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CONTENTS Chapter Page 1. Executive Summary 3 2. Introduction 7 3. Intervention 11 4. The Working Group"s Consultation Process 15 5. Issues, Analyses and Recommendations 5.1 Cereals 16 5.2 Beef 26 5.3 Butter and Skimmed Milk Powder 32 5.4 Horticulture Produce 37 5.5 General Issues 39 Annex I Glossary 43 Annex II Biographical details of Group 44 Annex III Consultation list 46 Annex IV Volume of Intervention Activity – EU and UK 52 Annex V Regulations (extracts) 55 1 2 CHAPTER I - EXECUTIVE SUMMARY 1.1. This report fulfils the commission given by the Minister of Agriculture, Fisheries and Food to the Working Group looking into the operation of Intervention under the Common Agricultural Policy (CAP). This was one of three Groups which he set up, following discussions with the National Farmers" Union in September 1999, to review regulatory burdens on agriculture. Mr Norman Coward was asked to chair the Intervention Working Group. Members, whose appointments were on an individual basis rather than as representatives of particular interests, were Mr Richard Butler, Mr Peter Stewart, Mr John Houliston, Mr Richard Cracknell and Dr Margaret Charrington. Secretary to the Group was Mr Hugh MacKinnon. Sub-groups were formed to look separately at the arrangements for cereals, beef and dairy products. The Group was given a free hand to look at both regulatory and administrative burdens on the understanding that worthwhile recommendations would be taken up and pursued. 1.2. Lord Haskins, the Chairman of the Government"s Better Regulation Task Force, took a close interest in the work of all three Groups and offered advice and guidance based on the five principles of good regulation established by the Task Force. 1.3. In the UK the Intervention Board buys cereals, beef and dairy products from the market when prices fall below levels which will provide producers with reasonable incomes. These products are then stored until they can be sold back either to the same markets when prices recover or to third countries. Special arrangements under which certain horticultural crops may be withdrawn from the market by approved producer organizations receiving compensation from EC funds are also covered. 1.4. The EC"s Intervention arrangements are very much based on the production and marketing systems of the original member states. In these, producer co- operatives, many of which also engage in processing, play a much more significant role than is the case in the UK. Partly for this reason, the Group found many instances where there was not a "level playing field" for UK producers in the EU. A more fundamental reason, however, is the attitude of the UK Government to the support of farm incomes through Intervention and its sometimes over cautious approach to the interpretation of EC Regulations. 1.5. The Group noted the efforts of the Commission through successive rounds of its CAP reform process to lessen the dependence of the support arrangements on Intervention buying. It concluded, however, that Intervention will have a significant role to play as a safety net mechanism for several years to come. In that role, which will be triggered only when market prices are already under serious pressure, it will be all the more important that Intervention provides effective support. This can only be achieved for UK producers if they are on an equal footing with their competitors in other member states. 1.6. The Group consulted some 450 companies, individuals or organizations who had either used the Intervention arrangements in the last two years or are representative of sectors of the industry to which the arrangements are important. Most views were provided in writing but some were elicited in telephone calls and in face to face meetings. Discussions were held with officials responsible for policy and 3 implementation and visits were made to the French grain Intervention Agency, to grain co-operatives in the UK and France and to UK grain traders and stores. 1.7. Concerns were expressed in all three commodity sectors but the strength of feeling was relatively greater for cereals, which is the only product taken into Intervention in an unprocessed form and so bears more directly on the interests of the producer. 1.8. Chapter 5 of the Report sets out the 42 issues which the Group considered. Each issue in the Report follows the same format. The issue is first described, there then follows an analysis and then a recommendation if the Group felt it appropriate to make one. 1.9. In the cereals sector the main recommendations are: that IB should accept the principle of aggregation of samples taken from a bulk offer of grain into Intervention into a single sample for analysis where presently it insists on analysing separate samples for each 500 tonnes of grain offered. This may appear a minor issue in itself but it has considerable impact on the costs of testing and the risk of rejection of an offer. If implemented, therefore, the recommendation will boost confidence in Intervention and hence support grain prices; for wheat testing fees to note that IB were introducing competition into the provision of laboratory services which should reduce fees in the UK to a level closer to those paid by producers in other member states. IB will also review its sampling fee and has already accepted the recommendation that offerers are given the option of withdrawing their offer rather than proceeding to the expensive dough machinability test; that the industry should commission research to find an acceptable alternative to the dough machinability test for protein quality. This would be promoted by MAFF in the context of the EC Commission"s review of cereal quality standards, and would reduce discrimination against the soft milling wheats commonly grown in the UK; that IB develops a model for in-situ offering of grain which would be acceptable to the industry and that a system of pre-offer grain testing and store approval and registration, to be paid for by the users, is established to give greater assurance to potential in-situ offerers. IB should also take account of all the potential savings from in-situ storage compared with offers delivered to store, in determining an appropriate storage fee. 1.10. Other cereals issues on which recommendations are made or conclusions drawn are:- maximum grain temperature on delivery to store; the derogation from the Regulation allowing grain to be delivered at a slightly higher moisture content; 4 a tolerance for the moisture content of wheat samples at the time of technical testing; the location of Intervention grain stores; the role of government-owned grain stores; load rejections; delivery instructions; administrative delays; notice of discharge from store. 1.11. In the beef sector the main recommendations are: that a further attempt is made by the Agriculture Departments to negotiate an increase in the processing margin; also that the level of the deboning fee is kept under regular review to ensure that it is set at realistic levels; that consideration is given to the categories currently included in the grid boxes in the UK to ensure that they provide a level of support equivalent to that available in the other main beef-producing member states; that IB should consider the feasibility, including a cost benefit analysis, of allowing offerers the option of offering beef in carcass form; that an amendment to the Regulation is sought so that carcasses which are reclassified at the acceptance point but are nevertheless still found to be of an eligible grade (ie a higher grade than the one declared) may be accepted; that an amendment to the Regulation should be sought so that the downward adjustment in tender prices when market prices fall should be matched by a provision under which they would be increased if market prices rose. 1.12. Other beef issues on which recommendations are made or conclusions drawn are: provision of tender securities in cash; development of an instrument to assist with objective grading of carcasses; weighing in of whole contracts prior to boning; removal of the pleura; liability of the offerer after beef is accepted into store; on-site blast freezers; hip suspended sides; immediate resale from Intervention for cuts in demand; use of blue polythene for wrapping Intervention beef. 5 1.13. In the dairy sector the main recommendations are: that IB should review its administrative decision to prohibit in-situ offering of butter and skimmed milk powder (SMP); that MAFF and IB should review the price reporting arrangements for butter within the regulatory framework with a view to making them more representative. 1.14. Other dairy product issues raised on which recommendations are made or conclusions drawn are: sampling arrangements for offers of SMP; Testing the quality of bags used for SMP creamery inspections; Intervention for salted butter; distances to stores; delays in releasing SMP from store; sampling/testing of butter. 1.15. On horticultural produce the Group makes recommendations in two areas: the free distribution of withdrawn produce; the packaging of withdrawn produce. 1.16. The Working Group also makes recommendations on issues of more general application: that IB should enliven its consultation arrangements with the industry and seek to establish consultative groups by commodity across EC member states so that it can be fully aware of Intervention practices in other member states; That a case should be made to the EC to bring the Regulatory payment delays for purchases of Intervention products into line with normal EC commercial payment terms; That IB should task a senior official as champion for Better (EC) Regulation. 6 CHAPTER 2 INTRODUCTION Background 2.1. The Minister of Agriculture, Fisheries and Food, The Rt. Hon. Nick Brown, met farmers" representatives in September to discuss the serious problems facing the industry. As well as a package of extra aid measures, the Minister announced an urgent review of regulatory burdens on agriculture as a matter of particular concern to farmers. The Minister sent an open letter to the National Farmers" Union (NFU) on 9 September inviting suggestions for areas to be reviewed. The letter was issued in a MAFF News Release (No. 309/99) inviting other interested organisations to respond. The Minister asked for a rigorous customer-led exploration of the subject to root out the red tape issues that really made a difference to farming businesses. 2.2. In the light of comments received, the Minister set up three working Groups covering the operation of Integrated Administration and Control System (IACS) and farm inspections; slaughter Regulation and meat hygiene rules; and the operation of the Intervention system in the UK. This report covers the operation of the Intervention system. The Intervention Working Group - Composition 2.3. The three Chairmen of the Groups were announced on 23 September (MAFF News Release 328/99) and the membership on 8 October (MAFF News Release 345/99). Appointments were made on an individual basis rather than as representatives of any particular organisation or trade interest. Mr Norman Coward, ex-Agriculture Director, Midland Bank, was appointed Chairman of the Working Group on Intervention systems. The members are listed below; brief notes on each appear in Annex II. Mr Richard Butler - Chairman, NFU Cereals Committee and Director of NFU Mutual Mr Peter Stewart - Vice President of the Scottish NFU and Member of the Board of the Home Grown Cereals Authority (HGCA) Mr John Houliston - Chief Executive, Dairy Crest Group plc and President, Dairy Industry Federation(DIF) Mr Richard Cracknell - Managing Director, Anglo Beef Processors Ltd (ABP Ltd) and former President, Federation of Fresh Meat Wholesalers, now British Meat Federation Dr Margaret Charrington - Chairman, Horticultural Development Council, former Chairman, Women"s Farming Union, and Director, Invest in Britain 7 2.4. The Secretary of the Group was Hugh MacKinnon, Head of Operations Directorate, Intervention Board 2.5. Three sub-Groups were formed to examine sectoral issues in more detail and were constituted as follows: Cereals Sub-Group Mr Norman Coward Mr Jim Reed OBE - Director General, United Kingdom Agricultural Supply Trade Association (UKASTA) Ltd Mr David Balderson - Chief Executive, Viking Cereals Ltd Mrs Sarah Nightingale - Grain & Feed Trade Association (GAFTA) Mr Randall Warin - Grain & Feed Trade Association (GAFTA) Mr Richard Butler Mr Peter Stewart Beef Sub-Group Mr Norman Coward Mr Richard Cracknell Mr Graham Martin - National Agency Services Manager for the Meat and Livestock Commission Butter/SMP Sub-Group Mr Norman Coward Mr Jim Begg - Director General, DIF Mr Jamie Barrel - Trading Manager, St Ivel Ltd Mr Hugh Fox - Director, Dairy Crest Group Ltd Ms Lyndsay Chapman - Project Manager, Sales and Marketing Division of Milk Marque 2.6. The Group was given a free hand to use any useful avenue which they chose to explore the issues with a view to increasing the effectiveness and efficiency of Intervention. No limits were imposed on what the Group might recommend. Scope 2.7. Intervention is a central part of the European Community"s (EC) Common Agricultural Policy (CAP) and is administered in the UK by the Intervention Board. The Group focused on the public purchase, storage and sale of products. Other issues raised during the consultation exercise were referred for examination by other groups. The Group examined both the EC Regulations which govern the Intervention systems and also the ways in which IB interpret and administer those rules in the UK. Findings could thus cover a range of potential changes, from minor improvements in the way IB undertakes Intervention responsibilities through to recommendations to the Minister to seek fundamental changes to the EC Regulations themselves. The very positive message from the Minister was that sensible and worthwhile 8 recommendations to reduce agricultural regulatory burdens would be taken up and pursued. Better Regulation 2.8. The Working Group received guidance and support from the Government"s Better Regulation Task Force whose Chairman, Lord Haskins, took a close interest. That Task Force established five principles of Good Regulation*. The Intervention Working Group took these, and sought to apply them in the Intervention context:- 1. Transparency – is the Intervention policy objective clear and effectively communicated? Are the Regulations simple? Is there effective consultation? 