual monopoly over the greater part of pig processing.

30.2 Additionally, having heard evidence from both sides, the Committee is persuaded that Malton Foods is paying considerably less for similar pigs in Northern Ireland than it pays in GB. The difference is not trivial given the narrow margins faced by pig producers and the extra costs of feed in Northern Ireland. In the context of the major pigs crisis, this differential has almost certainly been a serious cause of damage to an already beleaguered producer sector. In the Committee’s view, if the difference is what we believe it to be, this amounts to an abuse of a dominant slaughtering position, a position which has been achieved with considerable Government assistance.

30.3 There is an undoubted imbalance of market power in this situation which brings us to conclude that it would be proper for the Department to become involved. Government has invested heavily in the processing capacity being used and cannot stand idly by if the producers’ case, as put to this Committee, is proven.

30.4 The Committee concludes that the then Northern Ireland administration’s response to the Ballymoney fire was not wholly adequate. The Committee recognises that the Department moved to protect the welfare of pigs through the introduction of a slaughter scheme and farmers agree that this was welcome at the time. However, the scheme appears to have done little to resolve the longer-term difficulties which local producers faced as a result of the fire. The Committee believes that the Department has not demonstrated a willingness to ‘go the extra mile’ beyond acceptance of, and rigid adherence to, the UK-wide scheme. As a consequence of this, the Northern Ireland pig farmers are at a disadvantage to their neighbours across the border.

30.5 Nor can the Committee overlook the length of time taken to implement the UK-wide restructuring scheme. That a scheme designed to restructure the industry, and to provide support to those struggling to remain within it, should take so long to implement cannot be justified. Hope given to farmers in March 2000 remains unfulfilled almost 10 months later. While the blame for this cannot be laid entirely at the door of the Department of Agriculture and Rural Development, the Committee concludes that it is incumbent upon the Minister to urge her counterparts in England, Scotland, Wales and the European Union to avoid such delays in future.

30.6 However, the Committee also concludes that the Northern Ireland pig industry may have an opportunity to benefit from the restructuring scheme which is now on offer. It is important that the out-goers scheme attracts sufficient uptake to allow the on-goers scheme to come into effect. Northern Ireland pig producers should look closely at this scheme. In particular those farmers who have been forced out of business should investigate their eligibility for assistance under this scheme.

30.7 The Department must also play its part by ensuring that all producers and ex-producers have access to clear and concise information to enable them to make sound judgements about what is on offer.

31.1 The market power of retailers, no less for pork than for beef, is likewise being used in the self interest of the retailers concerned with no apparent regard to the protection of UK or Northern Ireland supply capacity. Their prices were fixed with reference to the wider market including cheaper imports resulting in severe losses across the pig-producing sector.

32.1 The net result of all these effects is to create a situation where the Committee is persuaded that the Northern Ireland pig industry is now being dangerously starved of profits. It has already been driven deeply into losses with bank indebtedness of £40 million. Producers are vulnerable to exploitation of their geographical position. Other outlets for finished pigs are at the mercy of the uncertainties of a sea journey. The future of the industry now lies largely in the hands of Malton Foods who are by far the dominant player on the processing side. Farmers are, for their part, disorganised.

32.2 Producers have seen the need to strengthen the base of the supply system by creating a co-operative producer organisation (United Pig Producers) and have been given financial assistance by DARD to develop this concept into reality. If successful, this organisation should go far to redress the fragmentation which characterises the supply side of the industry. However, the Committee is persuaded that Malton Foods has set its face against this development and has successfully stood in the way of its development. Individual pig producers are at the same time fearful that joining such a collective enterprise will count against them with Malton Foods and the other processors.

32.3 The Committee sees this as a classic example of the struggle by the individual against the large corporate organisations. The resistance by processors speaks more eloquently to the Committee than their oral evidence and indicates that there is a strong prima facie case that the producers are currently being exploited for their gain.

32.4 It is clear to the Committee that acting alone, pig producers are unlikely to achieve the kind of partnership which is necessary for the re-development of a healthy pig industry in Northern Ireland.

32.5 The Department should become more proactive in its stance towards the discussions going on between the pig producers and Malton Foods and in the process of encouraging farmers to co-operate.

