The British Pig Industry
We should not underestimate the size of the industry. The value of pork retail sales in the UK is about £8.7 billion, outpacing chicken, beef or lamb. This is an important industry, but I am sorry to say that it is in trouble. Just three weeks ago, pig farmers from our constituencies and across the country flocked to Westminster to draw the Government's attention to the plight of their industry. Many MPs will have signed the 16-foot sausage in Whitehall and heard the rousing rendition of the industry anthem "Stand By Your Ham", all in support of the cry, "Pigs are still worth it".
I say "still worth it" because the Minister and other colleagues with long memories may recall attending the 2008 "Pigs are worth it" rally. Like this month's rally, the 2008 gathering was a response to a sharp increase in feed costs that left the industry on the brink of collapse. After the 2008 rally, led by the much-missed standard-bearer of the "Pigs are worth it" campaign, Winnie the pig, the industry returned to profit in 2009. That breathing space allowed farmers to recoup some of their losses and take the opportunity to invest in improvements to production and infrastructure.
Despite fluctuations in profit margins, the outlook remained positive, at least for a few months, until last August, when the industry was driven into crisis once more. The fleeting period of profitability was not long or profitable enough for pig farmers to recoup the severe losses that they sustained in 2007-08.
Mr Greg Knight (East Yorkshire) (Con): I am grateful to my hon. Friend for giving way, and I congratulate him on securing the debate. Does he agree that one problem has been our loose labelling law? Many consumers wanting to support the British pig farmer by buying British pork have not always known when they were doing so, because it is possible to package pork reared overseas as British if it is merely processed here.
Mr Bacon: My right hon. Friend is correct. He might have seen my Food Labelling Regulations (Amendment) Bill, which is scheduled for Second Reading on 1 April. Should the Government wish to take this opportunity to announce that they will give it Government time, I would be only too pleased to hand it over to officials to be steered through the House. Yesterday, I was encouraged by a phone call from the Department for Environment, Food and Rural Affairs asking to see a copy. It is important to say that there has been some improvement in labelling in the pork sector, but I still believe and have always maintained that the only viable long-term answer is a mandatory regime. We already have mandatory regimes for many other foodstuffs; we should have one for pork and pork products as well.
The inexorable slide into loss-making as rising feed prices have affected the industry has begun to cripple pig farmers in this country once again. The price that pig farmers pay for feed has more than doubled since 2010. Feed costs are rising faster than during the crisis of 2008, and I am afraid that the omens for the future are not good. BPEX-the British Pig Executive, which is the industry body-estimates that feed, which is generally made up of a combination of wheat, barley and soya, remains the single largest cost for British pig producers and accounts for 77% of pig farmers' costs, up from 60% in 2009. BPEX expects food costs to remain historically high this year, and possibly beyond.
That gloomy forecast is being borne out by recent movements on the international cereals market. The Food and Agriculture Organisation of the United Nations expects a tightening of the global cereal supply this year, driven by growing demand after the slump in world cereal production in 2010. According to the FAO, export prices of major grains have risen at least 70% since February last year, and global cereal stocks are expected to fall sharply due to a decline in supplies of wheat and coarse grains. Market uncertainty after the Japanese earthquake caused prices to fall from £214 a tonne in February to £170 a tonne last week, but as of last Friday, wheat prices had climbed back to £195 a tonne. As one might imagine, recent increases in the price of pig feed have had a severe impact on the cost of pig production, which has risen to £1.64 a kilogram.
However, although production costs continue to rise, the dead-weight average pig price-the price farmers receive for the pigs they produce-has fallen during the same period. In February, the DAPP stood at £1.35 a kilogram, 29p short of covering pig farmers' costs and 12p a kilogram below the July 2010 price of £1.47 a kilogram.