2. Proportionality – is the impact of Intervention clearly identifiable? Is the right balance established between risk (eg of fraud) and cost (eg of monitoring and control)? Is enforcement action in proportion to the seriousness of the offence? 3. Targeting – do Intervention schemes effectively provide a "safety net" for farm product prices and how far do they benefit farmers directly rather than other intermediaries? 4. Consistency – are EC Regulations on Intervention applied consistently in the UK compared with other member states? Is there, as far as possible, a level playing field? Where Intervention schemes exist, are the benefits reasonably equally available to all potential users? Are Intervention buying and selling practices consistent with those operated by the trade generally? 5. Accountability – is there a well publicised, fair and efficient appeals procedure? Philosophy 2.9. Throughout its work, the Group sought to discuss the issues raised by the consultation with IB and MAFF officials and industry interests. Its philosophy was to try, through conciliation and the development of new ideas, to get agreement on the way forward. 2.10. On some issues this was relatively simple and in those cases the recommendations of the Group have already been formally agreed and will be adopted. On other issues the Group has opened avenues, and the likelihood of agreement looks promising – but these inevitably require further work, given the limited time for reporting. * Better Regulation Task Force Annual Report 1998/9, Central Office of Information 9 2.11. On the remaining issues, control comes from the EC Regulation and this is clearly indicated in the text. The Working Group accepts that changes to these Regulations requires time, patience and, of course, agreements beyond the UK. 2.12. The Group is aware that some of the issues covered will appear to be very minor. A minor change, however, can encourage better access to Intervention and the effect may be significant on market price. Grain prices, in particular, depend on confidence in the market, and a trader who believes that Intervention will work effectively gains confidence. Structure of the Report 2.13. This report contains the following: a brief introduction to Intervention for the reader less familiar with the subject; some comments on the impact of Intervention in the UK, including comparison with other EC member states; a description of the consultation process which the Working Group undertook; and then an examination of the main issues raised by those who responded to the consultation. 10 CHAPTER 3 - INTERVENTION Background 3.1. The Treaty of Rome, which established the EC in 1957, makes explicit provision for the Common Agricultural Policy (CAP). A summary of the objectives of the CAP, enshrined in the Treaty of Rome, is: to increase productivity by promoting technical progress and ensuring the rational development of agricultural production; to ensure a fair standard of living for the agricultural community; to stabilise markets; to guarantee a secure supply of food; to assure reasonable retail prices to consumers. What is Intervention? 3.2. From the early development of the CAP market Intervention has been one of the tools used to achieve these objectives. It operates through agencies of member states, but is funded by the EC. The commodities which are supported by Intervention in the UK are cereals, skimmed milk powder (SMP), butter and beef. The Intervention agencies buy agricultural produce from the open market at prices specified by the EC. In the case of butter and beef this may occur at any time. In the case of SMP purchases can only occur between March and August and in the case of cereals, between November and May. The agencies normally store and then offer the produce onto the same or alternative markets at a later date. The agencies" initial act of buying the product normally increases the prevailing market price thus helping to support and stabilise farmers" incomes. Intervention in the UK 3.4. The EC"s Intervention Regulations were inevitably largely established with Continental farming in mind, and there are some aspects of agriculture in the UK which are substantially different from the Continent, and which impact on the operation of Intervention in the UK. 3.5. The biggest difference is that on the Continent a high proportion of produce is moved off farms into farmer-owned co-operative processing facilities. Over many years, Continental farmers – often helped by government grants or soft loans – have invested hugely in such facilities. In the Netherlands, for example, more than 90% of milk is processed by farmer-owned co-operatives. In France, most grain moves directly off farm into one of over 6,000 specialist grain silos and a significant proportion is then processed for animal feed or flour by the same or other farmer- owned co-operatives. 3.6. In these circumstances, the benefit to farmers of Intervention buying thus includes a processing element where the product intervened is partly processed (eg beef carcasses or skimmed milk powder or butter). Furthermore, the Intervention outlet can be used directly by such processing co-operatives as an alternative market and thus as a means of supporting its prices to other customers. 11 3.7. In the UK, farmers own virtually no processing facility (for milk and cereals, the figure is probably less than 5% and for beef less than 1%) so it is inevitable that some of the benefits of UK Intervention accrue to the commercial processors of these products. 3.8. In the case of grain, the product intervened is the grain itself before any processing (apart from cleaning, drying and blending). With grain, therefore, the benefit of Intervention should accrue more directly to the producer even though only around 20% of grain is marketed co-operatively in the UK. In this context it is perhaps significant that the Working Party"s consultation process yielded very few responses from farmers and farmer co-operatives in relation to milk products and beef, whereas farmers and their organisations responded fully to our request for concerns in the cereals sector. The Cost-Benefit Balance 3.9. The Working Group sought objective analyses of the extent to which Intervention activities have met the objectives of the CAP – and in particular the extent to which they have improved farmers" incomes and support prices. The Group could find no such analysis in the UK in the last 10 years, and it was not able to identify any analysis at the EC level. This is perhaps understandable; Intervention is only one of a series of measures to support farmers" incomes and several of the measures are triggered by movements in market prices. It is thus difficult to identify the impact of Intervention in isolation from the other measures. 3.10. The Benefits. It is clear that Intervention buying directly increases demand, and will thus normally increase price. Less obvious and predictable, however, is the impact on the market of the sale of commodities out of Intervention. Where the commodity is sold back onto the same market, prices will then be depressed and there may be no net benefit to farmers apart from a modest levelling of price. This has usually been the situation with beef Intervention in the UK. If a commodity is sold out of UK Intervention, but within the EC, there will usually again be a depressing effect on UK prices at the time. This has sometimes happened with grain. If the commodity is sold outside the EC and to markets which would not otherwise have consumed it, there is no depressing affect – an example is skimmed milk powder in aid programmes. 3.11. The costs of Intervention are the price paid for buying the commodity less its ultimate realisation plus the costs of administration, inspection, storage, finance and potential fraudulent loss. The Level Playing Field 3.12. The Working Group considered that as far as possible the EC Regulations on Intervention should be applied equally in the UK and other member states. The differences in the structure of agriculture, and agriculture marketing and processing make it difficult to achieve a perfect comparison of all aspects of Intervention between member states. However, there are a number of areas where true comparisons can easily be made, where the UK Intervention Board interprets EC Regulations more stringently than its continental counterparts. There is no single reason for this fact. It is a mixture of the attitude of MAFF, which – at least in recent years – has wished to see Intervention and other price supports phased out – and of 12 the Intervention Board itself, which has been very concerned to avoid EC-imposed financial penalties. The Future of Intervention 3.13. The CAP has been undergoing reform since the "MacSharry" measures in 1992 up to the most recent Agenda 2000 package. The main thrust of the reform has been to reduce support prices (and hence dependence on Intervention) and export subsidies. Consistent with this policy the Commission has tightened its Regulations on Intervention significantly in recent years. Some high-profile fraud cases have been a catalyst in this process. 3.14. In its Agenda 2000 proposals, the European Commission signalled its wish to reduce sharply, if not eliminate, the CAP"s dependence on support buying. Its proposals were watered down substantially before final agreement – and it is clear that Intervention will remain part of the CAP for the medium term. The future role of Intervention will, however, move more towards that of a safety net to prevent producers" incomes falling to catastrophically low levels, rather than a more general support of prices. Nonetheless, as a safety net it will still be important – and would be particularly important in the event of a major downturn in prices caused, for example, by a food scare. It will also continue to be important if world prices should remain low or fall further. One MAFF forecast on the impact of Agenda 2000 foresees the following:- for cereals: world prices for coarse grains will remain below the Intervention price. For wheat the position is less certain. World prices for wheat are currently below the levels which would result once the Agenda 2000 reforms are implemented. However world wheat prices are forecast to rise over the medium term – the big question is how quickly, and by how much. If, as a result of low world prices, export refunds continue to be required for all cereals – and therefore the GATT limitations bite – Intervention stocks are projected to rise by 2002/3 and to continue to increase rapidly thereafter (unless set-aside is progressively increased). However a substantially greater recovery in world wheat prices would lead to much lower stock levels. for beef: Agenda 2000 reforms should lead to increased consumption but may do little to reduce production (because of increased direct payments). Stocks are therefore projected to rise. The size of the increase will depend on how far lower prices stimulate consumption. In 2002, when "normal Intervention" is due to be replaced by private storage aid. The internal market is likely to weaken and increase pressure for action. If this results in "ad hoc" or "safety net" Intervention, stocks could continue to increase. in the dairy sector: Intervention stocks of SMP are likely to rise. That is in addition to the projected 60% of SMP consumption subsidised as calf milk replacer. 13 3.15. There are necessarily a number of assumptions made in these projections and it should be noted that no forecasts have been made of the "national shares" of any increased Intervention stocks in the EC as a whole. The Working Group broadly accepts this analysis. It agrees particularly with the uncertainty of future demand which depends so much on the continuation of the current increasing rate of GDP growth in much of the world, especially Asia and South America. Continued growth would increase demand for meat, especially pigs and poultry, and hence for cereals. Higher prices would result. 3.16. The principal conclusion for the Group, however, is that Intervention will continue to play a significant part in the management of EC markets. Major global events can create turmoil in markets and future food crises (such as BSE, or with GM crops) could conceivably once again elevate the role of Intervention to a major one. This is an important context for this Group"s recommendations. That the Intervention system should be as "user-friendly" and non-bureaucratic as possible should be concerns also shared by those responsible for sound market management in the EC. The Working Group's Role 3.17. The Working Group felt it important to consider this background to UK Intervention as part of the process of understanding the strengths and weaknesses of the UK system. However, the Group was charged with increasing the effectiveness and efficiency of Intervention in the UK, accepting fully that this system of support will continue to be a plank in the CAP for well into the first decade of the new millennium. The following chapters, by commodity, adhere to this brief. 14 CHAPTER 4 - THE WORKING GROUP'S CONSULTATION PROCESS 4.1. The Chairman wrote to all individuals companies, and co-operatives which had sold into or bought out of Intervention in the last two years and also to those trade organisations with an interest in Intervention. The Chairman explained the Group"s remit and asked for views on any issues that should be addressed by the Group. About 450 letters were sent. About 50 written responses were received together with a large number of telephoned and informal comments. A full list of those consulted is at Annex III. 4.2. In addition to these responses to the Chairman"s letter, views from other sources were also received and visits were made to the following: - The Intervention Board"s Operations Directorate in Reading and Newcastle - The Ministry of Agriculture Fisheries and Food"s Commodity Divisions - The Ministry of Agriculture Fisheries and Food"s Chief Economist - ONIC (Intervention Agency) in France to examine cereals Intervention arrangements - A French grain co-operative - A UK government-owned grain store - UK grain traders - UK grain co-operatives 4.3. The Group met formally three times from October through to December. The cereals sub Group met three times and the beef and dairy sub Groups once. The work of the Group and the sub Groups was also progressed through telephone and written communication. 