PROCEEDINGS OF THE COMMITTEE
RELATING TO THE REPORT
MINUTES OF PROCEEDINGS OF THE COMMITTEE FOR AGRICULTURE
AND RURAL DEVELOPMENT

Present: Dr IRK Paisley MP MEP MLA (Chairman)
Mr G Savage MLA (Deputy Chairman)
Mr B Armstrong MLA
Mr PJ Bradley MLA
Mr J Dallat MLA
Mr B Douglas MLA
Mr D Ford MLA
Mr G Kane MLA
Mr G McHugh MLA
Mr F Molloy MLA

Mr Max Hilliard (Managing Director), Malton Bacon Factory Ltd. called in and examined.

FRIDAY 30 JUNE 2000
HELD IN ROOM 144 AND THE SENATE CHAMBER, PARLIAMENT BUILDINGS

Present: Dr IRK Paisley MP MEP MLA (Chairman)
Mr B Armstrong MLA
Mr PJ Bradley MLA
Mr J Dallat MLA
Mr B Douglas MLA
Mr D Ford MLA
Mr G Kane MLA
Mr G McHugh MLA
Mr I Paisley Jnr. MLA

Mr Nigel McLaughlin (Vice Chairman) and Mr Jim Carmichael (Development Officer), Northern Ireland Agricultural Producers’ Association, called in and examined.

Mr Douglas Rowe (President), Mr Charlie Pogue (Chairman Pigs Committee) and Mr Kenneth Sharkey (Chairman Cattle and Sheep Committee), Ulster Farmers’ Union, called in and examined.

Mr Harry Marquess (Chairman), Mr Tom O’Brien (Vice Chairman), Mr Arthur McKevitt (Secretary) and Mr Henry Gordon (Council Member), National Beef Association, called in and examined.

Mr Robert Overend MBE (Chairman), Ms Lynn Martin (Secretary), Ulster Pork and Bacon Forum called in and examined.

Present: Dr IRK Paisley MP MEP MLA (Chairman)
Mr G Savage MLA (Deputy Chairman)
Mr B Armstrong MLA
Mr PJ Bradley MLA
Mr J Dallat MLA
Mr B Douglas MLA
Mr G Kane MLA
Mr I Paisley Jnr. MLA

(a) The Committee deliberated on the Minister’s unavailability to give evidence on the three Fridays offered to her.

Resolved: That the Committee had a duty to meet with the Minister before finalising the reports and would therefore arrange an additional meeting on a day other than Friday, at which officials would also be invited to participate.

Resolved: That the Chairman to write to the Minister asking for her availability between 27 September and 5 October for this Inquiry and her availability on any Committee day of business over the next three months should her presence be thought necessary.

(b) The Committee deliberated on the progress of the Inquiry and the general principles being established which will form the basis of the report.

Resolved: That the Committee was satisfied with the Inquiry’s general direction and that further evidence should be held on 8 September, 22 September and a date to be agreed with the Minister. Formal invitations should issue to the Ulster Farmers’ Union, the NI Agricultural Producers’ Association, the NI Meat Exporters Association, the Livestock and Meat Commission, the National Beef Association and the United Pig Producers co-operative.

Resolved: That the meetings should be held in the Senate Chamber but that the Chairman should write to the Speaker regarding the provision of tables in the Chamber for members’ papers.

(c) The Chairman advised the Committee that a letter had issued to Malton Bacon Factory Ltd. seeking the additional information promised by Max Hilliard during evidence taken on 9 June but that no reply had been received.

Resolved: That the information was important in the context of the Inquiry and that the Chairman should issue a strongly worded reminder to Mr Hilliard.

FRIDAY 8 SEPTEMBER 2000
HELD IN THE SENATE CHAMBER AND ROOM 135, PARLIAMENT BUILDINGS

Present: Dr IRK Paisley MP MEP MLA (Chairman)
Mr G Savage MLA (Deputy Chairman)
Mr B Armstrong MLA
Mr PJ Bradley MLA
Mr J Dallat MLA
Mr B Douglas MLA
Mr G Kane MLA
Mr G McHugh MLA
Mr I Paisley Jnr. MLA

Resolved: That the Committee would meet the Minister at 09.00 on Wednesday 4 October for one and a half hours and that the Northern Ireland Meat Exporters Association should be invited on the same day at 10.45.

