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

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
THE PARTICULAR CIRCUMSTANCES FACED BY THE PIG INDUSTRY

Thank you for your letter of 10 August on the above. The Ulster Farmers’ Union welcomes the very obvious and continuous interest which the Committee is taking in this subject in that it reflects the genuine seriousness of the ongoing crisis within the agriculture industry in Northern Ireland and the beef and pig sectors in particular. In your letter, you pose a series of questions to the Union on which we are more than pleased to provide our views. Each of the three headings of your letter will be dealt with separately:

As we communicated to the Committee in our letters of 21 and 23 June for this ongoing Inquiry, we firmly believe that improved co-operation throughout the entire food supply chain is imperative and will provide benefits for all of the links within this chain. Indeed, this was one of the main recommendations contained within the Committee’s recently published Report: ‘Retailing in Northern Ireland’ – a fair deal for the farmer?’ Producers, processors and retailers have all an important role to play in the delivery of this objective, but it is the primary producer who ultimately faces the biggest challenge. While the vast majority of producers accept that their marketing strength in terms of both purchases and sales must be improved, the realisation of this key objective is not simplistic.

The general record of historic producer co-operation in the Province has not been good for a variety of reasons but mainly because long-term success has often been sacrificed for short-term gain. In the pig and beef sectors specifically, the Ulster Farmers’ Union was instrumental in establishing both the Northern Ireland Pigs Marketing Board (PMB) and Ulster Farmers’ Investments Limited (UFIL) which owned the Moy Meats beef processing plant. Neither of these now operate in their original form. However, the ongoing success of United Dairy Farmers’, particularly with its involvement in processing, has illustrated what can be achieved.

Unfortunately, unlike the level of co-operation which exists within the Province’s dairy sector, beef and pig producers are having to address this issue from a much lower base. While the Committee’s proposal for the establishment of a producer co-operative(s), which accounts for 50% of both the Province’s beef and pig production, is a very laudable objective, the Union believes that this is too big a leap under present circumstances. Instead, we would much prefer to see meaningful support from both the food supply chain and Government being provided to the existing, smaller producer groupings within these sectors. It is absolutely crucial that the principle of ‘co-operation’ is initially fostered at ground level with sufficient encouragement for interested, entrepreneurial producers to take the initiative forward. Ultimately, for any producer grouping to be successful it must be market oriented and commercially driven.

The Union fully accepts the rationale behind the Committee’s proposals on ‘branding’ however, like the issue of co-operation, the realisation of this objective is complex. Certainly, the extension of ‘green fields’ could be readily achieved but beyond that the establishment of a ‘Northern Ireland beef brand’ would require very considerable expenditure to both develop and, more particularly, promote. That said, however, there is definite merit in exploring this proposal further and even extending consideration to the potential for a general ‘Northern Ireland food brand’.

It is an accepted fact that the quality of the beef herd in Northern Ireland has deteriorated – mainly due to the influence of the dairy herd on the suckler cow population. This is, however, a problem which can be resolved by medium/longer term action. Already, the producer funded ‘AgriSearch’ group in the Province has commissioned a major research project which will examine, in depth, beef cow genotype and the quality of their progeny. Equally, it is essential that a system which provides producers with a proper return for the production of quality beef is established – the two main integral factors are the introduction of a system which accurately measures carcass meat yield and also a payment structure which rewards quality.

I trust that this response addresses your questions concisely. We will, however, be in a position to elaborate further when we provide oral evidence in September.

One further point which we would wish to make at this stage is that, while all of these proposals made by the Committee will undoubtedly prove to be beneficial in the medium to longer term, it is essential that short term measures to relieve the huge debt burden borne by the Providence’s agriculture industry must also be pursued.

The British Pig Industry Support Group have lost their claim for compensation against the Government.

The judgement, given late this morning, was immediately described as being ‘very, very disappointing’ by Meryl Ward, leader of the Group’s judicial review team.

"It’s a fair and square loss," she told FOL Today, adding that there would be no appeal against the judgement.

"We don’t have either the financial resources or manpower to mount an appeal," she said.

"On a positive note, our case for the cost to the pig sector of BSE at £5.26 a pig and £266m for the industry, wasn’t challenged, so these figures are now established as fact. The judge, however, did not agree that we had been discriminated against."

Meryl Ward also said that the costs of the case, believed to be £50,000, ‘would be sorted’.

The Group had argued during a judicial review at the Royal Courts of Justice in London in June that the Government had discriminated against pig farmers by not applying for additional aid in the light of BSE in cattle. That, they said, had inflicted a heavy financial burden on the sector in the light of losses to the pig sector since BSE of £266 million.