4.4 In the following sections the issues raised by consultees are analysed and recommendations made on a sector by sector basis. 15 CHAPTER 5 ISSUES, ANALYSES AND RECOMMENDATIONS 5.1. CEREALS Aggregation of Samples for Analysis 5.1.1 Issue. This issue concerns wheat and rye offers intended for transportation to contracted commercial stores and in-situ offers for wheat, barley or rye. (Regulation 689/92, Article 3.5. See Annex V). Currently, samples are taken for every 60 tonnes and aggregated to a 500 tonne sample for analysis. Therefore, for example, a 10,000 tonne offer would require 20 aggregated samples for analysis. In other member states such an offer would be subjected to one analysis charge. The UK offerer therefore faces considerably higher cost than competitors elsewhere. He also faces the risk of the whole 10,000 tonne offer being rejected because of the failure of one 500 tonne sample which cannot be representative of the whole offer. This leads to a reluctance by the UK trade to buy grain and fill stores at harvest time, even if prices are very low. 5.1.2. Analysis. IB currently follow the ISO standards on sampling and analysis procedures. The Group recognise that these standards provide a high level of assurance on the quality standard of the whole offer. But it also recognises that the current IB procedures are not used in the commercial market. In the commercial market the rules of the Grain and Feed Trade Association (GAFTA) are accepted worldwide. The GAFTA rules provide for sampling at every 500 tonnes with aggregation to a single sample for analysis. The trade works to the GAFTA rules because buyers and sellers of grain are concerned solely with the overall quality of the grain being purchased or sold. The analysis of a fully aggregated sample would indicate whether a total heap was within the Intervention standard whereas the results of a sample from a part heap would only provide assurance on the volume sampled. The trade considers the results from the aggregated sample are more meaningful. 5.1.4. The working Group puts much weight on the stance of GAFTA in this issue because it is normally GAFTA members who buy out of Intervention. The same sample aggregation is adopted by the French Intervention Authority (ONIC) and the German Authority (BALM). In financial terms, the cost to a French trader for the analysis of a 10,000 tonne offer would be £120 for one aggregated sample whereas the cost to a UK trader, for the same offer, would be around £5,500 plus VAT for an offer at one location, including the machinability test, and more if it involved more than one location. 5.1.5. The scale of the cost risk taken by traders offering cereals into Intervention in the UK is thus huge compared with that in France and Germany, and substantially undermines the propensity of UK traders and co-operatives to put together offers for Intervention. In turn, this reduces confidence in the market and hence prices. 5.1.6. The Group considers that the adoption of the current GAFTA rules would have a crucial effect on the trade"s attitude towards Intervention, particularly when taken together with the issues arising from the cost of wheat testing and in-situ offers. [see paragraphs 5.1.8 and 5.1.23]. The Group recognises, however, that IB has to be satisfied that any change in procedures would not lead to disallowances by the Commission. 16 5.1.7. Recommendation. This is a UK administrative issue. The Group recommends that IB should accept the principle of aggregation of samples into a single sample for analysis, provided the necessary safeguards on compliance with the Regulations could be satisfied. The Group stresses that this is a key issue with knock- on effects on the cost of wheat sampling and in-situ offers. Wheat Testing Costs 5.1.8. Issue. The cost of wheat testing is borne by the offerer. Currently the charge for a single sample is £404.50, inclusive of the sampling charge and the laboratory analysis fee (including dough machinability). The Group has evidence that this figure is greatly in excess of charges imposed by other member states. Taken together with the current requirement to analyse samples for every 500 tonnes, this puts UK offerers at a significant competitive disadvantage. 5.1.9. Analysis. The fees charged by IB are those actually paid to the sampling agent and the test laboratory. Only one laboratory in the UK has been able to carry out the dough machinability test. IB is currently carrying out a competitive tender for all its analytical requirements. This tender was advertised in the Official Journal. Prospective tenderers were invited to bid either for all the work of IB or just specific commodity sector work. On wheat testing, prospective bidders were required to cost the moisture, protein, Hagberg and Zeleny tests as a single cost with the dough machinability test as a separate cost. Tenderers could tender on the basis that they would sub-contract the dough machinability test if they wished. The Group recognises this as a significant improvement because a high proportion of the analysis charge is in the dough machinability test. The Group expects this competitive tender exercise to produce some reduction in costs. 5.1.10. The cost of actually taking the sample is not part of the current tender exercise. IB will now review whether this cost can be reduced. 5.1.11. Recommendation. This is a UK administrative issue. The Group welcomes IB"s steps to ensure competition between laboratories for this analytical work. IB will secure reductions in the analysis charges. IB has separated the cost of machinability from the cost of the other tests, and has agreed with the Group recommendation that it will provide offerers with the choice of whether to proceed to the dough machinability test. No further recommendation is needed. Appropriateness of the Dough Machinability Test 5.1.12. Issue. To be eligible for Intervention, common wheat must be of breadmaking quality, as assessed by the Hagberg, Zeleny and dough machinability tests. The minimum standards for these are specified by Regulation. (Regulation 689/92, Article 2.2. See Annex V). The Hagberg test measures the enzyme activity of flour, ie whether it is of high starch content (high Hagberg). The Zeleny Index is a measure of baking quality and is linked to the "quality" of the proteins in a flour. However, the Zeleny Index is not such a precise measurement and at the lower levels of the Index, ie between 20 and 30, the dough machinability test is also used. In this test, a quantity of dough is made from the wheat and the dough is then visually judged to be suitable for breadmaking if it does not stick to the blades of the mixer or to the moulding apparatus. 17 5.1.13. Analysis. Most UK wheat varieties do not perform well in the dough machinability test and it is expensive. Only one UK laboratory can perform it. Dough machinability is not a test used by the milling industry in the UK and is not widely used on the Continent. It has little commercial relevance. 5.1.14. Recommendation. This is an EC regulatory issue. The Group accepts that dough machinability is part of the EC Regulation for samples with a Zeleny Index of 20-30. However, the Group recommends that: (1) The offeror should have the chance of withdrawing his offer if his sample has a Zeleny Index of 20-30 rather than meeting the additional cost of a quality test which the sample is likely to fail. The Group is pleased to report that IB has now agreed this recommendation. (2) The Agriculture Departments should pursue changes in the Regulation in the appropriate Commission forum to have the dough machinability test replaced by an alternative protein quality test. (See paragraph 5.1.15 on soft endosperm wheat.) Exclusion of UK Soft Endosperm Wheat from EU Intervention 5.1.15. Issue. The 1992 MacSharry reform of the CAP changed the specification of wheat eligible for Intervention. Previously two grades, "common wheat" and "feed wheat", were eligible at different price support levels. The reform removed Intervention support for feed wheat and the technical tests defining the criteria effectively excluded all soft endosperm wheats (class 3) even though this type of wheat is widely used in the milling industry both in the UK and in Southern Europe. 5.1.16. Currently the EC Commission is seeking to tighten further the standard for wheat to be eligible for Intervention. The proposals are: i. to increase the specific weight from 72 kgs per hectolitre to 73 kgs per hectolitre. ii. to increase the minimum Zeleny Index score from 20 to 25. When the score is under 30 the sample must also pass the dough machinability test. 5.1.17. UK wheat is severely disadvantaged by the dough machinability test, which most UK wheat fails (see paragraph 5.1.12). Increasing the Zeleny figure will also make it more difficult for UK wheat to qualify for Intervention. 5.1.18. Analysis. At the time of the MacSharry reform, the UK Government sought assurances from the Commission on feed wheat Intervention. The Commission gave written assurances that if the price of UK feed wheat should fall more than 5% below the barley price at a time when barley was going into Intervention, the Commission would introduce "special support measures". 5.1.19. However, when Intervention opened in November 1998, feed barley maintained a steady £7 to £8 premium to wheat until the end of the crop year (source HGCA), but no action was taken by the EC Cereals Management Committee. Furthermore, in the 1998/99 year, wheat was at its lowest price for many years, but 18 only approximately, 40,000 tonnes was accepted into UK Intervention out of 16m tonnes of production. The comparable figure for France was nearly 6 million tonnes out of a crop of 38m tonnes (almost 16% of the French wheat crop). 5.1.20. There was also evidence of UK wheat being exported to be offered into Continental Intervention stores because of the perceived difficulty in getting UK wheat accepted by the UK Intervention Board. 5.1.21. Recommendation. This is an EC regulatory issue. The Group recognises that the EC Commission will not introduce Intervention for feeding-quality wheat. However, the current situation where high-quality "soft" endosperm milling wheat is ineligible for Intervention clearly discriminates against the UK producer, who has traditionally grown a high percentage of this class of wheat, unlike the rest of the EC. 5.1.22. Accordingly, the Group recommend, that the draft Commission proposal on specific weight should be accepted, but the minimum Zeleny Index should be kept at 20. The Group also recommends that the use of the dough machinability test for wheat falling between 20 and 30 Zeleny Index is replaced. To this end the industry should commission work to establish an appropriate alternative test for which MAFF should seek EC approval in the Commission"s current review of cereals standards. Any replacement protein test adopted should not rule out milling quality soft wheats such as Riband, Consort and Claire which have proved acceptable in the European milling markets. In-Situ Offers 5.1.23. Issue. Over a period of years the industry has been pressing IB to facilitate a form of offering, known as in-situ offering, whereby IB would take over a quantity of grain in the store in which it was held at the time of offer, rather than require its removal to one of its own stores or one contracted to it for Intervention storage. Such offers are permitted by the EC Regulation but the rules laid down by IB made it difficult for potential in-situ offerers in the UK to comply. Two issues are considered by the Group to be particular deterrents. Firstly IB has provided no assurance that grain offered in-situ would be accepted as in-situ, rather than the offerer being instructed to remove the grain to an IB-owned or contracted store. Secondly, the storage rates IB has offered to potential in-situ offerers were considered unacceptably low by the industry. As a result, no grain has been offered in-situ in the UK, in marked contrast to France and Germany. 5.1.24. Analysis. The Group maintains that an effective system of in-situ offering would provide essential support to the market from harvest onwards. To achieve this objective, two conditions have to be met: firstly, the industry requires assurance that, provided quality standards and storage conditions are met, grain offered as in-situ would be accepted as in-situ; and, secondly, the storage rate has to be acceptable. 5.1.25. On the first condition, the Group noted the current practice in France, whereby the Intervention Authority (ONIC) carries out, soon after harvest, the analytical tests of grain which could potentially be offered into Intervention. The costs of such tests are borne by ONIC and the offerer is then provided with information on the likely acceptability or otherwise of the grain. There is no obligation on the part of the potential offerer actually to offer during the offer period but, if he does and provided the grain is found to be of the required quality standard, following further testing, then 19 the offerer already has the assurance that the offer will be accepted. Under this procedure, the rate of rejection in France at the time of offer is less than 1%. 5.1.26. The Group recognises that IB has to be cost effective in the use of its own and contracted stores. The Group concludes that this problem could be overcome by some form of pre-offer registration of potential in-situ stores. A deadline date for registration, say mid-August, could be fixed so that IB then had reasonable time to make arrangements for adequate capacity in commercial stores to meet the total Intervention projections. 5.1.27. IB could offer to undertake pre-offer testing of grain and the registration of stores. The testing costs would need to be borne by the potential offerer because testing would be done on an entirely speculative basis, and a free service would not be warranted or justified. However, taken with the "aggregation of samples" issue, (see paragraph 5.1.1) if potential offerers only had to pay for one analytical charge, the system of pre-offer testing would provide a high level of assurance with regard to the acceptability of an offer at modest cost. Similarly, potential offerers should expect to have to pay a small charge for the registration of potential in-situ stores. 