Mr Trevor Shields (Chairman), Mr Charlie Pogue (Vice-Chairman), Mr Colum McGuikian (Director), Mr Edward Carson (Director) and Mr Seamus Crossey (Secretary) of the United Pig Producers’ Co-operative called in and examined at 10.00.

Mr Douglas Rowe (President), Mr Wesley Aston (Commodities Director) and Mr Charlie Pogue (Chairman, Pigs Committee) of the Ulster Farmers’ Union called in and examined at 11.00.

Mr Miceal McCoy (Chairman), Mr Nigel McLaughlin (Vice Chairman) and Mr Jim Carmichael (Development Officer) of the Northern Ireland Agricultural Producers’ Association called in and examined at 12.00.

Dr Paisley, Mr Kane and Mr Paisley Jnr. left the meeting at 12.45 and Mr Savage assumed the Chair.

Present: Dr IRK Paisley MP MEP MLA (Chairman)
Mr G Savage MLA (Deputy Chairman)
Mr B Armstrong MLA
Mr PJ Bradley MLA
Mr J Dallat MLA
Mr D Ford MLA
Mr G Kane MLA
Mr G McHugh MLA
Mr F Molloy MLA
Mr I Paisley Jnr. MLA

The Chairman distributed copies of the Minister’s response to the Inquiry and draft questions for the Minister. The Committee deliberated.

Resolved: that the questions should be sent in advance to the Minister, inviting her to answer each in turn during the meeting on 4 October, with members to consider supplementary questions which they may wish to put. The meeting would begin at 08.30 and take place in Room 152.

Resolved: that the information contained in the letter should be taken into consideration when the report on the Pig Industry was being prepared.

Present: Mr G Savage MLA (Deputy Chairman)
Mr B Armstrong MLA
Mr PJ Bradley MLA
Mr J Dallat MLA
Mr D Ford MLA
Mr G Kane MLA
Mr G McHugh MLA
Mr I Paisley Jnr. MLA

The Deputy Chairman assumed the chair and brought the meeting to order at 08.50 in closed session.

Committee Inquiry into debt – the particular circumstances faced by the pig industry

Ms Brid Rodgers, Minister for Agriculture and Rural Development, Mr Peter Small, Permanent Secretary and Mr Pat Toal, Deputy Secretary were called in and examined.

Mr Hugh T Hamill (Chairman), Mr Anthony Forbes (Vice Chairman), Mr Ervine Hamill and Mr Brian Dynes, representing the Ulster Curers’ Association (UCA), were called in and examined at 11.50.

Mr Armstrong left the meeting at 12.10. Mr Paisley Jnr. left the meeting at 12.15.

The UCA representatives left the meeting at 12.25 when the Deputy Chairman brought the meeting to a close.

Present: Mr G Savage MLA (Deputy Chairman)
Mr B Armstrong MLA
Mr J Dallat MLA
Mr B Douglas MLA
Mr G Kane MLA
Mr F Molloy MLA
Mr I Paisley Jnr. MLA

Committee Inquiry into debt – the particular circumstances faced by the pig industry

Title page (including draft title for the Report), Contents page and preamble read and agreed.

Resolved: that amendments due to minor typographical errors found in the Beef Report Paragraphs 1 and 2 should be replicated in this Report.

Resolved: that the two additional paragraphs, agreed for inclusion after paragraph 1.2 in the Beef Report, should be included at the same point in this Report.

Resolved: that, subject to the changes outlined above, paragraphs 1 and 2 were agreed.

Resolved: that the acknowledgement contained in the draft Beef Report (to those who submitted evidence which is not printed in the report) should be included in this Report.

Resolved: that should numbers fall below quorum, the remaining members should continue line by line consideration of the draft Pigs Report to its conclusion, with their agreed action to be ratified by the full Committee when it met the following day.

A new heading and three new paragraphs drafted and agreed to be added at the start of this section.

Resolved: that paragraphs 11 to 17 inclusive reflected accurately the evidence heard by the Committee in relation to the issues considered and that the Clerks should identify and amend all typographical and grammatical errors.

Paragraph 28.1 read, amended and agreed, provided that the figure shown was quoted accurately from the evidence – Clerks to check this point.