Britain's pig farmers started 2010 in a state of cautious optimism, their hope to rebuild based on the reasonably steady costs that they faced and their improved returns in 2009, but by September 2010 the industry had returned to making a loss, and by January 2011 the cost of production had risen by one third compared with 2007. According to BPEX, a farmer sending 200 pigs to slaughter in January this year stood to lose £4,500 in a single week. The pig industry is facing overall losses of £4 million a week, and farmers are estimated to be losing more than £21 on every pig produced.
lthough the rising price of feed is undoubtedly a major factor in the pain being suffered by British pig farmers, it is far from being the only factor. The pressure on Britain's pig industry caused by rising feed prices is being amplified by what can only be described as the decoupling of the supply chain. For a supply chain to work properly, manufacturers, processors and retailers must work collaboratively to bring down its costs effectively and sustainably. However, it is clear that the pressure of high feed costs is not being shared across the pigmeat supply chain. If anything, the reverse is the case. Feed manufacturers have passed on the rise in the cost of cereals to their customers-that is, pig farmers-but the costs of rising prices have stopped with farmers and are not being passed up the supply chain to producers and retailers.
The disconnect in the pigmeat supply chain can best be illustrated by the relative performance of its constituent parts in the 12 weeks up to the end of January 2011. In that period, British pig farmers suffered losses estimated at £35 million, which equates roughly to £416,000 every calendar day. However, over the same 12-week period, the processing sector made an estimated profit of £100 million, or just over £1 million a day. Retailers, including Britain's supermarkets, which set much store by their support for British farmers, enjoyed combined profits of £192 million from pork and pork product sales, equivalent to daily profits of £2.3 million.
Andrew George (St Ives) (LD): On the point about retailers, particularly supermarkets, the hon. Gentleman well knows that we hope the Government will shortly introduce the proposed supermarket adjudicator Bill. Although that cannot and should not be a price-sensitive or price-setting mechanism, it will address the issue of fair dealing. Does he agree that the sooner we pass such a Bill, the sooner we can help not just pig farmers, but many other farmers and suppliers to supermarkets?
Mr Bacon: I agree. We all use supermarkets because in many ways they are efficient, but we love to hate them because they are very powerful. We are not discussing perfect competition. People sometimes speak of supermarkets as though they were speaking of the market for foreign exchange, but this is an oligopolistic arrangement. Supermarkets have large amounts of power that they do not always use in the right way, and sometimes they misuse that power. I welcome the Government's proposals for an adjudicator.
Mr Keith Simpson (Broadland) (Con): I congratulate my hon. Friend and neighbour on introducing the debate. If he will pardon the pun, this is like "Groundhog Day" for other hon. Members and for me, as we have been debating the pig industry for at least 10 years. Although I do not want to turn supermarkets into devils, it seems to me that they stand condemned in two ways. The first relates to driving down costs and forcing down farmers' profits, and the second is the labelling itself. They are better now than they ever have been, but all too often, as my right hon. Friend the Member for East Yorkshire (Mr Knight) pointed out, they put the Union flag on something and it is only when one reads the small print that one realises that it is imported bacon or ham.
Mr Bacon: My hon. Friend is right. There have been some egregious examples involving some of the best known and highly admired supermarkets. Marks & Spencer, for example, was guilty of such practices, but I think that there are fewer of them now. The use of Union, English and Scottish-I was in Scotland for Christmas-flags in supermarket aisles is better and more appropriate, but we are not there yet and he is right that there is still work to do. Some supermarkets are leading the way on doing what I think would be the right thing, both for themselves in the long term and for the industry. I shall mention Morrisons in particular in a moment.
There is no doubt that supermarkets in general seem to be using their part of the supply chain to insulate themselves against the increasing costs of the production of pork and other pigmeat product, such as bacon, ham and sausages.
Elizabeth Truss (South West Norfolk) (Con): Is it not a shame that we import 50% of all pig products? Given that the Chancellor has just given a Budget for growth, would it not be a good idea to try to become a net exporter of pork products, particularly from Norfolk, which is where my constituency, as well as that of my hon. Friend, lies? There does not seem to be a level playing field on welfare internationally to enable us to increase our exports and decrease our imports.
Mr Bacon: My hon. Friend is absolutely right-there is not a level playing field. BPEX has done a lot of work on the issue and estimates that 70% of the pork imported to this country is produced under animal welfare standards that would be illegal here. In other words, 30% of what comes in meets our standards, and 70% does not.