5.1.28. On the issue of the storage rate, the Group considers that the rate for the first year of offer would have to be significantly higher than the in-situ rate currently being offered by IB. To counteract this, however, the Group highlighted the fact that IB would not have to bear any storage charges until after acceptance of the offer which cannot be before 1 November; there would be no reservation fee payable on an empty store; and any payments would only be made for the period of storage. The Group also recognises that, if grain was still in the in-situ store after one year, the storage rate would be reduced to the average commercial rate of the previous season. In addition, if the store was empty at 31 July following the date of offer, IB could terminate the contract. In this way in-situ storage need not be more expensive overall even with a higher storage rate paid for a stated period. 5.1.29. The current contracted store system used until now in the UK inevitably means all grain has had to be moved from one store to another, sometimes over considerable distances. In-situ storage thus gives benefits to Government, communities and producers. For Government the net benefits would come from reduced supervision, administration, and transport costs. For communities there would be environmental benefits from reduced transportation of grain. And for producers there would be better support of the market price because tenderers would have greater confidence to offer. 5.1.30. Recommendation. This is a UK administrative issue. The Group recommends strongly that IB develop an in-situ model that would be acceptable to the industry. The Group believes that such a model would be broadly cost neutral, even before allowing for environmental benefits. The Group recommends that a procedure for post-harvest grain testing and a system of registration of potential in-situ stores, both chargeable to the industry, would provide a level of assurance for in-situ offering that is not currently available. The Group recognises that the storage rate is the other key feature in making the system work but concludes that a higher rate for the initial period could certainly be offered without increasing the overall costs. 20 Grain Temperature 5.1.31. Issue. IB applies a rule not specified in the EC Regulation whereby the maximum temperature of grain allowed at intake into an Intervention store is 15°C (except in November, when it is 18°C). This rule is applied on the basis of scientific advice that certain insects prevalent in grain will breed at sustained temperatures above this level. The industry has complained that this limit is not always possible to achieve, particularly for grain delivered in the summer months. The industry also considers that efficient storekeepers have systems in place to reduce the temperature of the grain and the risk of infestation. The industry has pointed out that commercially traded grain is often delivered at temperatures of 18°C or higher. 5.1.32. Analysis. The Group recognises that IB has a responsibility to store grain long term with little or no deterioration in quality standards. The Group also acknowledges that IB has a highly successful track record in this field and that this is due in the main to the enforcement of the current standards expected of contracted storekeepers, as set out in IB storage contract. Nevertheless, the Group considers that some relaxing of the current temperature requirement would not impact significantly on IB"s ability to store grain long term. The Group recognises that such a change could impact on IB"s current storage contract with storekeepers. 5.1.33. Recommendation. This is a UK administrative issue. The Group recommends that IB should accept grain at up to 15°C as at present. However it should also accept grain between 15°C and 18°C centigrade, when ambient air temperature at the store at the time of delivery is over 15°C. 5.1.34. The Group further recommends that IB consults its storekeepers about this issue because it bears upon the responsibility they accept in signing the storage contract. Moisture Derogation 5.1.35. Issue. The Regulation require grain offered into Intervention to be delivered with a moisture content of no more than 14½%. Member states may, however, apply for a derogation to accept grain of up to 15% moisture. (Annex I of Regulation 689/92 and Regulation 2731/75, Article 1.1.b. See Annex V). Most northern member states apply routinely for this derogation and it is invariably agreed by the Commission. In the UK a decision whether to apply is taken in the light of harvest conditions. This means the decision is often taken much later than elsewhere in the EC. The industry would like the UK authorities to follow the practice of other member states so they can be certain of the levels to be achieved at the time of harvest. In the same area concern was expressed about a current proposal by the Commission to increase the price deduction when grain going into Intervention is in excess of 13% moisture. 5.1.36. Analysis. The UK industry is clearly disadvantaged by the additional uncertainty (and cost when the derogation does not apply) which it faces compared with its competitors in other northern member states. There seems little sense in a derogation which operates for the most part as a rule rather than an exception. The Group was pleased to note that the Commission is considering setting the level at 15% and avoiding the need for member states to apply for a derogation. There are, in some circumstances, higher costs to the IB if grain actually comes into Intervention at a 21 higher moisture level as a result of the application of the derogation but these are marginal when compared to the costs to the industry of drying in borderline cases. On the penalty question, the Group feels that the Commission"s further proposal to double the price deduction for grain over 13% moisture, discriminates unfairly against the northern states. 5.1.37. Recommendation. No action on derogation is required if the Commission carries through its proposed amendment to the Regulation. However, if the derogation continues to apply, the UK should follow the practice of other northern member states by providing producers with the same certainty as to the acceptable moisture levels at the time the grain is harvested. 5.1.38. The price deduction for high moisture is an EC regulatory issue. The Group recommends that Agriculture Departments oppose the increased penalties for grain over 13% moisture. Moisture Content of Wheat at time of Technical Testing 5.1.39. Issue. The technical tests for wheat offered for Intervention cover moisture, protein, Hagberg and Zeleny. (Regulation 689/92, Article 3.5. See Annex V). The trade has argued that a small tolerance on the moisture level at the time of testing could be allowed and the moisture level would still have very little impact on the other tests results. 5.1.40. Analysis. The Group recognise that IB has a responsibility to ensure that wheat going into Intervention meets the necessary technical standards. Nevertheless, the Group concludes that a small tolerance in the moisture level at the time of technical testing could be allowed, provided the level was reduced to the acceptable level at the time of entry into Intervention store. 5.1.41. Recommendation. This is a UK administrative issue. The Group recommends that IB seeks further technical advice with a view to allowing tolerance of up to16% for moisture at the time of technical testing, provided the moisture level is not above 15% when the grain enters the store. Location of Stores 5.1.42. Issue. Producers and their representatives have expressed dissatisfaction at the location of commercial stores. There are logistical transport, environmental and cost issues when grain has to be moved long distances from place of production to storage. 5.1.43. Analysis. In normal commercial trade it is unusual for grain to be moved over very long distances (more than 100 miles), and most grain hauliers are accustomed to working close to a home base and often they complete more than one round trip within each lorry"s (and driver"s) working day. In these circumstances, the rare rejections of loads do not cause extreme difficulty to the haulier or seller – a majority of rejections on quality grounds are anyway resolved by a price adjustment and the grain is still tipped, rather than being returned or diverted to another market outlet. 5.1.44. This practice contrasts with the situation which has occurred over several seasons with regard to sales into Intervention. In order to make best use of stores 22 procured but not yet filled, the IB has sometimes issued delivery instructions for many loads of grain to be hauled very long distances. If there is a rejected load, the return journey is entirely at the expense of the offerer and could cost him as much as £25 per tonne, representing about 30% of the value. Once delivery instructions have been issued, the offerer cannot withdraw without cost, even when those instructions involve very long distances. 5.1.45. The Group recognises that having more, smaller stores in more locations should give the offerers more flexibility and make Intervention more accessible. However, IB contend that cost considerations determine that commercial storage space has to be taken up once it has been procured. Furthermore a balance has to be struck between the needs of the grain offerers (merchants and producers) and the buyers (exporters). IB have tended to favour the interests of the exporter in recent years, with stores generally located near or at the south and east coast grain ports. In contrast, the government-owned stores are mainly located in the cereal producing areas. 5.1.46. Recommendation. This is a UK administrative issue. The Group acknowledges that IB has, at some time, to sell Intervention grain. Store location and access to ports is vital if the grain is to be readily sold. Nevertheless, by careful timing of the acquisition of storage and by improved planning, IB should be able to take more account of the needs of producers particularly in respect of the high cost incurred when loads are rejected. The Group therefore recommends that IB should give even higher priority in their planning to this issue. The Group also recommends that an offerer should be granted the right to withdraw his offer when notified in advance by IB that delivery instructions involving a distance of over 100 miles are about the be issued. Government-owned Stores 5.1.47. Issue. IB owns eight stores, with total capacity of 480,000 tonnes. Some respondents have questioned, in general, the government ownership of grain stores. Also, there is some concern that the existence of these stores makes IB reluctant, particularly at the beginning of a season, to open up commercial stores on new contracts until it has fully utilised its own space. This is seen as a factor in the long distances which offerers are sometimes asked to travel to deliver their grain. 5.1.48. Analysis. There are two aspects to this issue: (i) There must be a strong argument for the privatisation of UK grain storage. As well as maintenance and depreciation charges, the government stores clearly have a capital opportunity cost related to their alternative use value, and grain storage may not be the most economic use of these sites. (ii) The existence of the stores may encourage IB to utilise its own space, forcing offerers to transport produce over long distances. Transportation over longer distances usually occurs at the beginning of a season when offering is light but well distributed around the country. If there is space in stores contracted in the previous season, this and any capacity in government-owned stores is usually filled first before new contracts are entered into. IB"s concern is to balance the need to 23 achieve value for money with the interests of offerers for whom long distances bring particular logistical difficulties. (see paragraph 5.1.42). The task of achieving this balance is made more difficult by the uncertainty which often surrounds the forecasts of Intervention activity for the season. Most – but not all – of the government-owned stores are well situated for the main grain growing areas and, if available, they may actually reduce the requirement for long distance deliveries. 5.1.49. Following the Comprehensive Spending Review IB is currently engaged in a review of the case for continued ownership of the government-owned stores. 5.1.50. Recommendation This is a UK administrative issue. The Working Group comes with a natural predisposition to question the financial logic of government ownership of grain stores. This issue is, however, being reviewed currently and the Group wishes to ensure that the review takes full account of the impact on offerers of the existence of the stores – which may be positive or negative - as well as their efficiency as government-owned assets. Load Rejections 5.1.51. Issue. IB applies the minimum quality standards as specified by Regulation. (Regulation 689/92, Articles 2.1 and 2.2. See Annex V). At the time of offer, cereals must be of sound, fair and marketable quality, defined as being: of a typical colour; free from abnormal smell; free from live pests (including mites) at any stage of their development; and, able to meet the minimum quality criteria. The conditions are well known to the trade but still there are a number of load rejections which could probably be avoided. 5.1.52. Analysis. The Group recognises that IB has a responsibility for ensuring that cereal offers comply with the regulatory conditions. Furthermore, the Group accepts that the requirement to meet the quality standards is set out clearly in IB trade leaflet on support buying of cereals, IM(C)15. Nevertheless, the cost to the trade of rejected offers is not insignificant and any action to alleviate this cost should be considered. 5.1.53. Recommendation. This is a UK administrative issue. The Group recommends that IB should take every opportunity of reminding offerers of the quality requirements of grain offered for Intervention. For example, IB should consider attaching some form of reminder of the minimum quality standards required when offers are acknowledged. Furthermore, the IB should highlight the most common causes of rejection and how the offerer can minimise the chance of rejection occurring. This requires a visually attractive, compelling communication. Delivery Instructions 5.1.54. Issue. Delivery instructions which are required by IB for each load delivered to store are regarded by the trade as too complex. 