Oral evidence: Farmgate prices, HC 474Wednesday 2 December 2015
Oral evidence, 2 December 2015.
Witnesses
George Eustice MP, Minister of State for Farming, Food and the Marine Environment, Defra, Mark Filley, Head of Livestock, Dairy and Genetic Resources, and Tim Mordan, Deputy Director, Farming Sectors Team, Defra, gave evidence.
Chair
Good afternoon and welcome, Minister. If you would all like to introduce yourselves, starting with Mark, and then we will proceed with the evidence. So very much welcome.
Mark Filley
Thank you, Chairman. My name is Mark Filley and I am the Head of Livestock and Dairy Policy at Defra.
George Eustice
I am George Eustice, the Minister of State for Farming.
Tim Mordan
Good afternoon, everyone. I am Tim Mordan, and I head up the Farming Sectors team in Defra.
Chair
Welcome. We have just, as you probably realise, had the Groceries Code Adjudicator here this afternoon and we had some very good evidence from her. Thank you very much for joining us. First of all, to the Minister, what is your assessment of the current situation? Do you agree that price volatility is now inherent in the agricultural industry, and what are we going to do about it?
George Eustice
There has always been price volatility in agriculture, even in the days when I was in agriculture. It is certainly very challenging at the moment, and I think that across most sectors we have seen low prices over the last 12 months. Most of them have one thing in common, and that is the exchange rate of the pound against the euro, which has exercised downward pressure on virtually every sector. Alongside that there have been other exacerbating factors. In some cases good weather has led to high yields and an increased production, and that has pushed prices further down globally. In other cases, such as pork, we have seen the Russian ban have a knock-on impact through Europe and that has added further downward pressure. We have also seen, in a couple of areas, prices pretty much stabilise. Beef, despite dipping in early summer as it normally does, has actually recovered to quite stable levels, and although the poultry sector has had downward pressure on prices has weathered it quite well. It is a mixture, but generally most sectors are suffering from low prices, partly driven by exchange rates, generally exacerbated by other factors around the world.
Chair
Naturally, for all of us, it is relatively easy to work out what the problems are. It is probably a little bit more difficult to find the solutions. How is the farming sector in particular going to be able to protect itself against the impact of volatility? What can we do now? What can we do a little bit more in the future?
George Eustice
I know that you have had specific inquiries on dairy, and obviously dairy is an area where we have had 18 months now of low prices. They have plateaued over the last six months or so, but what we are looking at quite seriously now in Government, and working with the AHDB on is the development of a futures market, either in skimmed milk powder or perhaps in butter, and I think that this would help manage future volatility. I do think that there is a big role in a post-quota environment to use futures markets to help manage risk so that farmers are better able to fix their prices for longer periods of time and know exactly what price they are going to get for the production that they are investing in.
Chair
In a way, it is for the industry to bring forward proposals, but what encouragement and what help can Government do to bring that about?
George Eustice
We have some of our policy officials giving quite a bit of thought to this, and we have brought in somebody with expertise in financial futures markets and hedging. We should note that the City of London is the world’s premier financial centre, so we have a lot of expertise in futures markets. Some sectors as well, such as cereals, have always used futures markets as a way to protect themselves against risk, so there is a precedent for this for agricultural commodities. However, to make a futures market work you have to first of all have the liquidity. That is not liquidity in the sense of liquid milk, but a big, deep market so that people can swap in and out of contracts relatively freely. You also need to have a reliable physical market, against which you can benchmark any derivative market. That is sometimes the challenge, getting a market that is large enough and liquid enough, first, for people to be able to access easily, and, secondly, for it to be a reliable benchmark against which derivative markets can then operate.
Chair
You talked at the beginning about the fact that the pound is relatively strong against the euro in particular. The problem is probably a good one in a respect, as probably the economy is looking pretty good. I suspect that the pound will remain pretty strong for some time and it could even strengthen. I do not expect that the Government is looking into introducing something like the green pound, or any intervention into the currency or the way agriculture is funded, but is your Department looking at any solutions to that?
George Eustice
Obviously, there is a very strong and very well established currency futures market, and that is easily accessible now by people who wanted specifically to hedge any exposure they have against exchange rates. All farmers, whether they are exporting or not, are obviously exposed to exchange rate volatility through the farm subsidies that they receive. There is already a private market in currency futures that could help them. We learned a lesson in the euro debate, in which I was very involved 15 years ago, that floating currencies are a good thing. If you believe in market forces, a currency allowed to find its level in an international market, depending on the economic circumstances pertaining at the time, is actually a really useful tool. When we had the credit crunch in 2008, which because of our banking sector had a disproportionate impact here on the UK, we were able to devalue.
Chair
I was not thinking so much about the actual value of the currency in the way that we hedge and trade the currency, but more what it reflects on farmgate prices. If you can import a product cheaper because our currency is strong, and when we export again our currency is strong, so it makes our exports dearer and our imports cheaper. Have you given that any consideration?
George Eustice
Apart from what I have already mentioned around futures markets, which I think are the main tool in the box, which is why we are putting quite a bit of emphasis on this to help farmers mitigate risk, there are other things that you can do to improve your resilience against such downturns. Opening new export markets is important, so if you have pressure on your home market then you have got access to alternative markets. This is particularly important in some of the livestock sectors to get a higher value for the carcass; there is a market with a higher price, quite often, for what is called the fifth quarter—some of the offal, the pigs’ trotters, the chicken feet and things like that, for which there is no ready market in the UK. There are other things that we can do, such as opening export markets so that we have got other options when there is a downturn.
Chair
The final part of my question, for now: how do you see the long-term future of the agricultural sector fitting into support for the sector in the 25-year plan working out?
George Eustice
I have said many times before this Committee, that despite the undoubted challenges that this sector is facing at the moment, and lots of businesses losing money with the prices that they are currently getting, I do think that the long-term prospects for our food and farming industry are very good. We have got a competitive agriculture sector, more efficient than most of our European counterparts. We have got the right climate to produce food. We have got a lot of world-beating science expertise in this country. I really think that we are well placed to provide food for a growing population.
Chair
And the plans for the sector through the 25-year period?
George Eustice
We are working on that. We had an initial meeting in July, where we brought a whole load of industry stakeholders together and we are currently in the process on working on the first draft of that. We have run a number of regional groups so that we can engage those smaller businesses who were not able to get to the first event that we held in London, and also a number of sector-by-sector briefings as well. This plan will very much look at issues such as skills and how we attract new talent and create new business opportunities for people who want to get into the food and farming industry. We will be looking, as well, at how we can improve integration in the supply chain. We have got some very big players in food processing. It is our biggest manufacturing industry, but sometimes in the primary sector things are quite fragmented and farmers quite often end up being price‑takers. So I think that we can look at different types of contractual model to ensure that the risk is shared more fairly throughout the supply chain.
