BACON INDUSTRY (Hansard, 17 November 1971)

§ Mr. Mark Hughes (Durham)

There can be few subjects which would arouse the House at this hour more certainly than that of the bacon stabilisation fund. A more delicate, difficult point for British farming than the future of the pig industry cannot readily be thought of. No sector within British farming is more sensitive to input costs and/or output prices than pigs. The ability of substitution as between the cutter, the bacon pig and the heavy hog defy imagination; and yet it is because of this that anything the Ministry do in this industry has a particularly immediate effect.

Over a number of years western countries have experienced what is now known as the pig cycle—a highly volatile movement in the price of pigs, quantities of pig meat produced and the prices received by the producers of such products. Governments here and abroad have tried a number of expedients to dampen both the amplitude in numbers in the cycle and the size of the price fluctuations involved.

Within this the bacon stabilisation fund has played a crucial role. It was introduced, I think, in 1967. Since then the concept has been twofold—that the share of the total market for home produced bacon should be increased from some 34 per cent. to at least better than the Danish proportion and, if possible, be increased to 50 per cent. or the magic number of 51 per cent. The policy of Conservative Members when in Opposition was to press upon the then Minister that to save on imports we should increase the share of the bacon market taken by home produce. There has never been any question of this being a partisan issue. It was always intended that British bacon should become a more common feature of the breakfast diet of our people.

The stabilisation fund was arranged to aid two categories of people, the bacon 592 producer and the bacon curer. The scheme has operated within various limits over the past four or five years. Any excess pigs produced beyond the international agreements, arranged from one April to another, had to be taken off, either into the cutter or heavy hog markets. This was clearly part of the whole concept of both the bacon stabilisation fund and the international bacon sharing agreements.

So we have a product that is highly volatile and sensitive and a scheme intended both to dampen the amplitude of cyclical behaviour and to increase the British producer's share of the bacon market. In the past 15 months, under the guidance of the present Minister, the British pig producers have been encouraged on successive occasions to increase their output. There has never been any suggestion, whether in the interim guaranteed levy changes in October, 12 months ago, or in the White Paper on the 1971–72Price Review that all was not well, although there was a hint in the Minister's statement of 21st April, when he said that with pigs one can never be sure. But within the middle band of uncertainty the Minister made no suggestion that throughput or output should be decreased.

Now, as between the June census figures and those of September, there is solid evidence that in-pig gilts have diminished in number by 26 per cent. The number of sows may have increased marginally; when we would expect 6,000, we have 7,000. The evidence is overwhelming that we are on the top end and tending to flatten out of the pig cycle. The Farmers Weekly said: The downward side of this pig cycle looks like being steep. Armed with that information, that already the downward turn of the pig cycle was imminent, the Minister chooses the precise moment to inculcate uncertainty into the whole of the British pig industry. His speech of 21st October cannot be read—whether in terms of the Press release in the Library of the House or in the Press statements to the national and farming specialist Press at that time—as other than being a suggestion that it was necessary to the pig industry to look very closely indeed at the quantity it was producing.

It was also saying a lot of other things. In particular, however, it was saying that 593 the quantity of bacon being produced was excessive and that the price was therefore too low relative to Danish prices, the assumption being quite clearly that because we were producing too much bacon, we were causing the price to fall.

Does the Minister think that this is an incorrect assumption to have made—that from his 21st October speech it was not quite clear that the gap between the price of British home cured bacon and Danish bacon required a reduction in the throughput of British A1 and other bacon by about 500 tons a week to "firm up the market", to borrow the right hon. Gentleman's phrase?

I agree that when he made that speech the gap was £50 a ton, but he did not say what he well knew—that the gap was highly temporary. It had not occurred in any week before, nor has it occurred in any week since. He allowed the national Press to believe, I believe intentionally, that it was a natural level of gap.

Since then the price of Danish bacon has increased by £25 a ton and the price of A1 British bacon has increased to an all-time record of £380, only £25 less than the Danish price. The right hon. Gentleman may think that this is because the throughput has diminished. I simply ask him to check the chronology of his sum because that belief is totally unsupportable.

The price has narrowed without a diminution in the throughput of wholesale British bacon coming on to the Market. The quantities of British bacon now commanding a price difference of only £25 are no less than the quantities of British bacon suffering a £50 margin four weeks ago. The quantity currently being cured has diminished, but not the quantity coming on to the market.