5.1.55. Analysis. The requirement adds unnecessarily to the paperwork produced by the offerer and to be processed by the store and IB. However, it is essential that each delivered load should be clearly identified with the offer of which it forms part. 24 5.1.56. Recommendation. This is a UK administrative issue. IB should review its requirement with a view to simplifying its procedures. Administrative Delays 5.1.57. Issues. IB faced a big intake of grain into public storage in the 1997/98 season and there were delays in processing claims and making payments. 5.1.58. Analysis. IB has already addressed this problem by moving Intervention work within its Operations Directorate from Reading to Newcastle where the more flexible labour market enables recruitment of short term and casual clerical and junior management staff at short notice. It is too soon to judge fully the effectiveness of this move in relation to work pressure peaks but the Group is optimistic there will be further improvements. 5.1.59. Recommendation. This is a UK administrative issue. IB should monitor all aspects of its offer and claim handling procedures, in particular to provide early warning of potential bottlenecks, and then to take appropriate action in good time. Notice of Discharge from Store 5.1.60. Issue. IB requires 3 days notice of discharge from store for administrative reasons. 5.1.61. Analysis. Whilst some problems have been experienced by traders at busy times, IB"s requirement for 3 days" notice of discharge is not considered unreasonable. The additional resource costs of shortening the period of notice would be disproportionate to any benefits to the trade. 5.1.62. Recommendation. None. 25 5.2 BEEF Processing Margin and Deboning Fee 5.2.1. Issue. The "processing margin" allowed for in the Regulation is considered to be inadequate under UK conditions given the greatly reduced value of the so-called "fifth quarter" (basically offal) since March 1996 when Mr Dorrell made his announcement about possible links between BSE and vCJD. UK slaughtering costs were also increased as a result of the BSE crisis. (Regulation 2456/93, Articles 14.1 and 14.3. See Annex V). 5.2.2. Analysis. The Working Group recognises that the processing margin is not exclusively a UK issue and that all EC countries have to abide by the same Regulation. Nonetheless, the UK is at a competitive disadvantage as a result of the BSE crisis. A linkage has also been made to the inadequacy of the deboning fee, as offerers into Intervention often also carry out deboning on behalf of IB. The deboning fee is determined and paid by IB. The Group considers that the current level of the processing margin and deboning fee actively discourages offers. 5.2.3. Recommendation: This is an EC regulatory issue. The Working Group recognises that MAFF has made a case for increased processing margin in the past, but, given the very high priority attached to this issue by the trade, it is recommended that the Agriculture Departments seek vigorously again to negotiate an increase in the processing margin in Brussels. The level of the deboning fee should be regularly reviewed to ensure that it is set at a realistic level. Intervention Grid 5.2.4. Issue. Within the Regulation there are 8 "grid boxes" (in descending order of quality known as U2, U3, U4, R2, R3, R4, O2 and O3). Each represents a specification/quality of a carcass which may be offered into Intervention. A market price is reported for each classification and when the price falls below a certain level for two consecutive weeks Intervention buying for that particular classification may be opened at the next EC Management Committee. The number of grid boxes "open" varies by member state. The coverage of Intervention grid boxes in the UK is considered to be inadequate both in terms of the proportion of the market supported and the categories covered. Particular concern has been expressed about the exclusion of category O steers in Great Britain given that this category is supported in Northern Ireland and the Republic of Ireland. 5.2.5. Analysis. The boxes currently open in Great Britain cover only 17% of UK production – far less than in Northern Ireland and Republic of Ireland. Furthermore, as a consequence of the limited number of boxes, in order to meet say a 40 tonne contract, some 120 tonnes of beef would need to be purchased to ensure sufficient product of the required standard. This has important cost implications for the trade and acts as a major deterrent to Intervention. This is a high priority issue for the trade. 5.2.6. Recommendation. This is an EC regulatory issue. Agriculture Departments should consider whether the categories currently included in the Intervention grid boxes for the UK provide a level of support equivalent to that available in the other main beef-producing countries within the EC. The Working Group would expect 26 such an examination to justify a case for the inclusion of the O grade and the Group would support this. Purchase and Storage of Carcass Beef 5.2.7. Issue. In the UK all beef entering into Intervention has traditionally been deboned. From the producer"s point of view purchase and storage of carcass beef would provide a more effective support mechanism because more abattoirs would be able to offer into Intervention. 5.2.8. Analysis. Offerers of beef into Intervention are typically EC approved abattoirs, the majority of which have a linked deboning plant and debone their own beef. The attractiveness of Intervention for these operators is often determined by the attractiveness of the processing margin and the deboning fee. When the abattoir sector considers that these elements are unattractive they are unlikely to make offers into Intervention and this adversely affects the effectiveness of the system as a farm price support mechanism. The purchase and storage of beef in carcass form, which is practised by most other member states would open up the arrangements to a rather greater number of abattoirs than have traditionally offered beef into Intervention, and could make Intervention more reactive to movements in market prices. It would also reduce substantially the administrative costs of Intervention and the risk of fraud. The down side is that carcass beef is more difficult to handle, with health and safety issues arising; it is more costly to freeze and store and would be less popular with purchasers of Intervention beef who prefer to buy cuts rather than have to buy quarters which would have to be deboned and which might include cuts for which the purchaser has no ready use or market. 5.2.9. In the past it has been felt by IB and the trade, that there is inadequate storage capacity in the UK to store quarters rather than the less bulky boned beef. The trade has suggested, however, that this may not still be the case, and that an option to choose between deboned and carcass Intervention would be attractive. 5.2.10. Recommendation. This is a UK administrative issue. It is complex and requires further study. The Working Group recommends that IB consider the feasibility of adopting the suggestion as an option for the trade, and undertakes a cost benefit analysis of the proposal in conjunction with the trade. Acceptance Procedure 5.2.11. Issue. EC classification rules require all carcasses to be classified immediately after slaughter at the "hot scale". The Intervention purchase Regulation requires all beef offered into Intervention to have the classification re-assessed on delivery to the Intervention centre (cold store or boning hall). (Regulation 2456/93, Article 17. See Annex V). Classification is a subjective assessment of the muscular development and the fat cover of a carcass. Problems arise when carcasses classified in the abattoir by the MLC commercial services or company graders are subsequently graded differently by IB appointed graders when presented for acceptance. Carcasses thus regraded may not be accepted into Intervention, nor may they be re-presented for acceptance into Intervention with another consignment of beef. Moreover, if 20% or more of the carcasses are regraded, the whole consignment must be rejected and may not be re-presented. 27 5.2.12. Analysis. Carcasses may be rejected for Intervention even though the farmer has already been paid on the basis of the initial classification. Also, rejections can result in the offerer failing to fulfil the contract, with a consequent loss of security lodged with IB. 5.2.13. Recommendation. This is an EC regulatory issue. i. Given the subjective nature of classification and the fact that the two classifications are performed at quite different stages (one at the hot scale and the other 48 hours after chilling), the Agriculture Departments should seek to negotiate a change in Brussels so that carcasses which are re-graded, but which remain within the eligible Intervention grid may be accepted. ii. IB and the Agriculture Departments should play an active role in the trials being conducted in some member states with instruments capable of producing an objective assessment of the classification. Reduction in Tender Prices with Fall in Market Prices 5.2.14. Issue. It is a requirement of the Regulation that tender prices are reduced if market prices fall in the period following the adjudication in Brussels, but there is no provision for them to be increased if market prices rise during the same period. (Regulation 2456/93, Article 14.3. See Annex V) 5.2.15. Analysis. The arrangement is clearly "one-sided" in that the Commission cover their "risk" against market price changes, but traders are unable to do so. The Working Group understands that the EC Commission is considering whether there should also be adjustments to the tender prices when market prices rise. 5.2.16. Recommendation. This is an EC regulatory issue. The Group recommends that the Agriculture Departments should support a change to make the adjustment two-way. Level of Securities 5.2.17. Issue Securities are normally placed with IB in the form of block guarantees provided by banks or other financial institutions. Unusually, under the beef Intervention Regulation, securities have to be lodged in cash. (Regulation 2456/93, Article 12.2. See Annex V). 5.2.18. Analysis This regulatory requirement has no rational basis (eg in terms of risk control), although the Commission has explained it in terms of deterring speculative bids. It is a very restrictive and unnecessary requirement. Tenderers who are unsuccessful with their bids face an unacceptable delay in having their money returned. Banks will only offer guarantees for sound businesses and an applicant faces a significant administrative burden and charge to obtain a guarantee or an increased guarantee. He would not do this without good reason. The guarantees themselves are as "strong" as cash – and there can be no justification for seeking cash rather than a guarantee. 28 5.2.19. Recommendation This is an EC regulatory issue. Agriculture Departments should seek an amendment to the Regulation to bring it in line with normal practice whereby securities are lodged as guarantees, not in cash. Weighing-in all Contracts Prior to Boning 5.2.20. Issue. The Regulation requires each batch of a contract to be "weighed-in" and held securely from any other meat prior to commencement of deboning. (Regulation 2456/93, Article 17 See Annex V). Not all deboning plants have the capacity to hold beef in this way although those lacking these facilities are in the minority. 5.2.21. Analysis. The time taken to complete this acceptance procedure delays the start of deboning and makes Intervention less attractive. However, the Group appreciates that the requirement is both an anti-fraud measure and is essential to comply with the rule which requires all carcasses offered for Intervention to have their classification thoroughly checked and for the whole consignment to be rejected if 20% or more has been incorrectly classified. Realistically, even though the Regulation is currently under review, the prospects of securing a change are slight. This is in any case a medium to low priority issue for the industry. 5.2.22. Recommendation. This is an EC regulatory issue. There is little chance of securing a change in the requirement to weigh-in the whole batch but the Agriculture Departments should seek to have the 20% rule removed from the Regulation. Removal of Pleura 5.2.23. Issue. It is a regulatory requirement that any carcass which is to be deboned must have the letters INT stamped on specified ribs on the hind and forequarter. (Regulation 2456/93, Article 17.5. See Annex V). Immediately prior to this a small piece of pleura must be removed from the sites where the stamp is to be applied. 5.2.24. Analysis. This requirement was introduced with the intention of reducing fraud. In reality it has no practical effect other than to slow down the acceptance procedure and to make Intervention less attractive. Although not a major issue of concern for the trade, it is seen as a quite unnecessary requirement. 5.2.25. Recommendation. This is an EC regulatory issue. Agriculture Departments should propose a regulatory change to remove this requirement as part of the Commission"s current review of the Regulation. Unlimited Liability of the Tenderer. 5.2.26. Issue. Months and possibly years after being accepted into Intervention storage, beef may be found not to be of the required quality standard. In circumstances where substitution has occurred the offerer has to meet the full financial consequences. In circumstances where the deboning contract has not been adhered to, the deboner has to remedy the deficiency. 5.2.27. Analysis. It is understood that in practice any such dispute would not be with the offerer but, rather, with the deboner. There appears to be a certain amount of trade confusion on this point as the offerer and deboner are frequently the same 29 business entity. The deboning function is carried out as a contracted service for IB to strictly defined specification. As such, the Group concluded that, although there was nothing to take exception to with this normal business arrangement, the length of time beef might remain in Intervention before discovery of any deficiency does have potentially serious consequences for the trade. 