David Simpson
I am sure that the Minister will join with me in congratulating Northern Ireland in getting the Chinese market open again for the pork sector. That will mean an awful lot to the farmers who are losing £6 a pig; this will lead to the fall of the floor to start with and then it will increase. Going back to the dairy sector, how do farmers really protect themselves when you have a fall in dairy prices right through the whole period? It is forecast for Northern Ireland to be 16 pence for January. How do they protect against that, when you have a vulnerable market? Is it solely less production or what is it?
George Eustice
First, I completely agree. We were a long time waiting and trying to open that market for pork, and I have had many discussions with members from Northern Ireland. Obviously we are very pleased with the progress there. Northern Ireland has been particularly exposed to the dairy downturn, and that is because, whereas around 50% of production in England is liquid milk, in Northern Ireland the bulk of the milk goes to processing, and processors have been particularly exposed to global commodity prices. I appreciate that, and it is in recognition of that that when we did the support payment from the EU, the €500 million support payment that we pressed hard to get, we actually gave a significant uplift to Northern Ireland in recognition of that. I know that that does not remove all of the losses that they will have made over the last 12 months, but we did recognise the particular plight of Northern Ireland farmers. In answer to your question, there is always going to be a challenge with dairy, which is that the time it takes to respond to a market signal can be quite long, in that if prices are going up then by the time you have invested and increased the size of your herd, added more dairy replacements and invested in extra capacity, rented more land. This takes time, and the difficulty is that quite often by the time that production responds to that signal you have already started to see a downturn. Then there is a lag, quite often, in responding to the downturn. In fact, worse than that, one of the things that we have seen this time which we did not have quite so much in 2012 was that in 2012 the crisis was exacerbated by very high feed costs, so the variable costs that famers had were higher, their margins per litre were even tighter, and that meant that they responded quite quickly to reduce production. As feed costs this time have been much lower, we have seen in some instances farmers producing more in order to try and help cover their overheads. That has probably then exacerbated the problem. Indeed, as prices were falling we still saw production go up in the region of 4% the past 12 months.
Chair
We actually had Arla in a week or so ago, saying that farmers had produced more milk in order to keep the imports out. What would you say to that argument then?
George Eustice
I am not sure. I think that farmers are trying to produce more milk, in order to try and pay the bills.
Chair
Exactly.
George Eustice
I am not sure that they are in some geo-political—
Chair
That was their argument—that if we contract our production, all you do is suck in more imports. It is an interesting argument.
George Eustice
It is, and there are some who would argue that in a post-quota environment, part of the solution to this is through having the A and the B pool food processes. It is not universally liked, that model, as it has its own downsides, but the idea is that for a fixed amount of production a processor pays you a higher price, and any overproduction you take your chances in the B pool. That then sharpens the market signal to cut production when production is running too high. There is an argument for that, to try and speed up the reaction of the industry to price signals.
Rishi Sunak
I thank the minister for what is, I think, the third time you have been here in six months, so I appreciate you making the time. It was just a very quick follow-up around the futures market and it is encouraging to hear that that is something that the department is actively working on. When we heard evidence from the NFU’s chief dairy advisor, she had mentioned that one stumbling block was the lack of real-time data on production and pricing. She was talking about it in the European context, and they were speaking to the Commission about it, but I would be interested to get your thoughts on whether that is, indeed, something that needs to be fixed here, and whose responsibility it is. Who can make that happen, if it needs to happen?
George Eustice
Yes. It is, and we have got somebody with expertise in futures markets who is looking at just that issue for us. Other member states are also considering this. I know that the Republic of Ireland, for instance, is also looking at the issue of futures at the moment. The Commission is showing interest in this. Phil Hogan has picked up the baton on this and is keen to learn from us in this area as well. There are some benchmarks out there, but you are right: at the moment it is difficult to say that any of them are reliable enough. The US does have the most mature futures market. I think that that one is predominantly butter, so that does provide a guide against which you could have a derivative market, but it is in the US and there are some differences between that and Europe. We actually ideally want to set up in the European Union, Europe-wide, and London is the right place to do that. There are others. There is the Fonterra international auction, which is a big skimmed milk powder dairy auction run by the New Zealand company Fonterra. They clear high volumes, and that therefore also has a reasonably reliable spot price, but again it is not perfect, in that people hold back stocks, so it is not always an accurate indicator of the real situation on any given day. So there are a couple of examples there—a US futures market and there is the Fonterra auction—which give you a starting point, but we accept that at the moment we are not there in terms of having a reliable enough benchmark against which to establish a derivative market.
Chair
Of course, New Zealand is peculiar, because 97% of its production is exported. That is why you have that massive co-operative. I do not think that it would be allowed anywhere else, really, would it, with that amount of control.
Ms Ritchie
Moving on to the issue of the dairy industry specifically, in relation to the supermarkets. The supermarkets told us last week that the price paid to suppliers is not limited to the price charged to the consumer. Is this a problem of retailers selling milk cheaply?
George Eustice
I think that they probably make a fair point, in that if you look at most of our major retailers, the reality is that some of them, such as Tesco and Sainsbury’s and I think M&S have aligned contracts for most of their liquid milk production. It is a different story when it comes to milk going into processing, but on that, quite a few of them are still paying farmers over 30 pence per litre, which is a very fair price, and that is because it is linked to their costs of production. We are also starting to see some supermarkets, Tesco for instance now, guaranteeing a price of I think 29 pence per litre for farmers supplying their own-brand cheese supply, and saying that they will maintain that until at least February next year. So we are starting to see some supermarkets also give assurances of that sort, over and above the international market, to those suppliers providing them with cheese. I think that the point I would make is that although famously we are seeing four pints of milk beings old for 89 pence, or between 89 pence and £1, that is not necessarily reflective of what they are paying farmers, and in those cases we should give credit when it is due. When it comes to liquid milk producers, some of those farmers are on still quite good contracts, and the supermarkets are losing money on that at face value.
Ms Ritchie
Therefore, is the Government, and I am pushing you a little bit on this, comfortable with dairy being treated as a loss leader by the supermarkets, and sold below the cost of production by major retailers?
George Eustice
The evidence is that a staple product like milk is not a product whose volumes change dramatically depending on the price that is set. People buy the amount of milk that they need, and it is not that sensitive to price changes. What is really happening with the supermarkets is that they are all in price wars with one another, so on some of those staple goods they are trying to have these loss leaders in order to win market share. What we are doing as a Government—it is not for us to interfere and start dictating what their prices and price policy should be, but this is what we have done—is that we have written to all of the major supermarkets, and I have been following that up with phone calls over the last couple of weeks, to encourage them to do two things, really. One is to increase the amount of UK dairy products that they procure, and we have seen progress with Tesco planning to switch its own-brand yogurt to use 100% British milk. We have seen improvements, for instance, with M&S moving more of their cheddar cheese to being British and others such as Morrisons also moving in a good direction on this. The second thing we have asked them is to do much more to promote the British brand on their products, so that, rather than just having the Red Tractor logo tucked away somewhere on the label, we are using the Union Jack to really promote the product, because there is a lot of consumer interest in buying British. Quite a lot have done that; supermarkets such as Iceland are doing much more to promote British.