Price promotions in supermarkets are a particular problem. Tesco ran a price promotion in January in what are called the gondola ends-the ends of the aisles-and it was very successful because of its high visibility. Such promotions can increase sales by up to 200%. If a supermarket has an uplift of 200%, not only will it want to keep the promotion going for longer, but it will need more product. I fear that, at such times, even if supermarkets such as Tesco are adhering, or say that they are adhering, to the standards for their imports, suppliers will be under pressure and will get the product from wherever they can, and the standards will not always be adhered to.
People may be familiar with the concept of stalls and tethers, which are banned in this country. Tesco wrote to me this morning pointing out that they will be banned in the European Union, but they will not-an allowance will still be made for the use of stalls and tethers, although the period will be restricted. Even so, that will not be introduced until 2013, which means that if one visits a British farm and sees a stall and tether, one will know that it is illegal, whereas if one visits a farm in other parts of the EU, one will still be able to see stalls and tethers and will then have to audit whether they are used for more than four weeks. I really do not know how that can be successfully audited. There are still big issues to resolve.
I have no doubt that the behaviour of some supermarkets has helped to suck in imports, which has had the effect of keeping the lion's share of the profits at the customer-facing end of the supply chain, and of ramming the rising production costs on to pig farmers.
Andrew George: It would be interesting to know whether the promotional campaign to which my hon. Friend referred was effectively being funded by the suppliers themselves. I am afraid that, too often, the so-called promotional campaigns of two for the price of one are largely or mostly funded by the suppliers, not the retailers.
Mr Bacon: Of course, that is a common problem with very powerful retailers. We have seen it in the book trade-many book publishers have been driven under by that sort of practice by some book chains. We know that big factors in the marketplace mean that it is constantly dynamic-no static position, even if it holds for a while, will hold for ever-but that is another thing that the adjudicator needs to look at, because it is an exercise of market power that distorts in a way that could sometimes be thought of as anti-competitive.
Retailers have the power, if they choose to use it, to make a difference by using their stocking, labelling and pricing policies to promote the prominence of British produce and to ensure a fair return for British farmers, including British pig farmers. I pay particular tribute to Morrisons, which is the only one of the big four supermarkets to source 100% of its fresh pork from Britain. Morrisons has also committed to using British-only meat in its own-label sausages, and earlier this month the company's chairman, Sir Ian Gibson-I am led to believe that he is no relation of the former Member for Norwich North-wrote to me about Morrisons' backing for British farmers. He said:
"We recognise the pressure pig producers are under and will continue to be strong supporters of the sector. We are the only major supermarket to have such close control over the provenance of its meat, buying pigs directly from Britain's farmers and processing the pork ourselves".
"This results in exceptional quality, freshness and value. It also enables us to offer industry-leading support to British farming. Our commitment to source 100% British fresh pork is unique among the major supermarkets and in 2011 we expect to reach the milestone of purchasing a million pigs a year from British farmers".
That is extremely good news. Sir Ian added:
"This policy is popular with customers who we know show a preference for British produce if the price is right. Our combination of British provenance and quality at an affordable price sees us overtrade on pork-that is to say, our share of the pork market exceeds our overall market share".
I think there is a lesson there for other supermarkets. Sir Ian continued by saying that not only are Morrisons
"major customers of British farming but we consistently pay over the market price for our pigs and we always have done. This was reflected in the results of an independent satisfaction survey of our pork farmers last year, with over 70% responding that they were happy at the price paid by Morrison".
I salute Morrisons for backing British farmers so wholeheartedly and I wish them every success in their million pig milestone
It would be remiss to not also mention supermarkets such as Waitrose, Marks and Spencer, Aldi, Lidl and the Co-op, which now all source 100% of the fresh pork that they stock from British pig farmers. All of that pork displays the red tractor mark, which is an independent logo that guarantees that the food it adorns was sourced from farms and food companies that meet Britain's high standards of food safety and hygiene, animal welfare and environmental protection.
Such support, however, is not constant throughout the retail industry. On the day before the "Pigs Are Still Worth It" rally, Mr Andrew Opie, food director at the British Retail Consortium, commented in a press statement entitled "Pig farmers do have retailers' support":
"Retailers know some consumers prefer to buy British. They're already doing what they need to to look after their supply chain and secure a sustainable UK pig industry".