Resolved: that the current draft did not address the issues of the proposed on-goers and out-goers schemes, the scheme to assist pig producers in the Republic of Ireland following the fire at Agivey or the outcome of the GB court case regarding the ‘BSE tax’ and that the Clerks should draft additional paragraphs to ensure that these were covered in the Report.

Present: Mr G Savage MLA (Deputy Chairman)
Mr B Armstrong MLA
Mr PJ Bradley MLA
Mr D Ford MLA
Mr G Kane MLA
Mr G McHugh MLA
Mr I Paisley Jnr. MLA

In the Chairman’s absence, the Deputy Chairman called the meeting to order at 10.25 and declared the meeting open to the public.

Resolved: that the decisions taken on 23 November by the sub group, regarding sections 5.1 to 31.2 inclusive of the pigs report, were approved and that relevant sections were agreed, agreed as amended or subject to additional input as recorded.

Committee Inquiry into Debt – The Particular Circumstances Faced by the Pig Industry – Consideration of the Pigs Report

The Committee considered a letter dated 8 December 2000 from the National Pig Association which referred to the UK-wide Pig Industry Re-structuring Scheme. The letter sought assistance from the Committee Chairman in "making a success of the scheme.

Resolved: that the Committee should refer to the Scheme in its Report and suggest that producers give it careful consideration. However, the Committee could not fully endorse the Scheme without being certain of what was on offer to producers. The Committee would, in the Report, ask the Department to ensure producers were in the position to make sound judgements about what the Scheme offered.

The second draft report, incorporating additional paragraphs as ordered by members at their meeting on 23 November 2000, was brought up and read, paragraph by paragraph.

The Executive Summary of the Report was brought up, read and agreed for insertion at the beginning of the Report.

Resolved: that the second draft Report, as amended, be the Report of the Committee and that it should be printed.

Resolved: that the written and oral evidence obtained from the following should be printed along with the Report:

Resolved: that a launch date for the Report be agreed between the Chairman and Deputy Chairman

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

The Chairman: Well, I declare this Agriculture Committee meeting of the Northern Ireland Assembly duly opened to continue the business that we commenced this morning. Welcome, Mr Hilliard. Could I say to you that the format we have been taking is a simple one, you make to us an opening presentation for ten minutes or so. We do not want to go longer because we have 40 minutes for each interview and then myself and my colleagues would like to ask questions. We will not have time for everybody, possibly we may have, but we have appointed three of our company to lead off in this. If we have more time, as we hope we will have because if we make it questions and not semi- speeches and you give us answers and not semi- speeches, we will go through a bit more. It is better for both sides to have that. So, if you would like to commence your presentation now.

Mr Hilliard: Okay, good afternoon, if I can just make the first point that I was actually contacted last Friday with a view to attending here today and I have actually been away on holiday, but I felt therefore it is still important for me to come and make myself available so perhaps a shorter speech to start off with and perhaps more questions later on.

The Chairman: We are sorry about that, but we felt we needed to have you here.

The Chairman: Thanks for facilitating us. We would remind you that we would have powers to draw you in, but we would not think of using that on a nice man like you.