Ms Ritchie
Further to that, Minister, apart from writing to the retailers and understanding that you do not wish to dictate to the market, what other efforts are the Government undertaking to address the unequal negotiating positions of farmers and large retailers? Farmers have been very much marginalised in the past number of months.
George Eustice
I am aware that you have just taken evidence from Christine Tacon from the Groceries Code Adjudicator. In the last Government, we brought the supermarket adjudicator into being to enforce the Code. At the end of the last Parliament we introduced the ability for it to levy fines up to 1% of turnover; that is a significant amount. The adjudicator is in middle of an investigation, for instance, relating to Tesco, so I think we are starting to see that work. What that will not do, as I am sure Christine Tacon made clear to you, is start to dictate prices. What it does do is look at unfair, anti-competitive dealing practices, such as forcing companies to pay to have their product displayed in a particular part of the store, forcing them to contribute retrospectively to promotions and make retrospective price changes.
Chair
Minister, last week we had Waitrose in and we were talking about the price of liquid milk. They gave a price of 32 pence, I think, which is very good. For processed milk they were paying something like 25 pence, which again is not a bad price. I am not knocking them, but it shows at least a 7 pence difference between a liquid and a processed milk contract, so if you then start to bring that down to a lower price for liquid milk, it gradually drives the price down. What more, therefore, can you and the Government do to encourage the retailers to be paying a good price for processed milk? For a long time we have considered supermarket own brands of processed cheese as probably one of places where the average price of milk is driven down. What more can you do there?
George Eustice
To be fair, we first have to recognise that it is more challenging to do an aligned contract on processed products, for two reasons. First, this is much more susceptible to pressures on international commodity prices. The supermarkets would say that, if they start to pay those inflated prices on cheese, for instance, they are much more exposed to competition from other countries. There is a caution there that we have to recognise, whereas in liquid milk we produce almost 100% of our own domestic liquid milk. It is perishable product, and it is very much a nationally-traded product, so it is a different ballgame when you are talking about processed products.
Chair
If some retailers can do it, why cannot all of them do it?
George Eustice
That is right, and, as I ring round, I am gently prodding them without dictating what they should do. Tesco has already given an undertaking to its cheddar cheese suppliers that it will pay 29 pence per litre to those producers. We are seeing some movement in others as well, where they are able. M&S has also said that it is interested in looking at aligned contracts in other sectors. It experimented with an aligned contract, for instance, on lamb. It is looking at whether it could have an aligned contract on beef. It does make a point, however, that it is more challenging in those other sectors, because they are more susceptible to global movements. The second reason it is more difficult on dairy is that it takes something like 10 litres of milk to make a kilo of cheese. You also get a big by-product from the cheese manufacturing process—whey and other products—and this is traded internationally as a commodity. If, therefore, you are overpaying for your milk, you have the second problem is you have an overpriced by-product that you cannot pay for. That makes it undoubtedly more complicated to offer an aligned contract.
Chair
Again, if some can, others should be able to. Perhaps we should print a list of people with what they pay for the liquid milk and what they pay for the processed milk. Have you considered that we should put that on a Defra website?
George Eustice
One of the reasons we are talking to supermarkets is partly because where there is good practice going on, where they are doing the right thing, I want to make sure that is recognised.
Rebecca Pow
I was absolutely intrigued, Minister, to hear that you had personally written to all the supermarkets and now you are phoning them. Not you personally—
George Eustice
Me personally? Yes. I should clarify that the Secretary of State –
Rebecca Pow
You must have surprised them.
George Eustice
The Secretary of State wrote to all supermarkets to highlight the plight of the dairy industry, and to ask everyone to redouble their efforts. For our part, we are trying to increase public sector procurement of British produce, and British dairy produce in particular. We are encouraging them to do the same. It is quite an encouraging story in that some of them, despite the market, are trying to do their best.
Rebecca Pow
I am very heartened to hear it. Does it take that to make them think about buying British? You said just now that some of them were thinking about swapping. Why were they not doing that before and why did we not think of doing that before? It seems such an obvious thing, though I am sure the answer is not simple.
George Eustice
Let us not exaggerate the power of Government, through having a phone call, to change the world.
Rebecca Pow
Basically, what I want to know is what is making them swap from an import to “Let’s get British”? Why were they not looking at British anyway?
George Eustice
The reality is, though this is often misunderstood, that there is huge consumer demand for British produce in both dairy and in the meat trade. People want to know where their food came from and how it was produced. There has been growing consumer interest in British provenance. Some supermarkets, such as Morrisons, have from the beginning always tried to source all their meats from British farmers. What we are seeing from all supermarkets is that there is consumer demand for this, so they are reacting to it.
Rebecca Pow
You think that is a slightly new step.
George Eustice
I think it is. They recognise the difficulty farmers are facing and there is a lot of consumer pressure on them to help. If we can add to that pressure through writing to them and engaging with them, I am happy to do that.
Mark Filley
Absolutely. It is a bit of a collaborative effort, in truth. Obviously organisations like the NFU maintain a constant dialogue with the supermarkets in encouraging them to think about their approach. It is important to reflect on that.
Simon Hart
Is it not the case that the moment all of this changed was not as a result of a private telephone call or a firm letter from Secretary of State? It was actually when farmers were forced into a degree of direct action earlier on in the year which over a weekend projected the problem on to the public stage and over a couple of days resulted in a much more willing dialogue with the supermarkets. Was that not a clear message that you can do all the stuff you like behind the scenes you like, but what really frightened them was when their brand reputation was at risk? Did that not reinforce the need for farmers to occasionally, and reluctantly, take direct action?
George Eustice
I think you would need to speak to the individual supermarkets to ask them what the driver was behind their decision. The only thing I would say about Farmers for Action is the reality is—
Simon Hart
Was it not just that?
George Eustice
The NFU had also been in private and constructive engagement with all the supermarkets many months before that direct action took place, so I am not sure it is true to say that this happened overnight because suddenly it was on the Ten O’Clock News with cows walking through supermarket aisles. I understand your point, but I am afraid you would have to ask the supermarkets.
Tim Mordan
It is fair to say that some of examples the Minister gave had taken a long time in preparation. For example, the Tesco own-brand yoghurt had been one or two years in preparation. It just happened to be announced at a time when there was lots of attention.
Angela Smith
Farmers are suffering a cash-flow crisis. We know that the EU has introduced targeted aid to help with that, and that payments are due to be made about now. The payments will be made through the RPA, is that correct? This is about the time, as well, that the Basic Payments Scheme becomes operational. Are you on track, Minister, to make sure that the targeted aid delivered by the EU and the payments through CAP are going to be made on target—in other words, this month and in January?
George Eustice
Yes. It is worth saying that, on the dairy support payment, we had originally said that we intended to pay that in the first week of December. We actually made very quick progress on that and we started sending paying that out over two weeks ago.
Angela Smith
Yes, I saw that.