Losing their judicial review case against the government has left the British Pig Industry Support Group devastated.

"We are absolutely shattered," Meryl Ward, leader of the BPISG’s judicial review team, told FOL Today. "It was a fair hearing. We have decided not to appeal, as we felt that the way the judgement was given made an appeal, as we felt that the way the judgement was given made an appeal much more difficult to lodge. Anyway we just haven’t got the resources."

"It is hard to think positively at the moment. However, the judge did agree to the principle of non-discrimination, and this will help when other cases are brought to law in the future."

"The judge agreed on the principle that beef, sheep meat, and pig meat do compete. He also agreed that BSE regulations had imposed a disproportionate tax on the pig industry, but it wasn’t sufficient to make it discriminatory."

"So our case that the ban on meat and bone meal due to BSE cost pig producers £5.26 per pig and £266m for the industry, and that this was a higher cost than the cost to the beef and sheep industries wasn’t challenged. So that is now established, but the judge said it didn’t make it discriminatory."

"Because there was no discrimination, there was, therefore, no onus on MAFF to apply for state aid. MAFF’s action, the judge said, had been sufficient."

"The fact that the costs of £50,000 have been awarded against us is truly rubbing salt into our wounds, especially as MAFF had the option not to press for costs, and that their lawyer was a salaried member of MAFF staff."

"I suppose that this review has produced a lot of publicity, which has been good for the pig industry, and you could say that buying that amount of advertising would have cost a lot more than the judicial review costs. The media showed a lot of sympathy for our case, and highlighted the industry’s high standards of production."

"That may galvanise MPs and the government into pushing for more positive buying policies. The announcement that the Ministry of Defence is now going to buy just British pork s a bit late. They could have done that several years ago."

"The result of the case doesn’t get away from the fact that a third of the industry has now disappeared during this crisis, and it is still declining."

Ian Campbell, regional manager for the National Pig Association, told FOL Today that there was a positive side to the judicial review. "The cost has brought a lot of publicity, and we couldn’t have bought that for the money that has been spent on this case."

"The high standards of the industry has received huge publicity. There is now far greater awareness among consumers, and buying institutions. The announcement by the Ministry of Defence that they are buying 100 percent British pork is, I believe, the beginning. Similar decisions by other major corporate players may follow."

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
THE PARTICULAR CIRCUMSTANCES FACED BY THE PIG INDUSTRY

One of the main issues to be considered in relation to price differentials between producers and retailers is that producers cannot ensure that the price they receive for a commodity will cover production costs plus a guaranteed profit margin

It is interesting to note that a brief summary of returns prepared by LMC over a year ago showed as follows:

The obvious point is that there is a vast difference in conformation of the two animals and the producer is being penalised for this. It should be noted however that in the case of the better quality animal the final supermarket and butchers prices were 238% and 275% respectively of the producer price. In the case of the poorer quality animal, there was an even greater differential, with the final prices being 296% and 339% respectively. Irrespective of the quality and price from a producer point of view the differential in money terms was the same. This takes us to the average producer prices for products, (DARD Statistical Review 1999).

The following table shows the drastic fall in prices for beef and pigs since 1995.

	Unit	1995	1996	1997	1998	1999 (provisional)
Finished steers & young bulls	Head	718	615	509	418	429
Finished steers, heifers & young bulls	Kg dwt	2.22	1.86	1.61	1.37	1.46
Calves slaughtered or exported	Head	154	89	69	62	46
Culled cows and bulls	Head	518	442	331	247	238
Culled cows and bulls	Kg dwt	1.77	1.62	1.34	1.10	1.07
Store cattle exported	Head	528	456	417	327	336
Finished clean pigs	Head	78.92	95.27	73.75	50.52	49.70
Finished clean pigs	Kg dwt	1.11	1.31	1.03	0.71	0.69
Culled sows & boars	Head	119	130	100	49	50

In the case of beef it is obvious that there has been a dramatic decline in price. In fact almost £300 per head or approximately 40%. This includes additional costs of over £30 associated with BSE. It is therefore quite difficult for a member of a farm family to comprehend the price of beef in the high street shop.

The fact is that there has been no significant reduction in retail price. In fact there would have been a gradual increase.

A combination of these factors has led disillusionment within the primary link in the food chain. There has been little significant reduction in input costs and farmers seem to have no control over a marketing strategy in relation to beef.

With regard to the pig industry, and whether the returns to the producers are fair, one only has to look at the production cost of 85p/kg and the average return/kg to producers for the past few years Fig.1. While there remained a small profit margin in 1997 the industry has been decimated in 1998/99. In fact losses per pig have been estimated at £12-15/pig produced.