5.2.28. Recommendation. This is a UK administrative issue. In cases of fraud or substitution, the working party considers that full liability should remain with the deboner. IB should, however, explore the possibility of introducing a clause in its contract which would limit liability in situations where the deboner had simply not fully complied with some detail of the contract specification. On-Site Blast Freezers 5.2.29. Issue. There is a requirement in the Regulation that deboners must have their own blast freezers, whereas previously public cold stores were permitted to carry out this work. (Regulation 2456/93, Article 5.1. See Annex V). 5.2.30. Analysis. The Group appreciates that this regulatory requirement is to ensure that beef is in prime condition for the buyer and is designed to prevent drip and discolouration. However, most deboning plants within the UK either have no blast freezers or have insufficient blast freezing equipment to enable them to freeze beef destined for Intervention in addition to their own. It is also relevant that commercial practice is increasingly towards chilled not frozen meat (some major supermarkets only take chilled) and hence towards plants without or with limited blast freezing capacity. Moreover there are control advantages for IB if beef is removed from a deboning plant to a public cold store as quickly as possible rather than having it on site where beef is plentiful for up to 36 hours, when officials often cannot be present. This is a fairly high-priority issue for the industry and a change in the Regulation would reduce the risk of IB loss through fraud. 5.2.31. Recommendation. This is an EC regulatory issue. Agriculture Departments should seek an amendment to the Regulation whereby the option is made available for deboning plants with insufficient blast freezing capacity to use public cold store facilities to freeze beef for Intervention provided the beef enters the blast freezer on the same day that it is deboned. Prohibition on Presenting Forequarters from Hip Suspended Sides 5.2.32. Issue. Hip suspension is a method of tenderising the carcass to meet customer requirements. In the 1996-98 round of Intervention buying, purchase of forequarters from hip-suspended sides was permitted in the UK. The Commission subsequently ruled that the procedure is not in conformity with the Regulation. 5.2.33. Analysis. The UK is the only member state to use hip suspension as a method of tenderising carcasses. Following the Commission ruling, the industry reverted to other tenderising methods, notably electrical stimulation. Given that hip-suspended carcasses cannot be properly checked for conformation after the regulatory 48 hour cooling period, the prospect of persuading the Commission to review their ruling is seen as negligible. This is a low priority issue for the trade. 5.2.34. Recommendation. This EC regulatory issue should not be pursued. 30 Immediate Re-sale from Intervention of Cuts in Demand 5.2.35. Issue. Even when general market prices are low and substantial quantities of beef are offered into Intervention, there may still be a good market for certain cuts, eg fillets, rumps and sirloins. At such times, the industry typically reacts in one of two ways. Either carcasses of beef continue to be offered into Intervention and those cuts which are still in demand have to be imported from other countries. Alternatively the flow of carcasses into Intervention declines in order to meet the demand for saleable cuts, but the beef market is further depressed by carrying the burden of surplus forequarter meat and any hindquarter cuts not in demand. 5.2.36. Analysis. The buying-in Regulation requires the purchase of carcasses or sides of beef. From time to time the purchase of beef quarters is permitted. The trade have suggested that a more sensible approach would be either to permit the resale of certain cuts to the trade at market value immediately after deboning or to subsidise the use of forequarter beef in manufacture (in a similar way to the butter for manufacture schemes in the milk sector) instead of opening Intervention buying 5.2.37. Recommendation. This is an EC regulatory issue. The Working Group has considered these innovative suggestions for improving the effectiveness of Intervention but is concerned at the fraud risk and the cost of monitoring/supervision at the plant. Moreover, such schemes would be of interest only in the UK and Republic of Ireland because other countries intervene bone-in beef. 5.2.38. In the current climate in the EC, therefore, the Working Group sees no point in seeking such a fundamental change to the system, which would not be of wide interest across the EC. Prohibition of Blue Polythene Bags for Wrapping Intervention Beef 5.2.39. Issue. It is a regulatory condition that beef is wrapped in food grade polythene bags meeting a certain specification. (Regulation 2456/93, Article 25.2. See Annex V). Traditionally, the polythene wrapping or bags have been made from clear polythene. The manufacturers would prefer the polythene to be coloured blue so that any polythene which becomes trapped in meat being processed could be quickly identified and removed. 5.2.40. Analysis. Clear polythene facilitates the examination of beef in store without the need for the beef always to be removed from the bag or wrapping. However, the Regulation governing this issue is different from those relating to the other issues covered by the Working Group. In this case the Regulation is concerned with public health rather than financial management or control and emanates from the EC Council itself. The use of clear polythene fulfils the requirements of Council Directive 64/433 EC on health conditions for the production and marketing of fresh meat which states that where fresh meat is wrapped, the wrapping must be transparent and colourless. 5.2.41. Recommendation. This is an EC regulatory issue. It is important that Intervention beef is treated in the same way as meat on the open market, in terms of public health. The Working Group therefore recommends no further action on this EC Council health requirement. 31 5.3 BUTTER AND SKIMMED MILK POWDER (SMP) In-Situ Storage (Butter and SMP) 5.3.1. Issue. The Regulations do not restrict offerers into Intervention from storing the publicly owned product in their own stores. However, this is prohibited through IB administrative rules due to concerns expressed by Commission auditors about the scope for fraudulent substitution of Intervention product by poorer-quality product, and hence the risk of disallowance. 5.3.2. Analysis. IB"s concerns about potential fraud are understood, but the Working Group believes they can be reconciled by the use of appropriate controls. Certainly, in-situ storage is satisfactorily used in other member states – and IB"s administrative restriction places the UK industry at a disadvantage with traders in other member states. The limitation on using offerers" own stores limits their flexibility and imposes substantial additional transport costs on the industry and environmental pollution costs on the wider community. Whilst it is difficult to quantify the latter, these "costs" should not be underestimated; large quantities of bulk agricultural products have been shipped around the country over many years under the CAP Intervention arrangements because of the restriction on in-situ storage. (See also Cereals In-Situ – paragraph 5.1.23). This issue is most significant in Northern Ireland. Few GB creameries have the capacity to store their own produce and in most cases they use commercial stores. 5.3.3. Recommendation. This is a UK administrative issue. IB should undertake an urgent and radical review of the administrative restriction on in-situ storage of SMP and butter (i) taking into account all the costs of the current restriction and (ii) with a view to identifying alternative methods of managing the control risks. The Group anticipates that it should be possible to introduce appropriate arrangements in the UK. Butter Price Reporting 5.3.4. Issue. Intervention buying is triggered by the level of market prices. To determine average current prices, a UK trade panel collates and reports statistics weekly to the Management Committee in Brussels. (Regulation 1547/87, Article 1.2. See Annex V). The current formula for reporting prices is based on production which is unrepresentative of butter made for the market i.e. of normal commercial practice. For example the "Return" to Brussels is based on: - unsalted, not salted butter; - bulk, rather than packet sales; - butter invoiced during a week rather than contracted for sale; - payment terms of 21 days whereas normal commercial practice is 28 days. - butter manufactured within 21 days of sale whereas normal commercial practice is 28 days; and - lots of only 1 tonne – so one very small lot at an atypical price can give a non-representative bias to the average. 5.3.5. Analysis. The current price reporting system has been unsatisfactory for a number of years, and the introduction of a trade panel has not overcome the main problem that the specification of "eligible" butter is unrepresentative. Intervention by tender may thus be opened or closed on the basis of a product whose price does not 32 reflect the true market. As a result, Intervention may remain closed at times when market support would be warranted, thus further depressing prices, or open longer than appropriate. This places the UK industry at a disadvantage compared with traders in other member states. 5.3.6. The Commission and the Milk and Milk Products Management Committee have reviewed the Intervention butter Regulations including the rules relating to the price reporting of butter. The resulting new Regulation comes into force on 1 January 2000 but the price reporting rules remain largely unchanged. The Regulation still requires prices to be reported on bulk butter (blocks of at least 25 kg), with payment terms of 21 rather than 28 days. There has been a minor change in the age of butter reported, the deadline for which is extended to 23 days. 5.3.7. Recommendation. This is an EC regulatory issue. However, some aspects can be changed within the framework of the regulatory provisions. MAFF and IB should now review these. In particular the return should be based on product contracted for sale with a minimum lot size of 5 tonnes, rather than the current 1 tonne. Also, a procedure should be established for those cases where there are insufficient sales of eligible butter to apply a conversion factor to sales of ineligible butter, e.g. packet unsalted, or salted butter. Testing of Bags (SMP) 5.3.8. Issue. The Regulation (Annex II of Regulation 322/96. See Annex V) requires that bags containing SMP meet certain technical requirements. It is an IB administrative requirement that proof of these requirements being met is provided by tests currently carried out by the Packaging Industry Research Association (PIRA). The PIRA tests are paid for by the creameries. 5.3.9. Analysis. The Working Group recognises the need for good-quality packaging – SMP can remain in Intervention stores for some years. IB require the PIRA test to be carried out as proof that a regulatory requirement has been met. That the creameries have to pay for these tests contrasts with the position regarding analysis tests, for which IB meets the full cost. 5.3.10. Recommendation. This is a UK administrative issue. The Group considers that the charges on the industry for the PIRA tests are inconsistent with the practice in other commodities. Furthermore, alternative quotes should be obtained from laboratories other than PIRA. Responsibility for the quality of a bag should logically rest with its manufacturer. The Working Group recommends therefore that IB should require offerers to ensure that manufacturers provide a certificate of conformity for bag quality. The cost of any further testing to satisfy IB that standards are being met should be met by IB. Sampling (SMP) 5.3.11. Issue. Until now, offerers have had to provide an additional one tonne of product, for each lot, for sampling purposes. This procedure has enabled the 40 tonne lot to be left intact in unopened bags and has enabled IB to save the cost of re-sealing bags. 33 5.3.12. Analysis. The need to sample at the warehouse for IB control purposes is understood. However, the requirement for the extra 1 tonne is onerous. The cost of re-sealing bags at that location whilst increasing the control costs should be met by IB. 5.3.13. IB has already reviewed its requirement since this issue was raised. IB will not in future insist on the extra one tonne lot, and will bear the cost of re-sealing bags. 5.3.14. Recommendation. This is a UK administrative issue. No action is needed, if as understood, IB"s own review has recommended that IB should bear the cost of re- sealing the bags. Creamery Inspections (Butter and SMP) 5.3.15. Issue. The Regulation requires that creameries be inspected at least once every 28 days whilst SMP/Butter are being produced for Intervention. (Regulation 322/96, Article 2.2. See Annex V). IB requires inspection every 14 days. These inspections are to take samples of packaging (SMP only) and to check creamery records of the origin of raw materials, quantities of product, buttermilk and whey treated, type of heat production (for SMP), dates of manufacture etc. 5.3.16. Analysis. IB initiated a 14-day time limit to build in a "safety margin" in case of any slippage in inspection frequency by their agents for this work, namely the Agriculture Departments. Whilst the Group appreciates IB's concern to avoid disallowance, the operation of this extra 14 days "safety margin", imposes an unnecessary burden on the creameries who host the inspections (as well as on the Agriculture Departments). The SMP EC Regulation requires that if a packaging sample is found to be non-compliant, the quantity back to the last compliant sample and forward to the next must be rejected. Reducing the sampling frequency would thus increase the potential penalty for non-compliance from a maximum of 28 days to 56 days production. 5.3.17. Recommendation: This is a UK administrative issue. IB should change their requirement on frequency of creamery inspections from every 14 days to every 28 days, in line with the Regulation. This would be supported by the trade who appreciate that any increased risk of penalties would rest with them. Minimum Lot Size (SMP) 5.3.18. Issue. The Regulation imposes a minimum lot size for offers of 20 tonnes, whereas IB impose a 40 tonne minimum limit. (Regulation 322/96, Article 1.3. See Annex V). 