George Eustice
The last figure I saw is that up around 85% of those dairy farmers have now received their support payment already. The vast majority of those received it on day one, almost three weeks ago. The ones who have not received it are typically the ones that did not register correctly or had a change of business address, or that kind of thing. They are working through that. On the BPS I can announce that the payment window opened yesterday. We said that we would aim to pay the majority of people by the end of December. I can say that, as of close of business last night, 39% of farmers had already received their cheque. That was particularly prevalent among smaller farmers. Some people have said that we should try to prioritise smaller farmers. While we have not taken that approach, the way that it has worked out is that something like 45% of smaller farmers have already received their BPS payment. We are on track to pay the vast majority by the end of January and the majority by the end of this month.
Angela Smith
Are there any outstanding problems? I know that it is a very small margin, the 15% of dairy farmers. In terms of the Basic Payment Scheme, there will be a small minority, I suppose, that you will have problems with. Are you confident that those problems will be ironed out, both in relation to the dairy support scheme but also the more general support out there?
George Eustice
Yes. We have done all that we can to help people who will not get their payment by the end of January to plan for it. In the course of the next week, we will be writing to those farmers that we anticipate might not get their cheque until after the end of January. I had a meeting last week with all the major banks to say to them that we were writing to farmers, and that if farmers came to them with such a letter it meant that their payment was on its way but that they would need some short-term support. The banks have given me an undertaking that they will do that to help those particular farmers through. The people we are talking about are predominantly people who have common land and for complex reasons, where we have had a judicial review on the challenge to our methodology, we have had to do everything in a far more complicated way. It means that those with common land will get a higher payment but they will, sadly, get it later, probably not until February. The other group likely to face some delays is those where there have been inspections, just because the new CAP is so much more complicated. Factoring in inspection reports is going to take a bit longer than we had anticipated.
Angela Smith
In terms of any support that is needed from the banks, which I think is the right way forward for farmers in that situation, who will pay the interest costs on the loans that the farmers will enjoy access to?
George Eustice
That will be a matter for negotiation between the farmers and the banks. The reality here is the payment window runs from 1 December right up to June. We are ahead of most other member states and most other parts of the UK in getting that payment out. We will do everything we can to get it out as quickly as we can, but there is no legal obligation on us to pay everybody on 1 December. Our obligation is to pay everybody within the payment window, and that is what we are working to.
Angela Smith
You say that you are ahead of most of the rest of the UK. Can you elaborate a little?
George Eustice
That is my understanding of the data. I have not had the feedback yet, but I know that some other parts of the UK were facing some challenges similar to us in terms of payment.
Angela Smith
Scotland, Northern Ireland, Wales or all of them?
George Eustice
You might need to ask them. They might have surprised everybody and done better than we thought.
Chair
Can I put on record that, provided the Rural Payments Agency carries on as it has, and it has paid out 39% on the first day, this is great news? Without getting too political, Angela, I had to wait a very long time past June for the original Single Farm Payment that was introduced by the last Government. I suggest, therefore, that if we can carry on as we have, considering the problems we had with the computer system, this is good. Naturally, if anybody is left waiting, it is bad, but we are, I hope, learning lessons from what we had before. I look forward to that happening. We have the Director of the Rural Payments Agency coming back in January, so we shall know the exact figures then. I think the one thing that the Government can directly influence is getting the Single Farm Payment out to farmers. Everything else the Government do is more indirect.
Rishi Sunak
I just want to echo exactly what you said. To put it on record: thank you to Mark Grimshaw and his team for that welcome news—39% on day one. I think that is great. I am glad to hear everything is on track.
Chair
Yes, and to see the pressure that the Secretary of State, you and the Government have put to this, because, to be blunt about it, it was a mess. It looks like we have picked it up and it is coming out okay, so thank you for that. You get lambasted when you are wrong, so you might as well get some praise for getting it right.
Dr Monaghan
The review of the voluntary code for dairy produce was published in October 2014. Seven recommendations were made. Can you tell the progress that has been made addressing those recommendations?
George Eustice
The principal recommendation was that we should try to get more of the remaining processors signed up. It is my understanding that we have about 85% of processors or production currently covered by the code. The second thing we are interested in is whether we can get retail buy-in to encourage that, in particular whether retailers would be willing to say they would only buy products only from British code-compliant processors. When I tried that out on the retailers, and I did early on, there was resistance; there was pushback to such an undertaking. It was, however, left with AHDB to work with industry to work out how to take forward those recommendations. I am not aware, Mark, that anything has happened.
Mark Filley
That is right, Minister. The AHDB are leading a conversation with other partners in the industry, looking at the code and looking at contractual best practice. We are very conscious that it is an industry code, so it is right that they have that conversation.
Dr Monaghan
In evidence previously the Committee has heard that farmer-owned co-ops are exempt from the need for processors to give farmers at least 30 days’ notice of price changes. The current code differentiates between co-operatives and non-co-operatives. Is that helpful?
George Eustice
Alex Fergusson reviewed the code and looked at this issue. You are right. Some of the dairy companies thought that was an inconsistency. He concluded, though, and I discussed this with him at the time, that there actually was a difference between co‑operatives. That is that they are farmer-owned, farmer-controlled or they have farmers on the board. The point that he was making is where sometimes when you get a difficulty with the co-operatives is when farmers, who ultimately own these co-operatives, are not assertive enough in asserting their rights. They control it; that is supposed to be the difference. They are not like private companies that are in contractual relationships with a farmer in the same way. These are farmer-owned co-operatives, so it is a different model. That is recognised in the European milk package as well. There is a difference between a co-operative that is controlled by its farmers and a private organisation, although they do say that co-operatives should put in place equivalent measures and have equivalent procedures.
Mark Filley
That is absolutely right. There is that legal reason that we cannot do something different or go further than the EU dairy package, which sets the framework in this area. That makes the same difference between co-ops and PLCs as the code does, so the code just follows the EU legislation.
Dr Monaghan
Is it helpful that the code differentiates between co‑operatives and non-co‑operatives?
George Eustice
I think the point I made, as Mark has explained, is that it partly has to because of the EU milk package, which differentiates in that way. Is it helpful? I think there are two ways of approaching this. If a processor wants commitment and long-term dedication from a farmer, then it should be very clear on the basis on which it is calculating its price so that farmers know exactly where they stand and what they are letting themselves in for if they sign a long-term contract. If a processor is unwilling to give such an undertaking, the farmer should have the freedom to vote with his feet and walk away at relatively short notice, which would is deemed to be three months in the code. I think that is very important because I have heard, when I was on this Committee, dairy processors say, “It is not in our interest to bankrupt our farmers”. It is a very paternalistic attitude of, “We will look after them because it is not in our interest for them to go bust.” To me, that is not good enough. You have either a clear basis on which your price is calculated, or you have the freedom to walk.
Dr Monaghan
On that point, not all processors have signed up to the code, so is the code fit for purpose?