In addition the industry has been subjected to additional costs in dealing with offal disposal and compliance with health and welfare legislation. There is no question with regard to the fairness of having to take less than production costs for a commodity nor is there any doubt of the fairness of not having a level playing field with regard to legislation particularly in relation to our competitors in the market place.

We have already lost a major part of our pig production and we cannot afford to let this continue. As with beef, the consumer is not benefiting from lower producer prices. In many cases, it is imported produce which is being given preference in our shops. Factors contributing to the crisis in the pig industry have been.

The fact that the pig industry is specialised with substantial capital investment in production systems with not alternative use has meant that producers were locked in. In addition the amount of individual debt accrued has meant that farmers have been trying to produce their way out of difficulties. The inevitable result has been bankruptcies.

Within the beef industry the loss of export markets due to the well documented BSE crisis and the strength of sterling have contributed to the present crisis. We also have additional burdens in both sectors with the cost of inputs due to our location.

Government has to devise both a long and short-term strategy for the industry. (It is interesting to note the term deadweight in some of the discussion in relation to early retirement etc.).

One only has to look around the countryside to see the state of dilapidation and disrepair emerging in many farmyards. We talk of protecting and enhancing our environment yet we ignore the fact that producers have no capital to maintain the infrastructure of the main business. It has often been stated that there will be no need for a long-term strategy if we cannot survive short time. Unfortunately short-term measures require capital. The funding allocated in the "Blair Package" is anything but adventurous and must be viewed sceptically in relation to 1999 incomes, longer term, the vision group which has been set up would seem to have major role in strategy development.

Market share has been bought in UK since the onset of BSE and while much work has been done to procure this, it is felt that it has been at the producer’s expense. We still feel strongly that there could be more of a return to the producer at current retail prices.

More promotional use of NI produce by retailers would also assist. With regard to all produce clear labeling is necessary to show country of origin etc. Questions have been asked regarding the production conditions and quality of imports in comparison with our commodities and it is incumbent on government to ensure that the consumer is protected from inferior produce.

The primary producer is already using the highest possible standards and incurring the associated additional costs. Differential in price for quality has been shown to be necessary so it is necessary to strive to produce the best possible quality stock. Input costs have been trimmed and there is little scope for movement here. Producer groups, co-ops and buying groups are all possibilities.

A co-ordinated food chain with all parties having equal responsibility and guaranteeing a decent return for each component part is perhaps over ambitious but all links are interdependent and each should realise this.

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
THE PARTICULAR CIRCUMSTANCES FACED BY THE PIG INDUSTRY

The Assistant Clerk to the Committee for Agriculture and Rural Development wrote to my Department on 11 August 2000 asking for our views on a number of questions relating to the above Inquiry. It was suggested also that I should meet with the Committee on 22 September 2000 and that, in the meantime, my Department should provide a memorandum setting out its view on the subjects raised.

Turning now to the issue raised in the Clerk’s earlier letter, my reaction is set out in the following paragraphs. The Committee appears to be suggesting that processors and retailers are capitalising unfairly on Northern Ireland producers’ lack of organisation and that DARD, because of its heavy involvement with the farming sector, has a responsibility to organise producers in order to restore the balance.

I must say that I would be extremely reluctant to have Government interfere in the free market which exists between producers, processors and retailers. Previous experience with the various marketing boards has taught that Government involvement is seldom in anyone’s long-term interests. There is, of course, no reason why producers should not themselves come together to strengthen their position vis-à-vis processors etc if they see benefits in doing so. My Department has had very few indications that producers do, in fact, see the need for more co-operatives and none at all that the industry wants a single one as is now suggested. There are agencies already in existence by whom such efforts could be facilitated and my Department would of course provide whatever help was within our power. To go further than that and involve Government in sponsoring or funding marketing organisations of the type apparently envisaged by the Committee would be to act in breach of EU law which specifically prohibits such involvement by Government.

I do have to say that there are other risks associated with producers organising themselves so as to improve their bargaining position with processors and retailers. Such efforts will only be fully effective if those organisations have no other sources of supply. The reality, of course, is that many of the major processors and retailers are players on the global stage and will source their producers wherever makes most business sense to them. Indeed, the willingness of processors and retailers to do just that by obtaining products outside Northern Ireland has been one of the main bones of contention I have heard expressed by producers’ representatives since I took up post. What we all need to do is to see that local producers supply products which are of the quality demanded by processors etc at a competitive price, and my Department is concentrating on doing that.

The Committee’s questions really revolve around the issue of fair returns to producers. They will be aware of the group of experts I have set up and charged with delivering a vision for agriculture in Northern Ireland. That Group is looking among other things, at new ways of doing business in the agriculture sector, the influence of the multiples and competitiveness and marketing throughout the food chain. The general issue of fair returns for all parts of the chain is one of the key principles being looked at by the Group.