Against that background, what do the Government do? With the number of pigs tending to flatten out, if not decline, they pick this very moment to bring about a diminution in the bacon throughput. There is a simple problem in respect of those pigs which are already farrowed: they fall into either the cutter or the heavy hog market and by so doing they disturb the price level and weaken both the cutter and the heavy hog prices. The result can only be that every pound the Minister saves on the bacon stabilisation fund he loses on the guarantee.

594 An analysis of the last six years shows that there is a correlation between estimated guarantee prices and outfall stabilisation prices and guarantee prices together. When stabilisation prices are high, guarantee prices come down. If by the enterprise the Minister is now engaged in of persuading, under duress, the bacon curers of this country to be most strict in their contracts he increases the weight of meat coming on the non-bacon sector, he lowers the price there. It may be masked between now and Christmas by the natural seasonal upswing in pork and such markets at this time, but in the immediate post-Christmas period there is a very considerable risk that he will by his action undermine the other sector than bacon prices.

There is one further factor which needs to be taken into account. If any bacon producer is to compete with the Danes and is to use imported feedstuffs, these now bear a levy of £2.50 per ton for maize. I accept that the bulk of pigs produced in this country are fed on home-produced barley, but, unless the concept of levies is not what the Minister suggests, bacon producers are faced with higher costs. At a time when costs have been intentionally and artificially raised to the pig producer by the Ministry by its levy policies, when for autonomous, cyclical reasons the pig circle is on the downswing, the Minister chooses to insert an element of uncertainty in the minds of the pig farmers.

What I hope will come out of this debate is a statement that the pig farmers will be given early next spring—not now, because that is beyond the Minister's immediate control—some indication of the Minister's policy so that they may plan ahead. Over the last four weeks they have been put in a state of great uncertainty, and the Ministry owes them a clear and simple statement on its views. Is the pig industry to expand or contract? Are our pig farmers to get a reasonable return from the Government through the bacon stabilisation fund?

§ The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Anthony Stodart)

I am grateful to the hon. Member for Durham (Mr. Mark Hughes) for initiating 595 this short debate on the bacon industry. It is a subject we do not often get the chance to discuss in this House. I am bound to say that I think that it is due, perhaps, to the delicate and sensitive way in which he has tackled what he described as a difficult subject that we have a slightly larger attendance for the Adjournment debate than that to which one is accustomed. It is, of course, a subject of considerable importance.

The British market for bacon is worth between £250 million and £300 million a year. Between us, we and the Danes account for nearly 90 per cent. of the market, and the rest is shared between six or eight smaller suppliers.

Round about one-third of our pigmeat goes into bacon, much of it produced to very exacting standards, and the other two-thirds is divided equally between the fresh pork market and manufactured meat products.

This can, as the hon. Member said, cause problems of balance, and do not every Government know it? If too many pigs are diverted to bacon, the other users can be in trouble. Against that there can be snags the other way. If there is a strong market for pork, the bacon curers can be in difficulties, especially if the price of bacon is depressed.

This can happen because all the main suppliers of bacon to our market support their pig and bacon industries by one means or another; and except for brief periods bacon has been sold for years on our market at below its economic cost of production. This was the situation which arose in 1966 and forced the previous Government to introduce the Bacon Stabilisation Scheme. Both sides of the House accepted its basic purpose, which was to provide some stability for the industry in the light of the fluctuations to which the market was subject.

The scheme was intended to be self-balancing, with the industry receiving Exchequer support when it was making losses, but paying levies back to the Exchequer when it was working at a profit. As things have turned out this has not worked.

It is worth looking at what has actually happened since the scheme began: in 596 1966–67, 207,000 tons of bacon home-produced, 34 per cent. of the market, selling at £4 a ton below Danish; subsidy for the three or four months involved, £1.5 million. Last year, 262,000 tons, 42 per cent. of the market; but the gap in price between it and Danish widened to £35, and the subsidy was up at £22 million. Recent production at a pro rata level of 290,000 tons, 44 per cent. of the market, Danish getting a premium of over £50 a ton; and a subsidy of about £20 million again.

The hon. Gentleman said that the £50 had never happened before and has not happened since. Of course, there was, as I think I have shown, a continuous trend towards the £50, and the fact that it has not happened since is because the action taken by my right hon. Friend has worked. Up to the end of the last financial year over £43 million of taxpayers' money has been spent on bacon stablisation payments, and, as I have said, there is likely to be nearly another £20 million this year. In return, over the whole period the Exchequer has received levies amounting only to £56,000.

As I said a moment ago, we recognise that the bacon sold here by our competitors is all too often priced at below its economic cost, and we shall continue to take a reasonable view of this, but we do not think that it is good for the industry to rely on taxpayers' support to the extent which I have described.