George Eustice
The ones that have not signed up are quite often some of the very small ones. I think it is fair to say that in some cases they have a very different, much closer relationship with the dairy farmers who supply them. I can understand the argument that, in some cases, with small dairies in specialist they have a slightly different, slightly closer, more of a family-type relationship with a small number of dairy farmers, and it is a slightly different situation. The recommendation from Alex Fergusson was that we should try to get all signed up, and that the more we can get signed up to the code, in my view, the better.
Tim Mordan
That is part of work that the AHDB are doing that Mark mentioned. They are looking at why there is not 100% coverage, especially of the smaller processors, and seeing what we can do to learn lessons and encourage them to sign up.
Mark Filley
There is just one other point I would make. The EU Commission has a statutory responsibility to review the impact of the dairy package. That was due to take place in 2018, but the Commission has brought that forward, so that will be happening next year, we think, in the context of this new high-level group that has been set up to look at risk management tools and otherwise supporting the industry.
Dr Monaghan
Is that likely to impact on the code, do you think?
Mark Filley
If it ends up adjusting the EU framework, then potentially it could. Obviously it would take time to feed through, but it could.
Chair
As far as contracts are concerned and the voluntary code, if you are in an area where you have only one person buying milk—there are parts of west Wales, and I am not going to name the particular processor and the particular buyer—how much influence can you have in making sure there is another contract that a farmer can find? These contracts work well when you have a robust market that is going up and you have plenty of people wanting to buy your milk, but if you live in a certain area where you have very few people able to give you a contract and your contract might run out, is there anything you can do there?
George Eustice
It is very difficult because there are remote areas where you do not have the density of dairy farmers for sufficient processors to be interested to create the competition you need. There is a danger that farmers in those circumstances can end up being price takers. We are always keen to look at options to improve processing capacity, particularly in areas where we have a good milk field, like Cumbria and the north-west, where there is potential to have a really cost-effective production model, largely grass-based, but there are currently weaknesses in the processing capacity. We are interested in potentially supporting investment in new processing capacity to help in those circumstances, but it is a challenge. I do not think I have ready any easy answer, apart from in some of those cases where it is co-operative and the farmers, perhaps following Alex Fergusson’s advice, have to be more assertive in making sure that their co-operative is well managed and they are getting a fair price.
Chair
Yes, it is very difficult for some farmers because over the years they have almost been encouraged to go down the co-operative route, and then the fact their co‑operative might not be as strong as the next one may be the problem. To what extent can you encourage another processor to go into a geographical area? Is there any way you can do that?
George Eustice
It is quite difficult, but we are, for instance, exploring whether, with the Commission, we could use the European Investment Bank as a model to lend finance for new processing capacity, potentially using funds through the Royal Development Programme on a loan basis through the EIB. Phil Hogan, the Commissioner, is quite interested in these sort of models. I think Spain has done something similar in one sector of its agriculture. That is the type of thing we are exploring at the moment.
Tim Mordan
That is absolutely right, yes. It would not be very quick, but we are exploring that.
George Eustice
It would not solve the immediate problem.
Rebecca Pow
Moving on to a sweeter note, Minister, you previously said that there was a dessert deficit in the UK, which I found very interesting. Perhaps you would like to expand on that a little bit and tell us what steps you might be taking to entice supermarkets to take more home-made British desserts.
George Eustice
I do not recall this. I am not sure whether it was me who said this or whether it was the Secretary of State.
Rebecca Pow
Ice creams—
George Eustice
Oh, it was Owen Paterson. The dessert deficit, it was—
Rebecca Pow
I think it was you, Minister.
George Eustice
Liz Truss, the Secretary of State, has made this point as well If you look at some sectors of dairy, notably yoghurt, it is an area where there is a lot more potential for us to manufacture much more. We have some fantastic companies like Yeo Valley, which does really good work and is increasingly expanding and doing better, but traditionally some of the big brands in yoghurt have been based in Germany or other European countries, and they are quite established brands and have a European distribution network. Historically, they have been quite strong here in the UK. There is more we can do on that. Of all the dairy products, yoghurt is probably the one where we could make most progress to achieve import displacement.
Rebecca Pow
Going into these markets obviously requires investment. It is not a straightforward thing that you can do tomorrow. Are the Government providing any grants or will the agri-tech technology grant offer any opportunities?
George Eustice
This type of thing probably would not be one for agri-tech. That tends to be supporting academic research or knowledge transfer from academic institutions to farm level. However, the Rural Development Programme has a strand called countryside productivity, and I would certainly anticipate that some of the calls in that would, for instance, enable individual farms to invest in dairy equipment if they wanted to make cream or ice cream or add their own bottling plants so that they could retail their own products.
Rebecca Pow
It all sounds so nice, Minister, but it is not that straightforward for a dairy farmer to do that, is it? It is very expensive, so would this not be more of a role for the co-operative groups or a middle man?
George Eustice
I think it could. As I said, when it comes to big projects, the last Rural Development Programme and Defra worked on this, supporting a big investment in Davidstow in Cornwall, which has gone on to become incredibly successful. It is where all the Cathedral cheddar cheese comes from. That was facilitated partly with quite a big investment from Defra through the Rural Development Programme at the time. We are looking at the European Investment Bank to see whether we could make available loan finance to help some of those larger processing projects. At the other end of the scale, I do not think you should knock the many good examples there are out there of dairy farmers who have decided that they were sick of being price takers and were going to try to add value and started to make their own cream or ice cream. There are many examples of farmers who have done just that and done very well.
Rebecca Pow
We have one in Taunton Deane—Granny Gothards being one. What about then trying to encourage shoppers to buy these products and to move away from all those brands we know so well?
George Eustice
There has been a big change in the past 15 years, with consumers showing much more interest in food provenance. I remember a couple of years ago Tesco had a big push to get lots of very small, niche, local products into local stores in the area. There is a small ice cream company, Salcombe Dairy, in Devon that was just supplying one or two Tesco stores in Devon. That was all they could do. That was pretty much their entire production, but there was interest from that supermarket in those locations to have really local food. They are picking it up; have seen a huge growth in farm shops over the past 15 years, an exponential rise in sales. People want to know where their food has come from, how it was produced. There is much more interest in food provenance and people’s relationship with food is starting to change.
Tim Mordan
And farmers markets, of course.
Chair
Could we move to the red meat sector now? The UK sheep sector has been seriously affected by falling farmgate prices, with average prices down approximately 20% from May to September this year. British pig prices are about 15% to 20% lower than they were a year ago. A farmer loses approximately £6.10 per pig. Are you in favour of a voluntary code for red meat that would then include retailers? They seem to be even more vulnerable to market pressures.
George Eustice
Yes. As I said earlier, I think M&S experimented with aligned contract on sheep, so there is some interest in looking at this by some supermarkets. It is harder to strike up those types of relationships in the meat sector because sheep and beef are quite a mobile product.
Chair
I think Marks & Spencer, Waitrose and one or two other and others have beef contracts.
