Wilf Stevenson on the changes needed to the UK's food processing industry
Rather surprisingly, the Tories have decided to use their Thursday debate slot today for an economic debate. The honour of defending the recession made in Downing Street falls to the veteran trooper Lord Jenkin of Roding, and he has certainly decided to lead with his chin, with a brave choice of topic:
‘TO MOVE THAT THIS HOUSE TAKES NOTE OF THE INTERNATIONAL COMPETITIVENESS OF UK INDUSTRY, OF ITS SUCCESS IN ATTRACTING INWARD INVESTMENT AND EXPORTING TO GLOBAL MARKETS, AND OF ITS ROLE IN STRENGTHENING THE UNITED KINGDOM'S ECONOMY AND IN JOB CREATION.’
Originally scheduled to last 5 hours, so few Tories signed up to defend the government that this was scaled back to half that time, with the remainder of the time allocated to a debate to be introduced by another distinguished Tory, Lord Higgins, on the “welfare and transportation of horses in the European Union”. All this at the same time as the Commons debates two motions on the LIBOR rate fixing scandal. You couldn’t make it up.
I will sum up the first debate, centring my remarks on an aspect of our economic future which rarely gets mentioned. Food processing is our largest manufacturing sector by employment, and meat supply is an industry where we have an opportunity to reduce import dependence.
According to a recent report from the University of Manchester/Open University Centre for Research on Socio-Cultural Change (CRESC), the pig meat supply chain is going through a prolonged and unresolved crisis. The size of the national herd has declined by around 50% over the past decade while over a similar period the UK has gone from 80% self-sufficiency in pig meat to less than 50%. This worsens our trade deficit and diminishes UK employment.
This is a classic example of UK failure in tradable goods against nearby competitors. Our growing volume of pig meat imports do not come from low wage Eastern Europe or Asia, but from Northern European countries where wages are higher and the workforce less flexible. In Denmark and the Netherlands, which provide over 50% of our bacon, wages in meat processing are nearly double those here.
In the past decade, our supermarkets have delivered shareholder value and low prices to consumers – but at a price, as in this case, British pig producers and processors have lost out. Most supermarket buyers extract value along the value chain through flexible ‘supply agreements’ instead of contracts, by playing suppliers off against one another and by insisting processors pay for in-store promotions.
Pig producers and processors lack the power to contest this, resulting in low profits, uncertainty and problems about capacity utilisation which discourage investment and entrench national disadvantage against foreign competitors. Meanwhile, job security and workforce pay and conditions deteriorate.
The authors of the CRESC Report argue that the UK government take a narrow “competition is best” policy approach. As a result, policy interventions have hitherto involved a series of unsuccessful voluntary initiatives which did not recognise that the form of competition is the problem. And they claim that if the government were to work with this sector of the food processing industry, better ways could be found to organise the supply chain through vertical integration, to ensure participants take responsibility for the overall health of the chain. In the case of pig meat, the horizontal integration of producers could be encouraged by support for the creation of co-operatives and assistance with marketing for artisanal producers.
CRESC’s report also highlights the different approach being taken by Morrisons, the UK’s fourth largest supermarket, which is expanding its directly owned processing and on track to become our largest food processor. Morrisons also competes on price in the mass market and uses a higher proportion of British meat than other major supermarkets.
Changing the food processing industry in the ways suggested increases margins and reduces costs. Society gains through reduced import dependence, higher wages and more stable employment, and the capacity to address animal welfare and climate change issues.
If the Tories had chosen this as their debate, I think they would have had no problem in getting a full roster of speakers. Most noble Lordships are, after all, devotees of the British bacon sarnie.
Lord Wilf Stevenson of Balmacara is a member of Labour’s Shadow Business team in the Lords