There were, quite frankly, fundamental weaknesses in the scheme which we have had to put right. As it was in its original form there was very little incentive to the industry to produce and sell bacon efficiently, and to keep an eye on the market, as the Government were going to bear 90 per cent. of any loss made. That is not the way to build up a strong bacon industry.

In its recent report the Public Accounts Committee commented on this situation. It said: Your Committee cannot feel satisfied that the heavy expenditure has produced value for money either for the taxpayer or for the consumer. I know it has been claimed—and the hon. Gentleman made this point—that these figures are unrealistic, and that, through savings on the pig guarantee, the true net cost to the taxpayer is little or nothing. I am afraid I cannot accept that. 597 I recognise that in many of these years actual expenditure on the pig guarantee has been less than in the post-Review estimates. However, this cannot be wholly, or even largely, attributed to bacon stabilisation payments. In the first place, as curers take only one-third of the pigs, they can hardly look upon Exchequer savings on all pigs as available to them. Secondly, expenditure on the pig guarantee is notoriously difficult to forecast precisely. We accept that a strong demand for bacon pigs helps to provide a buoyant market, and we take this into account, but we must recognise that the greater part of the expenditure on the bacon stabiliser is, in present circumstances, a net addition to public expenditure.

In their comments on the report the Government have said that they share the Committee's concern at the rate of net expenditure on the scheme. Indeed, before the report had been produced, my right hon. Friend announced to the House, on 20th April, in a speech from which the hon. Gentleman made one or two rather selective quotations, that changes had been made in the scheme so as to stimulate closer attention to market conditions and reduce the cost to public funds.

I admit that these changes took some months to work through. Expected United Kingdom production under the Bacon Market Sharing Understanding for the present year was set at 265,000 tons—and the Goverment have an obligation to use their "best endeavours" that this figure will be kept to.

Until about a month ago, however, production here was running at a rate of over 290,000 tons a year and, as a result, it was being sold very weakly, and at heavy cost to the Exchequer. Even so, the arrangements made in April, under which the industry accepted more of the financial responsibility for over-production, were making the industry realise that it would have to pay more regard to what the market needed.

The industry recently asked for increases in Exchequer payments to reflect the higher quality bacon being produced and the increases in the costs of curing since the arrangements were introduced. In the circumstances I have described, my right hon. Friend decided—and I am certain he was right to do so—that he 598 could not defend to this House an increase in the rate of public expenditure on this scheme. On the other hand, he did not think that precipitate action was required. So, as he told the House on 3rd November, the Government decided that the arrangements introduced in April should continue unchanged for a further three months.

The response of the industry shows that it appreciates that it must pay more attention to what the market wants. The Bacon Curers' Federation has recommended a reduction of 10 per cent. from the previous high levels of production. The National Farmers' Union has accepted the necessity for this, and I believe that such a change can be made without damaging the confidence either of pig farmers or of the bacon curing industry.

As a result of these changes, our production is now running at a level close to the figure to which we are committed. The first-hand price of bacon, which before this announcement was £340 a ton—£50 below the Danish price—has risen to £380, only £25 below the Danish price; and public expenditure, which was running at nearly £22 million a year, has been reduced to an annual rate of £12 million.

I believe that with these changes the industry is in a sounder position for the coming year. Its production is more closely related to market needs, and it is relying less upon support from the taxpayer. Both those results are thoroughly healthy symptoms. We still have to make sure that we keep the right balance of pigs for bacon and for other purposes.

The industry has already shown this year what it can do to improve the quality of its product. Last April saw the introduction of a new top grade of British bacon, with a specification second to none. We have now reached the position where 90 per cent. of our home produced Wiltshire bacon is of grade A, and this augurs well for the future.

In the coming months the Bacon Market Sharing Understanding will have to be reviewed, to see whether it should be extended to provide stability in the United Kingdom bacon market and prices which are reasonable to both producers and consumers. We shall also have to look at the stabilisation arrangements which will apply from next April.

599 In accordance with the Public Accounts Committee's recommendation, which the Government have accepted, we shall pay particular attention to the general policy of bacon production and the comparison with subsidies in overseas countries. In all this we must keep an eye on our likely entry into the E.E.C. in 1973. When we reach the full Common Market stage our bacon industry will be freely competing on fair terms with all the other bacon industries within the enlarged Community. I believe that, as long as our industry pays 600 due regard to what the market needs, it can establish itself in a strong competitive position for the future.