George Eustice
Some of them do, but they will all tell me is, whereas a dairy producer, because of the nature of its business, is more likely to lock into a longer-term contract, the culture in beef and sheep is that you cut and run and get the best price you can wherever you go. It is a much more fluid market. That is largely a cultural thing. However, I am keen to do this. A year ago, we did set up a voluntary code for beef processors, and we got sign-up from most of the big players. There were two notable exceptions—Dunbia, who faced criticism recently for changing the specifications of their product at very short notice; I have written to them about that and encouraged them to join this code. The other one is Dawn Meats, which I think is based in Scotland. However, we had quite good sign-up from the others. It requires them, principally, to give twelve months’ notice of any change in specification and have transparency on charges and levies and the like. That is important. I am also this week writing to the BMPA to see if we can do something similar in the sheep sector. The beef code we put in place a year ago has worked reasonably well, though not perfectly, and we still have two big players who have not signed up yet but I think should. However, I am also keen to explore whether we could do something similar for sheep.
David Simpson
Minister, in relation to Dunbia, I know the company very well. It is just outside my constituency. May I just ask for a point of clarification on the change of specification? Was that introduced by the supermarket or by Dunbia?
George Eustice
My understanding is that it was introduced by Dunbia. I want to just clarify for the record if I said 12 months. I meant 12 weeks; it is 12 weeks’ notice if they want to change the specification. Most of the other large processors, such as ABP, have signed up to the code and they have managed, by and large, to abide by it and give farmers that notice. It is very important that farmers know what they are producing for because if they are starting to produce for a particular specification and then it is changed with two weeks to go, it is not at all fair on them.
David Simpson
There has been a price differential between the Northern Ireland meat market and the mainland here that has the net differential. Would that come under the voluntary code as well or will it be solely down to a contract that is negotiated?
George Eustice
I suspect that in Northern Ireland, because of the fact that you share a land border with the Irish Republic, the exchange-rate pressures are more acute and it makes it harder to export your own livestock into the Republic and makes you more vulnerable to imports from the Republic. I suspect that that is probably what heightens the pressure, the fact that you share a land border with the Eurozone.
Chair
Finally on the sheep-meat sector, this year we have seen prices paid to the farmers drop, and it does not seem to be reflected in the same drop with the retailers. What worries me is if the farmers are getting less, but the retailers are not dropping the price in the shops you are not necessarily increasing consumption by a lower price. If the price comes down in the shops then, technically speaking, people might eat more lamb and the price would or potentially would go back up again. To what degree are you worried that the retailers may be keeping the wholesale price lower than it should be by not lowering their prices in the shops? George Eustice If that were the case there could be a concern. I do not know whether Mark or Tim would be able to confirm it. I am not sure to what extent that is the case, but you are right. There has been increased production—production of lamb in the UK is up this year, but because of problems in the Chinese market we have had more New Zealand lamb coming in, certainly for the most part of the year. Prices have firmed up a bit since September, I understand, but it has definitely been a challenging year for lamb. I am not sure. I will definitely have to write to the Committee.
Chair
Could you supply us with the figures? I may be wrong, but I think, looking at the figures, you will find that the wholesale price of lamb has dropped a lot faster than has been reflected in the retail price of lamb, on average, so I would be interested. Do you actually have the figures?
George Eustice
I definitely have the figures. The wholesale price of lamb has gone from a peak at the beginning of this year of £4.50 per kilo down to under £3.50 now, so it has been a significant drop across the year.
Chair
I am not certain that that has been reflected in the price that the customer pays in the shop.
Angela Smith
The role of the Groceries Code Adjudicator will be reviewed next year. Can you indicate to us your thinking on what the role may look like once you have had a good look at it? Is the role going to be expanded, extended or changed in any way?
George Eustice
The first thing to say is that, although it has a lot of relevance to Defra and the farming sector, it is BIS that will carry out that review. The Groceries Code Adjudicator sits within BIS, so it will be BIS Ministers who supervise that process.
Angela Smith
So your thinking—
George Eustice
My thinking is it has worked reasonably well. It is well resourced at the moment, and it is for them to say how much resources they need. I think it is around £1 million a year at the moment to fund it. They can recommend or ask for a change to the levy if it is necessary in order to increase their funding. They have the power to fine where necessary. They have quite wide discretion to carry out investigations. When it was set up there were a lot of concerns that farmers would be fearful of reporting problems, but actually there are many different ways now. They just need a reasonable suspicion that there is a need to act. I think it has worked reasonably well, but we have always been clear and it is clear in our manifesto, that as part of that review we would like to consider its remit. Looking further up the supply chain is quite a big deal, because you are suddenly going from talking about 10 supermarkets and their relationships to tens of thousands of companies potentially. That would be a major step and I suspect it would not be done lightly. There is one thing that I have always been interested in that could be considered. That is creating some sense of obligation for processors, who are dealing with supermarkets, to also insist on the Code being abided by. It might sound an obvious thing to say, but I think that the supermarket buyers understand the Code very well. Christine Tacon says that often the issue is that processors and co-operatives acting on behalf of farmers are not assertive enough in saying, “I cannot agree to that; it would be in breach of the Code”. We need them to have the self-confidence to just gently put on the table that there are certain things they cannot agree to rather than thinking it is easier to live with it and pass that cost back down the farmers.
Angela Smith
That is interesting. We heard from the adjudicator earlier that she has experienced problems securing secondees to her office. Broadly, because of the reduction in size of the Civil Service, the Civil Service is sometimes very reluctant to provide secondees and there have been delays. Would you like to comment on that?
George Eustice
That is not something that she has raised with me and it is not something that I am not aware of. Since she has raised it with the Committee, I will certainly take that up with BIS ministers. We will follow that up through BIS. It is clearly an organisation that is hosted within BIS, and they do have officials seconded from BIS. As I said, there is an agreement around the level of levy that they need. I think they are adequately resourced at the moment, but if ever there is a feeling from the supermarket adjudicator that they need more resources, it is open to them to make that case to ministers and to have the levy changed accordingly.
Angela Smith
Having the resources is one thing, but having the staff there on the basis of the resources is another. It will impact down the supply chain to the farmers if those secondees cannot be secured at the right time.
Tim Mordan
We happen to have somebody from my team seconded there at the moment.
Chair
I think she was commenting on secondment from Defra as well. I think that is highly relevant to you.
George Eustice
I am afraid that is news to me, but we will investigate.
Chair
I have one last thing on the Groceries Code Adjudicator. What she was saying and I think we do accept, is that she is changing the culture of the way big retailers react. She does not necessarily have to investigate everything in order to get the cultural change because she is actually there. There could, therefore, be an argument for widening her remit so she may not have to do thousands and thousands of investigations. Just the fact that she is there can send a message further down the food chain. Are you considering and will you be making representations? I think it comes up after three years. Is it next year?
George Eustice
It is next year. It is reviewed next year.
Chair
Will you be making representations?