Mr Hilliard: If I can introduce myself and my business. I am Chief Executive of Malton Foods which is the pig meet processing subsidiary of Unigate PLC. We operate across ten sites employing 7,000 people. One of those sites is based at Cookstown which slaughters pigs and employs 360 people. The total size of the business, £600 million turnover of which over £500 million goes to the major UK retailers. The remaining trading sales are made of manufacturing meats and offals generated through the slaughtering and boning operations, about half of which we export around the world to America, Europe and the Far East. That is really presenting the business that I look after. A few words about the state of the UK pig industry: I feel it is important to focus on what were the causes of the losses that have been borne by pig production and pig processing over the last 2 years. It effectively started on the back of over-production, the oversupply of pigs. I think one could identify that that arose from profitable years of pig production in the mid-1690s to late 1690s particularly influenced by the outbreak of BSE. We had demand driven price inflation for raw material on the back of the consumer switching out of beef and switching into other proteins. Certainly the pig industry benefited from that and there was extra demand which pushed the price up and gave producers better returns. That was followed quite shortly afterwards in 1997 by disease problems around the world - outbreaks of Foot & Mouth in the Far East in Taiwan, a major exporter to Japan; and perhaps more recently Swine Fever in Holland. That effectively created a period of time where we had supply driven inflation again. On the world markets suppliers disappeared, an entire herd was destroyed by the Army in Taiwan, to put it into perspective, and that obviously buoyed the prices around. Against just as farmers were putting more product down, difficulties elsewhere within the industry, an opportunity particularly in the UK to enter pig production with local capital investment compared with previously because of outdoor pig production where people could rent land and put pigs out there, we saw more pigs coming through, not just in the UK but across the whole of Europe. We ought not to kid ourselves that it was other EU countries that brought this upon us, we saw the same herd expansion at home. All these extra pigs came on to the market when we started to experience problems in the export markets, Russia effectively closed down. We have to remember that a third of all the exports outside of the EU went to Russia. We saw a slowly strengthening pound. The expanded herds, just to put it into perspective, we would typically expect the EU herd to be 285,000 pigs per week - it rose to 325,000. Denmark, typically averaging 360,000 pigs per week rose to 425,000. When we started to really experience problems that were particular to the UK, we had the welfare legislation that banned domestic production systems incorporating stalls and tethers. The UK industry invested over £200 million of their own money, farmers, to take those systems out to meet the unique UK legislation. So it certainly caused them a problem that when the losses came along their financial status had already been undermined by having to make that investment. It was also on the back of reports that a lot of farmers might not make the investment to go out of business that when farmers did make that investment they actually took the opportunity to increase their herd size. It became a bit of a vicious circle that people invested into the new system, not as many people did go out of business on the back of good times therefore that added to the increased number of pigs coming through to the UK. The second and major problem that we face today within the industry is the exclusion of meet and bone meal from our ability to further process that into animal feed. If we put into context the losses that the British pig farmer has suffered, on average I would calculate that a farmer has lost over £10, just over £10 on every pig that he has sold for the last 2 years. The cost of the BSE taxes, as we referred to it, with no connection between BSE and pigs we have the banning of porcine meet and bone meal from further use in animal feed. That is calculated to cost the industry £5.25 per animal. So to put it into context, more than half of the losses that the British pig farmer has sustained have been down to just one element and that unfair banning of the inclusion of meet and bone meal within feed. Then we have seen up until recently, the Pound gaining strength against the week Euro and that has made it doubly difficult for processors and producers making it very difficult to export. But in a country where we are only 70% self-sufficient and with plentiful supplies of European pork it has only served to cheapen imports. The impact of that has been today that we see the UK herd falling away quite critically very far, very quickly and we are currently down to below 240,000 pigs a week being slaughtered. That is 15% down on last year’s weekly average. If we look at what is happening on the Continent we see the Dutch herd down only 2% and absolutely no change in the Danish herd, if anything it is going to rise. The situation we find ourselves in as an industry now is that farmers are returning back to profitability as the supply of UK pigs falls away. The losses now are shifting on to the processing industry once again. We have a situation now where abattoirs are fighting for the pigs. Most abattoirs are now down to the equivalent of 4 day working and a British pig today commands at least 20% premium over its Dutch and Danish equivalent.

The Chairman: Thank you very much. We, of course in Northern Ireland, are interested in the future of your firm in Northern Ireland because more or less now apart from smaller firms you are in the monopoly situation. What we have asked you to tell us, what is your idea of the future of the pig industry in Northern Ireland as concerns your own firm and what is the likelihood of your firm leaving Northern Ireland — you will excuse me, I must put these questions — your firm leaving Northern Ireland. Those are the things because as you have said we really are in a different ball game now. The news that you are giving us from the Continent is not helpful news nor the news in the global sphere is not helpful. Could you help us on those two issues? We have to do a report for our Assembly and the report is interested in getting us out of the mess that we are in, but it is also looking for recommendations. There is no use us being strong on diagnosis, which we all are, and not strong on proposals and prescriptions. So we need some prescription to say this is the way we should go in the future. Could you help us on that?