I am afraid that that will raise a hollow laugh from many pig farmers. Mr Opie goes on:
"Supermarkets do not generally pay farmers directly for their pork."
Well, that will be news to Sir Ian Gibson, because that is exactly what Morrisons does. Mr Opie concludes by asserting that supermarkets have no direct relationship with farmers. Unsurprisingly, the BPEX chairman, Stewart Houston, described those comments as "complete rubbish", before adding that supermarkets
"dictate prices to processors who pass those prices directly to producers. It is a very short supply chain and they have nowhere to hide. How much money there is in the supply chain is determined by the price supermarkets pay. It is as simple as that."
Mr Keith Simpson: Am I right in thinking that supermarkets or their agents frequently inspect farms for hygiene, health and animal welfare?
Mr Bacon: They certainly do. They inspect or employ auditors independently to inspect British farms and say-Tesco has been saying this in correspondence with me over the past few days-that they do the same in relation to their foreign supply chain. I fear, however, that, when they have promotions at the discounted end of the market, that audit trail may run out and the provenance will not always be as clear as it should be.
Hon. Members may be disturbed to hear that there is evidence to suggest that British pork products are quietly being withdrawn from the shelves of our largest supermarkets and displaced by imports. Data from Kantar Worldpanel shows that, over the past three years, the volume of pork on sale in British supermarkets that does not clearly identify a specific country of origin has increased, with a spike in sales of non-British pork having been recorded recently, in the past few months of this year and late last year.
Families in my constituency and across Britain who make their living from farming pigs may find their weekly shop at the local supermarket increasingly dispiriting. In-store observation by BPEX suggests that an overall increase in pork sales is being driven by promotional sales of imported pork that does not carry a quality mark. Imported pork has replaced British pork carrying either the quality standard or the red tractor. Where major supermarkets have run promotions on pig products that are multi-buy packs or are heavily discounted on price, it is mostly imported pork. According to BPEX, just one in five pork loins promoted by Sainsbury's two weeks ago was British, Asda's three for £10 promotion only included imported pork, and anecdotal evidence from BPEX members suggests that Tesco's recent in-store promotion on the so-called gondola end-end of aisle-of three pork products for £10 also featured only Danish or Dutch meat.
That is borne out by Pork Watch, the bi-monthly survey of supermarkets conducted by representatives of the National Pig Association and by Ladies in Pigs. The most recent survey found that the overall number of pork facings-the shelf space allocated to a product line-has fallen from 80% in November last year to 77% in February, which is the lowest figure for the past 12 months. Facings of the red tractor or the quality standard mark for pork-both indicators that British welfare standards have been adhered to-have also fallen slightly from 75% to 73%, after making small gains last year. It is worth taking a particularly close look at Pork Watch's findings on Tesco: it found that facings of "British" on Tesco pork had tumbled from 73% to 59% and red tractor facings had slumped from 63% to 55%-a fall of 14 percentage points in the British category, which is the largest decline of facings of "British" on pork in any British supermarket. About half of the pork on Tesco's shelves does not bear the red tractor, which makes it unlikely that imported pork meets the UK's welfare standards in all cases, despite Tesco's claim that its overseas suppliers' standards "broadly equate" to red tractor standards.
Let us be in no doubt that the situation facing British pig farmers is extremely serious. Of course, neither retailers, individual farmers, their industry bodies nor Members of Parliament can do much to influence world commodity prices. Feed is expensive because cereals are expensive, and that looks unlikely to change in the near future.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con): I hope that my hon. Friend can help me on one point. Presumably, the story he is telling ends with pig farmers leaving the industry. If that is the case, is the situation not serious for not just pig farmers, but for agriculture and indeed rural Britain as a whole? I suggest that problem goes much further than pig farming.
Mr Bacon: It does go much further than pig farming. People are beginning to exit the industry and many are worried about whether they can expect to still be in the industry by the end of this year. My point is that if we have a stronger pig farming and farming sector, that is good for Britain, for the rural economy and for the economy as a whole, and that that is good for the Tescos of this world and their like. If the supermarkets took a longer-term view, rather than just worrying about the next three months and the next quarterly results, it would be better for them in the end. It is not an accident that Morrisons' fresh meat sales have increased by 12% since it announced its 100% British pork policy. I urge supermarkets that are not currently doing so to take a more pro-British stance. It is incumbent on institutions-and such companies are institutions-of the like, size and power of Tesco to do more than just think about one set of shareholders; they have to think about the entire community of stakeholders, of which they form such a powerful part.