George Eustice
Defra, undoubtedly, because of the interest it has for our sector, will be involved in that review. We were clear in our manifesto we did not rule out looking at the whole remit of the Groceries Code Adjudicator, so we will do that. I know that she has been keen to encourage training and one of the things that can go a long way is training for those selling to supermarket buyers, to train them to have the self‑confidence to put on the table that some things being requested are against the Code, and that does not necessarily mean the end of the relationship with the supermarket. It need not be that if it is done the right way. Those companies that have been most effective with this have found it is really useful. What you want is not companies hiding under the bedsheets saying they are too scared to report anything to the Groceries Code Adjudicator because they are terrified there will be reprisals. You actually want the opposite. You want these suppliers to have the self-confidence and the courage to just say, “That is against the Code. I am afraid I cannot agree to it”. Government cannot do everything. We cannot always be there enforcing all the time.
Chair
We did put those points to her. She came over very competently on it, so I think it is having the right effect. It is just how quickly and how much further we can widen that.
David Simpson
Minister, how can labelling be improved to help customers make the choice of what they want to buy?
George Eustice
We have been pushing the Commission very hard since June for compulsory country-of-origin labelling on some dairy products. There are mixed views on that in Northern Ireland that I am conscious of, but in every other part of the UK I think people would welcome country-of-origin labelling being compulsory, just as we have done. We have had it on beef for over 10 years now. In April this year we pushed hard and got it introduced on pretty much everything else—pigs, poultry and lamb all now require compulsory country-of-origin labelling. That means that to say UK origin has got to be born, reared and slaughtered here in the UK. I do not accept the Commission’s argument that it would be too complicated and too difficult to do this on dairy products. It might on some dairy products, but on butter, on cheese, on some of the staple dairy products you could deliver country-of-origin labelling relatively inexpensively. We will continue to put that pressure on the Commission. The commission is very resistant to going this way, so we are not going anywhere fast on this agenda, but in the meantime we have switched our focus to retailers. It is one of the reasons the Secretary of State wrote to them; it is one of the reasons I am ringing them now. We are encouraging them to do more on voluntary country-of-origin labelling scheme that we have on dairy.
David Simpson
You made a good point in relation to the Commission. I understand, rightly or wrongly, that the Commissioner himself has been playing silly beggars over this whole thing. With labelling, as you mentioned, there is an issue in Northern Ireland. I think the issue in the past—I do not know if it is the current one—was that, when we look at labelling and the difficulty with border, that you have mentioned, if we have product going to the Republic of Ireland with a Union flag on it, it has been boycotted. It is an issue that is sensitive and I think we need to get a solution to it, but I think that has been an issue for some time. Supermarkets have been boycotted because they had a Union Jack on some of the cheese products that were going to some of the supermarkets. That is Northern Ireland.
George Eustice
I understand that you have particular circumstances in Northern Ireland that can make that challenging. Commissioner Hogan comes from Ireland. He understands Irish issues and has a rather Irish perspective on the issue of country-of-origin labelling on dairy. However, there are things we could do on a voluntary basis here in the UK, given that we have a small number of large retailers, all of which are interested in doing more to do this. The voluntary code does require that if they do not put the Union Jack on cheese, for instance, the milk also has to come from the UK.
Chair
I was going to ask you a provocative question. Why do we not just do it? Why do we have to kowtow to the European Commission? With your political experience, having been so bold in the past—
George Eustice
Mr Parish, in another two years, you might have the option to bring forward such a Bill to do that, depending on the outcome of the referendum. For the time being, it is an EU competence.
Angela Smith
There are some companies that produce British milk, cheese, yoghurt, where it is entirely sourced in the UK, but they do not voluntarily label it as such. Davidstow cheddar is Cornwall and is quite clear, but the label does not actually say that it is British. Yeo Valley, Rachel’s yoghurt—a whole range of things. I wonder whether Defra could do more to encourage companies.
George Eustice
One of the things we are encouraging is trying to get the retailers to adopt the GREAT branding, which is an incredibly successful, very striking branding that you will have seen used at the moment in international trade shows. We are keen to start using that potentially in retail settings so that we can promote British products.
Chair
In a way, there is a great advantage that retailers see in promoting a British product. With dairy, some of the problems may be the reverse side of the coin. Perhaps some are trading off a product that is not British and is largely seen to be British by another way of labelling it. Perhaps that is the problem in some respects. If we can be certain that everything that is British is labelled “British” that which is not would have to be labelled something else. That is probably one of the problems we have. Have you any idea how much of our British processed dairy products are labelled and sold as British? Does the Department have any figures on that?
George Eustice
I do not have figures to hand, but certainly the supermarkets I have spoken to, if they are sourcing British dairy products, are very keen to advertise that fact. Many of them have started to move much more of their cheddar now to being British and promoted as such. The challenge is much more in the catering sector, where clearly this is a product where people do not see the packaging. If people are eating a product with cheese in a restaurant, they are much less likely to say, “Where did this cheese come from?” than they are when they are selecting cheese from a supermarket aisle.
Chair
If you have any figures, then perhaps you could supply them to us in writing.
George Eustice
We will.
Tim Mordan
We are having discussions with retailers, and caterers in particular, about their own voluntary principles, which seem to work very well. They are very proud of them. That is all about providing clear, honest and consistent labelling. From the discussions we have had with them so far, they do not see there are any great holes to be filled in the voluntary principles. We are working with them to see if they need a boost of some sort.
Chair
That would be very good if you can.
Rebecca Pow
This is related. You have a plan to increase our exports and we have heard some good stories, but do you have targets for how much you would like to raise British produce within the next five years?
George Eustice
We do not have specific targets at the moment, but we are working on our food and farming plan. A key element of that will be looking at exports and which markets we should be opening. It is quite possible that we will have objectives in there of what we want to achieve by way of exports. The Secretary of State recently went on a visit to China, where we had the breakthrough with pork, for instance, helping Northern Ireland and other producers. We are opening, on average, around 100 markets a year for agricultural products around the world.
Rebecca Pow
Do you have enough resources for that with the cutbacks in the Department? Do you have enough man and womanpower to drive this Great British name?
Chair
Surely you ought to be asking for womanpower.
Rebecca Pow
I am sure I did say women as well. Do you have enough resource to do that because your Department keeps saying that this is going to be or way forward, which is heartening, but can you actually pull it off?
George Eustice
The Secretary of State has put a lot of emphasis on exports and opening new markets for our products. The Spending Review was not as harsh as some people predicted. The projections to Defra are that we do not have to save quite as much as had originally been predicted. We do have resources there. We have a very strong team at Carlisle who work at export certificates. We have, in the last 12 months, appointed Karen Morgan as a trade commissioner in China to help open doors there. We continue to work on this and we also get quite good support from UKTI, which we work very closely with on these projects.
Rebecca Pow
One issue that has been raised, particularly by the International Meat Trade Association, is the of licencing and certificates. If you want to get your products out there it is quite long-winded and complicated. Is there any way this area could be simplified to help move things along? Is that something you are looking at?