For my part, I am very concerned to see returns to all sections of the industry – including pigs and beef – improving. There are steps which I can take to help such as trying to re-open beef and cattle exports as I am currently doing, but there are limits to what Government can or should do in this area. At the end of the day, we ignore or try to distort market forces at our peril. Moreover, I doubt the value of hypothetical speculation on what might be good for producers.

To be fully effective any new producer co-operative would need to be involved not just in selling primary produce but in processing and marketing as well. This would require massive investment for which Government would have no resources and would in any event only add to the existing over-capacity in processing in almost all sectors. Furthermore it would not necessarily lead to an increase in producer prices as pig, cattle and dairy prices south of the border adequately demonstrate.

You will recognise from the above that I have very real reservations about the value of pursuing the course which the Committee is considering. Leaving aside the point of principle, the work which you have asked the Department to undertake would have enormous resource requirements. To produce the type of analysis the Committee’s request would require would tie up various sections of this Department, DETI and IDB for months. I could only staff this work by diverting people from other more necessary work. I would be very reluctant to do that.

The Committee also asked a number of questions about the Department’s role in relation to the promotion of beef herd quality. The Department accepts that beef quality measured in terms of carcase classification has declined in the last 4/5 years. This is a matter of concern given the implications for producer returns, the marketing of Northern Ireland beef and the importance of this sector to the industry.

The Department, in consultation with the industry, has commenced work to develop a strategy for improving beef carcase quality. This exercise will now come within the scope of the Vision Group. In the interim, the Department in conjunction with AI Services and LMC has launched a Livestock Breeding Initiative which is aimed primarily at improving quality through the selection and use of genetically superior breeding stock.

I am sorry that I cannot be more positive towards the Committee’s suggestions on producer co-operation but I trust that you will appreciate the reasons why that is so. I hope also that the Committee recognises the value of what we are doing on beef carcase quality. I stand ready to assist the Committee with any further work it wishes to conduct into this important topic.

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
THE PARTICULAR CIRCUMSTANCES FACED BY THE PIG INDUSTRY

Pig processors are very concerned at the continuing depression in the pig meat industry. All companies have made substantial trading loses in the last 2 years, mostly caused by the value of sterling against Euro. We cannot get a reasonable price for our product because of low cost imports from Irish Republic, Denmark and Holland.

If we put our selling price up 1-2p/lb we lose the business to someone selling imported product.

Since the BSE crisis, we have gone from a positive position as regards payment for disposal to a negative one. It cost over £300,000 to dispose of our waste material in the past 12 months.

Packaging material prices have all risen because of the cartel of world-wide packaging material manufacturers. We get notices of increases from several suppliers all within a few weeks of each other. Another additional cost is the Waste Package Material Levy. This is paid to the Government and Heritage Agency.

Oil has risen by 150% over 15 months. A load of gas oil of 30,000 litres delivered last year cost £2700, the same load delivered 2 weeks ago cost £72000 = 40p per pig. Transport costs have also risen because of higher oil and wages costs.

We have been advised of higher Meat Inspection charges by the Food Standards Agency who are taking over control of meat inspection from DARD. The UCA is concerned at the possibility that these proposals will cause increased costs and bureaucracy. It is also concerned about actual costs being proposed for smaller companies.

1. A level playing field especially regarding implementation of Rules and Regulations should be EC wide i.e., stall and tether regulations, higher hygiene regulation in NI and UK including HAS.

4. Continue to try to develop new products that would help processor to pay a higher pig price.

6. Try to persuade government to address problem of supermarket monopoly situation.

7. Improve communication between producer and processor i.e. quality of pigs, disease control to reduce high level of condemnation.

When considering any differences between N Ireland and English prices, it must be understood that deductions are much higher in GB than in NI. Also lower prices are paid for heavier, lighter and fatter pigs. Malton are importing 50% of their pork from Denmark and Holland because it is cheaper than home produced, this gives them an advantage and allows them to pay a higher price for English pigs i.e., imports subsidise the English pig prices.

There is much comment in the press regarding Malton prices and Malton hope that it will knock out some of the competition. It is rumoured that Grampian Meats Scotland’s largest meat processor has Bank Borrowings of £120M.

Malton has just announced a profit warning. Unigate are doing their best to dispose of Malton.

In comparison with the Irish Republic, NI processors are paying the third highest price in EC. It is little wonder that processors are losing money.

MEMORANDA WERE RECEIVED FROM THE FOLLOWING ORGANISATIONS PRIOR TO THE REVIEW OF THE INQUIRY’S TERMS OF REFERENCE