5.3.19. Analysis. This administrative limit was introduced in order to reduce IB"s resource costs. It is also understood that, in relation to cereals, a recent FEOGA report recommended an increase in lot size. Nonetheless, the UK restriction is there for administrative convenience rather than as a legitimate control measure. As such, it is an arbitrary and discriminatory restriction. The main offerers into Intervention are large-scale dairy processors and they are not unduly hampered by this restriction but it could restrict flexibility and deter smaller offerers in the future. 34 5.3.20. Recommendation. This is a UK administrative issue. The Group recommends that IB removes its restriction which limits offers to minimum 40 tonne lots and reverts to the regulatory minimum of 20 tonnes. It is not anticipated that there will be any significant cost increase to IB in meeting this recommendation. Salted/Unsalted Butter 5.3.21. Issue. Unlike most other member states the UK's domestic butter market has traditionally and predominantly been for salted butter. The Regulation, however, requires that only unsalted butter can be offered into Intervention. (Article 2 of Regulation 454/95 and Article 6.1 of 804/68. See Annex V). 5.3.22. Analysis. Until 1987 both salted and unsalted butter were permitted into Intervention. However, the Community found it increasingly difficult, against a background of huge butter stocks, to sell salted butter out of public storage, hence the restriction limiting Intervention to unsalted butter was introduced. As a result, not only has the UK traditional butter production been excluded from Intervention, but the principal buyers of Intervention produce (food manufacturers) have had to specially gear their manufacturing processes to using unsalted butter. Whilst the EC"s previous difficulties are noted, the market conditions against which the restriction was introduced are quite different to those which prevail currently. There are no longer any EC butter "mountains". 5.3.23. In practice, however, the Group"s consultation suggests that there is little demand from the dairy trade for the UK to be able to offer salted butter into Intervention. Whilst it would be quite useful to have that option it is not considered a major priority. Furthermore, production for Intervention has to meet particular specifications that are different from "market" butter. Lifting of the restriction would imply increased bureaucracy as a second "tier" of rules would be introduced into the Regulations. By the same token, the users of ex-Intervention butter have long since adapted to using unsalted produce. Also relevant is the fact that the trade do not believe that the UK could expect to secure agreement from the Commission and other member states for the necessary Regulation change. 5.3.24. Recommendation. This is an EC regulatory issue. No action is needed. Whilst it was not always the case, the issue of salted/unsalted butter is these days considered to be a minor one by the trade and also by this Group. Distance to Stores/'User friendliness' of Stores 1. Sales into Intervention of SMP and butter 5.3.25. Issue. Given the prohibition on in-situ storage, offerers may have to transport produce considerable distances to public stores. The trade would like to make more use of local storage facilities and to know which public stores are to be used in advance of the offer into Intervention. They feel stores should open longer hours and that dedicated stores, experienced in handling Intervention products, should be used. 5.3.26. Analysis. This issue is related to that of in-situ storage. Offerers have sometimes in the past been required to deliver produce to remote stores. This was particularly a problem in 1998 but, with the possible exception of the first month of the SMP season, this was not a problem in 1999. By and large, IB uses public stores 35 whose opening hours are the same for commercial and Intervention transactions. It is difficult for IB to book space in advance because the level of offers is difficult to predict. However it should be possible for IB to give the trade a reasonable indication of likely storage location, particularly after the start of the season. There are few dedicated stores other than those owned by the processors themselves. 2. Purchases of SMP out of Intervention 5.3.27. Issue. The trade feels there are problems and delays in removing SMP from Intervention. The issues are similar to those for placing products into Intervention. 5.3.28. Analysis. This is a historical problem relating to when large quantities of SMP were consolidated into one store. Although warehouse staff are working efficiently to remove SMP, high levels of sales have resulted in a "bottleneck". This should not be such a problem in future as stocks are now being spread between stores. 5.3.29. Recommendation. This is a UK administrative issue. The Working Group accepts that IB has made improvements for 1999, but nonetheless recommends that the Board reviews (i) its policy on Intervention storage procurement with a cost/benefit analysis to include environmental/transport issues, and (ii) the handling facilities and opening times and hours of stores. Sampling/testing of butter 5.3.30. Issue. It is felt that testing takes too long and IB should advise test passes as well as failures and should do so promptly. 5.3.31. Analysis. Butter is subject to two tests. Firstly, chemical-microbiological tests on entry into store, and secondly, after 30 days, for taste, smell, and appearance (organoleptic). The 30-day delay is a regulatory time limit. Butter, if frozen, must be tempered before samples can be taken. The samples are then sent to the laboratory for analysis. Inevitably there is a time delay in obtaining analysis results. In the case of organoleptic analysis, the results are often not known until payment is due. It is accepted however that IB could notify offerers of successful analyses 5.3.32. Recommendation. This is a UK administrative issue. (i) IB should review procedures to identify any scope for speeding up analysis, (ii) IB to inform offerers of successful test results. 36 5.4 HORTICULTURAL PRODUCE Disposal Of Withdrawn Produce 5.4.1 Issue. Intervention, in the sense of public purchase and storage, is not available for fresh horticultural produce. There is, however, a very similar market support system of "withdrawal". (Regulation 2220/96, Articles 30.1, 30.2 and 30.4. See Annex V). Most withdrawn produce has been destroyed or used for animal feed in recent years, but some has been directed for free distribution to charities, schools and prisons. Growers object to free distribution of produce as it is perceived to undermine the function of withdrawal, which is to stabilise the market. There is concern that caterers in prisons and schools reduce their purchases in the wholesale markets and so depress the demand and price still further. Moreover, since the supermarkets, who now handle over 75% of all UK grown produce, base their prices to growers on the prevailing market prices, growers supplying supermarkets also experience a fall in returns. Growers are particularly concerned that an ongoing campaign, which they are funding to increase the uptake of fresh fruit and vegetables by schoolchildren, is not undermined. The Group is aware that in horticulture the balance between supply and demand can be altered even by small quantities of produce being redistributed. 5.4.2. Analysis. Sixteen commodities are covered by the EC"s withdrawal scheme, but only four are commercially grown in the UK: apples, pears, cauliflowers and tomatoes. Withdrawal must be made by a recognised Producer Organisation (PO) on behalf of its grower members. This support is also available at 90% of the withdrawal price to independent growers, but they must offer their withdrawal through a PO who may charge a fee. 5.4.3. The Regulations specify a range of potential end-uses for withdrawn produce. Following reform of the fruit and vegetables regime with effect from the 1997-98 season, the new common organisation of the market regulation specified that free distribution for human consumption should be the first priority when attempting to find an end-use for withdrawn produce, and that produce should only be disposed of by biodegradation if none of the other prescribed avenues are open. 5.4.4. IB considers a withdrawal notification and, if it is acceptable either instructs the PO to supply the produce for free distribution or allows the PO to dispose of it for animal feed or by biodegradation. In the case of free distribution, the instruction has been to package the produce in a specific manner (not the manner in which it would normally be sold to supermarkets) and transport to a local prison, charitable organisation or school. POs may claim an EC funded flat-rate packaging reimbursement. Distribution to the prison service began in December 1998, to charities in January 1999, and to schools in September 1999. 5.4.5. The Regulation seeks to ensure that withdrawn produce is supplied in addition to normal supplies. Although IB has a system in place to check that establishments" budgets and orders are not adjusted, and that caterers do not cancel or reduce their regular orders in wholesale markets, the increasing practice by schools or prisons of contracting out this service, makes this system complex to control. IB believes that its controls are adequate to ensure additionality is achieved, but both growers and wholesalers believe that the market is affected by such free distribution. 37 5.4.6. Recommendation. This is an EC Regulatory issue. The Working Group understands growers" concerns about the possible detrimental effect on their markets. In view of the very recent introduction of the new free distribution arrangements in the UK, the Group recommends that IB should take three actions: (i) commission an impact assessment to establish the effect of free distribution on the wholesale market. If this shows that the market is being adversely affected by free distribution, the European Commission should be approached to amend the regulation; (ii) review with the industry and overseas aid organisations the possibility of increasing free distribution of withdrawn produce to third countries outside the EC; (iii) review the IB"s verification and control procedures, to establish whether these are sufficient to ensure additionality is achieved for organisations receiving free produce. Packaging 5.4.7. Issue. IB requires that withdrawn produce for free distribution should be packaged in standard commercial cardboard boxes rather than in the manner it would normally be sold to the supermarket chains 5.4.8. Analysis. The Group understands that the requirement for standard boxes originated in an attempt to balance the concerns of recipients, who would not be able to receive produce in bulk, and of growers, who wished to minimise packaging costs. It should be noted that POs may claim a flat-rate packaging reimbursement funded by EC. 5.4.9. Recommendation. This is a UK administrative issue. IB should investigate whether the majority of POs participating in the free distribution of horticultural produce are content to continue packing in standard boxes, taking into account issues of convenience and costs. 38 5.5. GENERAL ISSUES Intervention Board and Industry Liaison 5.5.1. Issue. Some who responded to the Consultation process suggested that IB should more closely reflect industry "coal face" views. 5.5.2. Analysis. Industry views are fed to IB through a range of consultative groups. These are held twice a year for each of the sectors, to discuss cereals, dairy and beef issues. They are attended by the trade organisations who are invited to submit matters of concern and interest for the agendas. MAFF commodity officials occasionally also attend. A broad range of scheme issues is discussed including Intervention. In the past it is alleged that it was difficult to achieve change through these groups. More recently changes have been effected but the Consultation suggested more could be done. 5.5.3. Recommendation. This is a UK administrative issue. The Working Group recommends that steps are taken to "enliven" the consultative groups and to ensure that meetings occur regularly. A much more important and specific recommendation – which would help in this enlivening process – is to establish consultative groups by commodity across member states. The Group was surprised at the lack of knowledge in IB of the detailed work of ONIC, its French counterpart. Exactly the same is true in reverse. The Group"s visit to ONIC indicated great willingness to discuss and compare issues and there is every reason to encourage this. If contacts cannot be put in place very soon through a formal structure, they should be developed by IB immediately on an informal basis with those countries with similar issues. The objective should be to review "best practice" in relation to existing Regulations – and more particularly, to review and report back to the Commission on any proposed changes to Regulations. A very useful by-product of such a procedure would be the elimination of rumours and misunderstandings throughout the trade and IB about the procedures adopted in other countries. Let us have the facts! The Group noted that conferences involving all the Paying Agencies in the EC were held at six-monthly intervals and were hosted by the member state holding the Presidency. The Group felt that these conferences might offer a suitable avenue through which this recommendation could be pursued – but urgent action is needed. Euro Payments 5.5.4. Issue. When offering to Intervention the seller does not know what the sterling price of his product will be. This is because the Intervention price is in euro, but the exchange rate is not locked in until the "operative event", which is defined as the delivery date of the first accepted load. 5.5.5. Analysis The operative event may be some weeks after the decision has been made to offer the product to Intervention, during which time the exchange rate (and therefore the sterling price) may have changed dramatically. It is not viable to use a sterling/euro currency hedge, as the required hedge option date is not known. With barley, for example, the offer may be called for delivery very quickly if IB have local storage space available, or it could be delayed some weeks if no space is available or the intake is already fully committed for some time ahead. 