Let me give an example. Tesco states on its website that it supports British farmers, and hon. Members will have probably seen the signs as they go into Tesco showing that it is the biggest customer of British agriculture. On its website, it identifies 27 farmers whom it supports: five produce apples and pears, five produce cheese, nine produce either beef or lamb or a combination of the two, one produces watercress, one produces rapeseed oil and one produces milk. There is not a single pig farmer among the 27.
Mr David Ruffley (Bury St Edmunds) (Con): Will my hon. Friend explain why the economics mean that Morrisons can make a profit by sourcing 100% British pork when Tesco and the other superstores he has mentioned cannot? What is the economic reason he has divined for that?
Mr Bacon: My hon. Friend makes a very interesting point because one might think that if everybody could do it, they would. My point is they can do it and they should. The economic case is that when customers see that supermarkets, such as Morrisons, are backing British farmers and backing Britain, they are disproportionately likely to go and shop in those shops and buy those products. They want to see that the supermarket that they endorse by their shopping decisions-it is their spending the money in their pocket that means a supermarket is profitable-is also helping to back our community, back Britain and back British farmers. When people see that, they respond. That has an economic effect of its own, which is why Morrisons' policy has proved to be so successful. Other supermarkets should follow suit.
The even broader point is that, even if the effects were cost-neutral in the long term-I do not believe for one moment that they are-the supermarkets should recognise that they are British supermarkets and they are succeeding only because we have allowed the planning permissions to go through, sometimes against people's better judgment, and enabled them to have those locations. It is because we go into those supermarkets and spend our money that they are able to make such profits. I come back to the question: what kind of market are we talking about? We are not talking about the market for foreign exchange; we are talking about enormously powerful players, and with enormous power comes enormous responsibility. I am asking the supermarkets to exercise that responsibility in a more measured way in the interests of this country. I do not want to rant even more on that point, so I shall stop there.
It is certainly true that some British supermarkets can and do support British pig farmers, but only one of the big four sources 100% of its pork in Britain. That is not good enough. In addition, the biggest of the big four also seems to be slowly turning its back on British farmers, offering cheap imports in the misguided belief-promoted by the British Retail Consortium but disproved by Morrisons-that British shoppers do not care where the meat comes from as long as the price is right. Retailers will no doubt respond that they have to meet the variable demand of their customers and that in the current economic climate price has to be a factor. However, I question how much of the instability in the pigmeat supply chain is due to fluctuations in customer demand on price and how much is caused by the internal operations of the supply chain which, as I have set out, is entirely skewed in favour of retailers.
This is not simply a case of backing our heroic pig farmers against the evil supermarkets because, as we have heard, some of our supermarkets are trying to do the right thing. Of course it would be foolish to state that shoppers will buy British whatever the price, but we also know that it is possible to offer consumers British food at high standards of quality and animal welfare all at an affordable price. Morrisons have shown that that is possible and, if the producers can get a fair price for their pigs, we will have the best of all possible worlds.
When feed prices peaked in 2008, it took six months for prices to fall back to a sustainable level, during which time many pig farmers had left the industry. Today, three-quarters of the remaining farmers say that they too will get out of the pig business if things do not improve within the next 12 months. That would be a tragedy for not only pig farmers, but processors, retailers and consumers. British consumers want to buy British produce because they want to support British farmers and they believe that it is the best. I have not wavered in my belief that a mandatory country of origin labelling regime, combined with the widest possible support for the red tractor and quality standard marks, will give shoppers the information they need.
The Minister acknowledged in the House last week that the pig industry receives no subsidies. That is quite correct and I am certainly not calling for that to change. However, if the Government value having a British pig industry that sets the highest standards for quality and animal welfare, they cannot simply shrug and believe themselves to be powerless in the face of global food prices and grocery behemoths. The Government must encourage the pigmeat supply chain to work as it should, so that pig farmers can make a living, not a loss. Pigs were worth it in 2008. They are still worth it today.
23 March 2011
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