George Eustice
I might ask Tim to explain certification. I have had this raised in Anuga when I visited the trade fair there. Some of the meat processors raised this concern that they thought it was taking longer. Having looked at it, there is no reason it should, because we have quite a rapid turnaround. It should be within 24 hours typically.
Tim Mordan
There are two aspects to it. One is negotiating the certificate in the first place, so if we wanted to send something to China and open up a new market, we have to agree the export health conditions with the importing country. A couple of weeks ago the Minister mentioned pigs’ trotters to China. That has taken a long time. Especially with the likes of China and some other countries, it just takes a long, long time. There are very rigid processes one has to go through before getting the health conditions signed off. For some countries, politics comes into play, which means they are not always as swift as we would like to sign up. That is one aspect. In the case of China, it can take months, if not years, to get to the stage where a protocol can be signed. Then, once you have the export health certificate it needs to be issued. A couple of years ago we had some problems with delays, not necessarily due to resources; it was more to do with logistics and processes. That is by and large sorted out, as far as I am aware. We could write to you if there are any outstanding issues, but I think we are now turning around the certificates pretty quickly.
Rebecca Pow
Just one other thing. It was raised when we had the representative in to talk about the 25-year food plan. I did ask her if there was a plan for what happens if we exit the EU. Producers have spoken to me about how very complicated it would be for them exporting into the EU with all the paperwork, all the certificates and legislation they would have to go through if we were not in the EU. These are specifically food producers. There appears to be nothing in place to consider that. Is that the case, Minister?
George Eustice
As you know, the Prime Minister is focused on getting a successful renegotiation. He has written to the commission to set out his views on what needs to change, so we are very much at the beginning of that process. If we can get a successful negotiation we hope to be able to recommend staying in the European Union, albeit a reformed one.
Rebecca Pow
Is any PR being done to explain how complicated it would be for our food producers if we left? Is it our third biggest industry? I would urge that this is looked into and that perhaps people are told.
George Eustice
As with any referendum campaign, there will be two sides. There will be a stay-in campaign and a leave campaign. People will be able to hear both sides of the argument. I am sure that the stay-in campaign will be making the case for the single market and the harmonised regulation that goes with it. Equally, the out campaign will probably tell you that there would be an EU-UK partnership that would ensure that trade could continue unhindered.
Chair
Just pressing you on this: when we had the Scottish independence vote, the Scottish Government did put forward, rightly or wrongly, how they might run an independent Scotland. Surely the Department has to consider how food production and agriculture would run. Are you giving any consideration to how it would run if we were not part of EU? When it is a democratic vote, you cannot take for granted that people will vote in a certain way. It is probably a bit beyond your pay grade.
George Eustice
As I said, we are focusing on Plan A, which is to get a successful renegotiation before we start talking about a Plan B.
Chair
But there is not a Plan B at the moment.
George Eustice
There is not a Plan B that anybody is willing to talk about at this stage while we are focused on Plan A.
Chair
That was a bit of an unfair question, possibly. Now, a hardy annual is about the splitting of the sheep carcass. A lot in the industry now believe there is no need to split the carcass. It is very much part of the old BSE, TSE regulation. To what extent can you do anything about that? I think there are ongoing talks, but what is happening?
George Eustice
This is something we are keen to try to move forward. I chaired the industry analysis that there is no risk to human health from this now. The TSE regulation was a very important plank of regulations because it was part of a response to the concerns over BSE, but, in the event, the science is now pretty overwhelming that scrapie cannot cause CJD in the way that BSE, its sister disease, could. We think, therefore, this is now over the top. The so-called two-tooth rule—if you have two teeth, then suddenly you need to strip the carcass—is rather arbitrary because tooth eruption can happen at different times, depending on diet and stress on the animal, depending on the breed, even. That is, therefore, a very arbitrary link. There are two ways of approaching it. One is to do what countries such as France and Spain do. They have a slightly different technique where, rather than splitting the carcass, they—it sounds rather horrible—have a sort of suction device with which they chop the tail off and pull the spinal cord out. The industry looked at this two years ago and the processors in particular were not very enthusiastic about going that route because it would entail additional time. The other alternative is to have a different measure based on perhaps a calendar year or a particular age, which is what the NFU has been promoting recently. I said that I am certainly supportive of exploring that. I had a meeting with Tim Bennett of the FSA two or three weeks ago to discuss this. I know that the FSA will be engaging the Commission on this to see if we can get some progress.
Chair
Again, especially as far as the export market concerned, it would very much have to be something that is agreed by the Commission.
George Eustice
It would. We could change the domestic statutory instrument to do what France and Spain do already, but to move away from the so-called two-tooth rule you would need a change in the EU regulation or at least some kind of tolerance and acceptance of what we were going to do agreed in advance.
Chair
I have one final question. How would you ensure that the work of the farm inspection taskforce will co-ordinate with local authorities to ease regulation burdens on farmers? Particularly, it is trying to get one inspection, the one-stop shop we keep talking about. We have made progress, but what more progress can we make?
George Eustice
We are working on this concept of a single farm inspection taskforce. We are starting with the agencies controlled by central government, so we are getting the Environment Agency, APHA and the RPA together to try to establish a kind of triage process so that there is a single point of entry rather than having several inspections in one year. You might get one organisation that co-ordinates everything, all visits in one go, so that you reduce the impact on farms. We are also considering the extent to which APHA might be able to do some of the livestock checks that the RPA currently does so we can reduce duplication. We are also interested in whether we can do more by way of recognising that people are signed up to private accreditation schemes, and reflect that more than we are able to at the moment in the inspection regime. When it comes to local authorities, it is our aim that eventually we would get them into this process as well. However, the NFU did a report at the end of the last Parliament that concluded that, when it comes to local authorities, the average farm gets a visit from the local authority inspectors about once every 10 years, so it is patchy. In some cases, some people would say maybe you do not get as many, but there are things like animal feed inspections. I think local authorities trading standards do animal feed inspections, so obviously we would particularly want to get those and some of the animal welfare inspections that they do within that process.
Chair
The figures we have from the NFU said that local government were responsible for 24,000 to 25,000 inspections per year. That is quite a number of inspection and would be higher than the once per 10 years on 114,000 farmers. There are a few more farmers in the total.
George Eustice
There would be more than that. I think it depends how you count. If you take out such things as food and feed inspections, then the level of inspection is actually very low. I can check the figures. My memory is focused on the enforcement report that the NFU produced at the end of last year. One of the striking things was that they said the number of inspections by local authorities was lower than most people thought.
Chair
You have been very generous with your time. There is Question 18, on which you could perhaps give us some written evidence. That is: “Was there a delay in signing off the marketing of the AHDB promotions? Should we be promoting meat, and lamb in particular, more than we have been?”. If you would be happy to give that in writing, we would be happy to receive it. I thank all three of you, and the Minister in particular, very much for being so generous with your time. We have put you through your paces well today, and thank you for answers. I thank the members for hanging on through this day, on which there is a very important debate going on in the Chamber. Thank you very much. Oral evidence: Farmgate prices, HC 474 1