Mr Hilliard: I think the one line, coming to the particular point secondly on our position because I think it is fundamental on the profitability, we have got to address the profitability essentially of the industry and what millstones we carry that make us uncompetitive against the Dutch and the Danes. Malton’s history, coming back to Malton, is that as a company we are primarily set up to supply added value pork, bacon and ham products to the major UK retailers and some sales in Europe. Consistently up until 2 years ago for the preceding 15 years, we have demonstrated that the efficiency of British pig farmers combined with our efficiency as a processor meant that we could source domestic pigs, slaughter them and that material enter our further processing chain cost-effectively against imported material. Now, I almost feel as if we have got one hand tied behind our back with meat and bone meal, we have got one hand tied behind our back in terms of currency rates and not only do we have both hands tied behind our backs, we are almost in a strait jacket, we have just got everything going against us as an industry. I believe as an industry we can compete with Europe as currency is starting to come back in our favour, but fundamentally the main change that has got to be effected to put us on a level playing field is we have got to see either compensation for the £5.25 BSE impact on the pig industry or we have got to see that restriction lifted so that we can be adding value back into that fifth quarter, as we would refer it to, because without that one has to be concerned about the size of the cake, if I can put it like that, because all we are seeing at the moment is the unprofitability that has been experienced by the producer for a period of time now switching to the processor. What we have got to do is create a status quo where the cake is large enough for both facets of the industry, the producer and processor, to have enough money and make that cake large enough to divide between the two parties. If there is one thing we could change on a wish list it would be addressing the impact of this meat and bone meal exclusion. I believe that without that millstone around our neck then effectively we will still continue to have a British pig industry without doubt.

The Chairman: Now, you are talking about the British pig industry, we want to talk about the Northern Ireland pig industry because what farmers are saying to us, Mr Hilliard, is very simple, they produce a high class commodity which your firm has been buying for years, we know that, but they do not get an equal price here for that pig as their colleagues across the water get for that pig, that is the big thing that they say. Now, I do not want now to go into the past, the water is under the bridge and there are many things that could be said, we are trying to get something to save our pig industry. Now our pig industry cannot be saved except we have a levelling of the playing field, that is how we feel. So we would like you to give us your comments on that, why is it that the farmer, the pig farmer in Northern Ireland, produces an equally good pig — he will say of course it is even better and I, being the representative for Ballymoney, would say the Ballymoney pig is a special pig, but the situation is this, and it is very important, he does not get the same value as a man producing a similar pig and maybe in his opinion maybe if Malton were going to be absolutely honest we would have to say in some ways: You are right, your pig is better, but he does not get the price. Now the other matters, the strength of the Pound, is something beyond us and having sat for 20 years in Europe I cannot see the British Government now having a push in their economy prepared to do what Wilson did or Callaghan did and devalue the Pound, that is not going to come. If the slight change that has taken place goes on perhaps fairly far away, not near hand, there may be some equalisation on this matter, but that is not going to come. The other one that you are mentioning which you say ties your hand is the meal. That is getting more and more difficult with what is happening now, a campaign in Europe, which is going to, I think, swing the green lobby against that completely.

Mr Hilliard: First of all, I would sit here and say that net net a producer over here returns a similar price as a producer returns in England.

The Chairman: I think the figures, Max, I think you need to look at those figures again. Of course, I haven’t the figures before me, but I think that I could produce figures that would show that they are at a disadvantage.

Mr Hilliard: I think, with respect, at a top line figure you would identify that there is about a 5p premium that we have in England compared with here. I think what you then have to do is compare apples with apples. First of all, the contract that we pay, we measure pigs on millimetres of back fat, so we are grading the carcass in terms of quality. The top line price that is referred to, what we pay in the UK, actually equates to a tighter grading than the grading of pig that we purchase here. The second point would be here there are contributions made to the transport from farm to slaughter house, that is not made in the UK. There are then deductions that are made in the factories for grading animals and antemortem inspection. Those deductions are greater than the deductions that we make at the Cookstown factory. So I could certainly put in writing to you following this meeting how the 5p is made up so that I am able to say to you net net it is similar.

The Chairman: Well I am afraid around this table we would not agree with you. I would like to see those figures, they would be useful for us.

Mr Hilliard: I can understand how the misunderstanding arises because we are talking about a top price in England and top price in Northern Ireland. When we bring it down net net, because effectively that is the way we have got to look at it, if historically transport costs have been contributed to here and historically there have been higher deductions in English plants, you have still got to bring it to net net. Effectively there is no difference.

The Chairman: Well, I do not think that would convince farmers here but never the less we would like to see your figures, it would be helpful to us.

The Chairman: The other one, just on the Pound, would you not agree that it is hardly likely that we are going to see a movement on that?