39 5.5.6. The situation is worse for wheat and rye, as they must be sampled and tested prior to delivery and no time limits are set for IB completing this – it generally takes about 3-4 weeks, but the time taken can vary considerably. 5.5.7. With all grain, IB posts delivery instructions within 10 working days of receipt of an acceptable offer or, in the case of wheat and rye, within 10 working days of receipt by the Regional Cereals Officer of the test results or appeal test results. The delivery instructions must specify a date for the commencement of delivery into store which is no more than a calendar month after the delivery instructions are posted. This problem of currency risk is not new; it has existed ever since FEOGA payments were determined in ecu (and now euro) and it applies to all Intervention commodities. 5.5.8. By the establishment of the Economic and Monetary Union (EMU) the 11 founder members eliminated their currency risks on 1 January 1999. For the 4 EU members which are not in EMU, however, the risk still exists. 5.5.9. The issue has been fully recognised by MAFF and their negotiations in Brussels have led to the EC agreeing to allow payments in euro in the UK from Autumn 2000 so long as there can be demonstrated to be no "systematic advantage from using the euro as the currency of payment." MAFF have proposed a scheme to the Commission to meet this requirement and this scheme has been widely discussed with the trade. The MAFF proposal foresees that traders wishing to do so would need to apply for euro payments 3 months before the first operative event for which euros will be paid. The trader will then have to receive euro payments for at least 12 months – after which he could elect to revert to sterling. This appears to be a reasonable solution for those sellers into Intervention who are buying commodities in euro and can thus use their IB receipts in a way which provides a "free" source of foreign currency (i.e. no commission is charged and no exposure is risked). This solution is not helpful however to the (generally) smaller sellers who do not already have a euro cash flow and/or those who are not buying any goods in euro. Such offerers derive no benefit from the new arrangements because they will still have to exchange the euro they could receive, into sterling with a time-based risk of loss and a commission charge. 5.5.10. Recommendation. This is an EC Regulatory issue. The Minister"s proposal for euro payments is welcomed by the Working Group and is acceptable for some IB purchases from businesses operating internationally. For the majority of offerers whose businesses cannot effectively use euro, however, the existing currency risk will continue after Autumn 2000. One hypothetical solution would be for IB to take the exchange risk for payment in national currencies. The Working Group has sought information from the other three "pre-in" countries to determine whether their Intervention agencies are taking the exchange risk for payment in national currencies. The situation is that they are not. Furthermore, unlike the UK, they have not made a case to the Commission for payments in euro. This is presumably because they foresee early entry into Economic and Monetary Union. 5.5.11. The Group regrets that there appears to be no solution to this problem. Any move for a member government to hedge the exchange risk for offerers would in effect become a state aid and would be unacceptable. 5.5.12. The group notes that equality of treatment will be restored for all UK traders if/when the UK joins EMU. 40 Payment delays 5.5.13. Issue. For all products there are long delays between delivery into Intervention, and receipt of payment. The delays are generally well in excess of normal business arrangements (usually 28 days). 5.5.14. Analysis. There are two reasons for delay: (i) delays formally written into the EC Regulation (originating from pressures on the FEOGA budget in previous years); (ii) administrative delays in the UK. The regulatory delays are currently: days Cereals 30 – 35 Beef 45 - 65 Butter 45 - 65 SMP 120 - 140 5.5.15. IB does normally pay at the front end of the regulatory "window". The trade"s complaint is thus primarily with the window itself. Traders offering product into Intervention, are by definition weak sellers, having to avail themselves of a "last resort" outlet when market prices are low. They have to accept the conditions imposed within the Regulations, including the payment delays The Working Group believes that as far as possible, Intervention activity should parallel commercial practice. It is wholly unreasonable that the small/medium enterprises, i.e. farmers, who are intended to benefit from Intervention, should be subject either directly, if they are themselves sellers into Intervention, or indirectly to these payment delays. Such delays are entirely unacceptable in other parts of the business community. For example, under the "Prompt Payment Code" of the Confederation of British Industry (CBI), businesses and bodies signed up to the code (including IB) are required to deal with payments expeditiously and in a transparent way (such that all the terms are clear from the outset). Prompt payment is supported in law through the "Late Payment of Commercial Debts (Interest) Act 1998". This Act entitles the recipient of a late payment to seek compensation for that delay (although for purposes of payment for Intervention, this is after the last day in the regulatory payment window). The group notes that in the absence of a regulatory deadline, IB has to make payments within Ministerial guidelines – which is 30 days from the date of receipt of a valid invoice. 5.5.16. Recommendation. This is an EC regulatory issue. There is no logic for the EC regulatory delays. They appear to have been introduced solely to control the FEOGA budget in a past year. UK Agriculture Departments, should make a case for the restoration of normal EC commercial payment terms in Intervention. The case could perhaps be supported by information on prompt payment legislation from the UK and other member states. IB Better Regulation 5.5.17. Issue. IB's core business is concerned entirely with the operation of Regulations. It is therefore surprising that unlike other Government Departments IB has no dedicated unit concerned with "Better Regulation" issues. 5.5.18. Analysis. It is recognised that a critical difference between IB and other Government Departments is that IB is concerned exclusively with operating EC rather 41 than domestic Regulations. The scope for improving Regulations might be considered to be more limited, and in any case lead responsibility for these and other policy issues rests with the Agriculture Departments, not IB. As the UK co- ordinating body, IB does have an important input into allied issues through participation on EC Committees concerned with harmonisation and simplification matters 5.5.19. Nonetheless there is no dedicated unit within IB tasked with championing "Better Regulation" in EC Regulations for the UK customers of the CAP schemes which it operates. It is acknowledged that considerable effort is made by IB's Corporate Communications Unit to make IB as "unbureaucratic" as possible in dealing with its customers, but that is rather different from actively seeking to reduce unnecessary regulatory burdens within the schemes it is tasked with operating. 5.5.20. Recommendation This is a UK administrative issue. IB should task a senior official as a champion for Better (EC) Regulation for traders and operators. This official would contribute to Agriculture Department negotiations, particularly on substantial amendments to Regulations or the introduction of new Regulations, and would be supported by a small unit to be established within the IB Operations Directorate. 42 GLOSSARY BSI - British Standards Institute CCFRA - Campden & Chorleywood Food Research Association CAP - Common Agricultural Policy CBI - Confederation of British Industry EMU - Economic and Monetary Union EAGGF/FEOGA - European Agricultural Guidance and Guarantee Fund EC - European Community EU - European Union GATT - General Agreement on Tariffs and Trade GOS - Government Owned Stores GDP - Gross Domestic Product IACS - Integrated Administration and Control System IB - Intervention Board MLC - Meat and Livestock Commission MAFF - Ministry of Agriculture, Fisheries and Food NFU - National Farmers Union ONIC - Office National Interprofessionnel des Céréales PIRA - Packaging Industry Research Association PO - Producer Organisation SMP - Skimmed Milk Powder WTO - World Trade Organisation 43 ANNEX II BIOGRAPHICAL DETAILS OF GROUP Mr Norman Coward – Chairman Retired last year from being Agriculture Director of Midland Bank. He is now Director of the Milk Group Limited, Nene Valley Foods Limited, Grosvenor Farms Limited, and is President of Group Cereal Services Limited. He is a visiting Professor at Wye College, University of London. Members of the Group Richard Butler Farms a dairy and arable farm in Wiltshire, and is a Director of NFU Mutual, and Chairman of the NFU Cereals Committee. Margaret Charrington Chairman of the Horticulture Development Council, founding Chairman of the Women"s Farming Union, and Director of Invest in Britain. Richard Cracknell Managing Director of ABP Ltd which deals with beef processing and former President of the Federation of Fresh Meat Wholesalers. John Houliston Chief Executive of Dairy Crest plc, and currently the President of the Dairy Industry Federation. Peter Stewart Farms an arable farm in Fife. He is the Vice President of the NFU Scotland, is on the Board of the Home Grown Cereals Authority and is a Director of Tayforth, a Grain Marketing Co-operative. 44 45 ANNEX III CONSULTATION LIST Aberdeen Grain Marketing Ltd A J & L P Biddulph George Abrahams Ltd B E & K C Birch Acorn Arable Ltd Blois Farm Adams & Howling Ltd Bodle Dickson & Stokoe Ltd Agrilines Ltd S R Bowring & Son Agroceres & Co Ltd Bowring Agriculture (A Division of Bowring R H & D H Allan Transport Ltd) Allerton Research & Educational Trust Brennan Farms Ltd Allied Grain (Anglia) Ltd Britt Broadbent Ltd Allied Grain (Scotland) Ltd G Brocklesby Allied Grain (South) Ltd J A Brown & Son Ancaster Estates (Drummond) S H Brown (Farms) Ltd Anglo Beef Processors Ltd ABP Scotland J & R Bucher Birniehill Meat Complex Buckminster Farms Anglo Beef Processors Ltd - ABP Ellesmere Buckminster Trust Estate - No. 3 Trust Farm Anglo Beef Processors Ltd - Lurgan Buckminster Trust Estate - No. 5 Trust Farm Anglo Beef Processors Ltd - ABP York Buitelaar Boston Ltd Anglo Beef Processors Ltd - Shrewsbury Butler Bros (Avebury) Ltd Anglo Dutch Meats (Charing) Ltd V J Buxton & Sons Anglo Dutch Meats (UK) Ltd C D B Meats Ltd Robin Appel Ltd CAF Grains Argrain Ltd Campbell & Penty Ltd Armstrong Meats Canvin International Ltd Aspley Foods Ltd Cargill PLC Agricultural Division (CMD) Avonmore Meats (UK) Ltd D M Carnegie Aylsham Grain Marketing Ltd W E & D T Cave Ltd Jack Baker Ltd Champion Meats Ballymena Cold Store Charnage Farms Ballymena Meats Chilton Grain Ltd Bangor Meats Chinnerin Ltd H Banham Ltd Chitty Wholesale Ltd Banks Agriculture (A Division of Sidney C A W M Christie-Miller Banks plc) S V Christie-Miller Farms Ltd Banks Southern (A Division of Sidney C Geoffrey Clarke Grain Co Ltd Banks plc) Cleveland Meat Co Ltd Barker Hickman Ltd J H Cobden Ltd Barnes and Maney Ltd Coggan Ltd C R Barron Ltd Coleraine Meats Barrydale Ltd Columbus Services Ltd Bartholomews (Chichester) Ltd Conquest Trading Ltd BDR Agriculture Ltd Continental UK Ltd Belvoir Foods Ltd Cook & Williams (Grain) Ltd H M Bennett (1971) Ltd - Fareham Abattoir N Corman S.A. H M Bennett (1971) Ltd - Tillydown Abattoir Cornwall Meat Packers Ltd G van den Bergh Nijmegen Cornwall Meat Processors Ltd 46 Corries Meats Ltd P Doherty Cotswold Agriculture Merchants Ltd Doherty & Gray Wholesale Meats Countrywide Meat Co Ltd S M Donally A L Cox & Sons John Drevor Dickinson & Brenda Dickinson David H Cox Louis Dreyfus Trading Ltd I M Cowe & Co Ltd Drummond Trust Cozens Marketing D T Duggins Ltd Crathorne Farms Dunecht Home Farm CSS Meat Importers (UK) Ltd Dungannon Meats Ltd Cumberland Meat Packers Dunluce Foods Ltd David Cuttle Ltd East Coast Viners Grain CWS Agriculture (Crewe) East of Scotland Farmers Ltd CWS Ltd T/A CWS Agriculture Eilers & Wheeler Ltd D B Foods Ltd Elm Tree Farm Ltd Dairy Crest Ltd Emerald Meats Ltd (London) Dairy Ingredients (UK) Ltd R M English Grain Ltd Dalgety Agriculture Ltd (Dundee) Ensors Abattoir Ltd Dalgety Agriculture Ltd (Hereford) Etherson Meats Ltd Dalgety Agriculture Ltd (Devon) Euroscot International Dalgety Agriculture Ltd (Aberdeenshire) Eurostock Meat Marketing Ltd Dalgety Agriculture Ltd (Wiltshire) Euston Farms Dalgety Agriculture Ltd (Buckinghamshire) Ewart Grain Partnership Dalgety Agriculture Ltd (Essex) Express Dairies Ingredients Dalgety Agriculture Ltd (Kent) Fairfax Meadow Ltd Dalgety Agriculture Ltd (Bristol) Farquharson Farms Dalgety Agriculture Ltd (Lincoln) J & P Felton Farming Dalgety Agriculture Ltd (Cirencester) Fengrain (Services) Ltd Dalgety Arable Ltd (Finmere) First British American Corp.(Re: Frans Dalgety Arable Ltd (Lincoln) Buitelaar) Dalgety Arable Ltd (Turriff) Fishers Seeds & Grain Ltd Dalgety Seamans (Arable Trading) J & B Fitton Ltd Dalmark Grain Ltd FMC (Meat) Ltd Dalziel Ltd Frank B Forman & Sons E J Daniels & Son Foyle Meats Ltd G O Davies (Westbury) Ltd Framlingham Farmers Ltd Ivan Davison Fransham Farm Co Ltd Dawkins of Congerstone Ltd Freeza Meats Ltd Dawn Bedford Ltd Fromanor Ltd Dawn Meats (UK) Ltd James Gammie - Gawnsmoss Farm Dawn Yorkshire Ltd P J & M J Gent Dawncraft Ltd Glasson Grain Ltd J Dawson & Sons Gleadell Banks (Agriculture) Ltd T Deene & Sons Ltd Glenbrook Foods Ltd Dengie Crops Ltd Glencore Grain UK Ltd Dennis Estates Global Group plc Department of Agriculture for NI Gowlett Grain Ltd Ivor Dewdney Pasties Ltd Grain Harvesters Ltd F & J P Dillon c/o W D Meats Ltd Grainco Ltd Francis J Dillon c/o W D Meats Ltd Grainmarque Ltd James P Dillon c/o W D Meats Ltd Grainsby Farms Ltd J & J Dobson Grant Brothers (Meat Canners) Ltd Doddington Park Farms Granville Meat Co Ltd 47 Great Harwood Food Products Ltd Kepak (UK) Ltd (Burnfoot) R W Green Kepak (UK) Ltd (Wakefield) John Guthrie Ltd Kepak (UK) Ltd (Bamber Bridge) Group Cereal Services Ltd Kepak (UK) Ltd T/A Kepak Buchan S M Hackett & Son Ltd Kurpus Meats plc Edward Hamer Int Lagan Meat Co Ltd Hampshire Grain Ltd c/o Scats Grain Ltd A M Lamont & Co W W Hannam & Sons Ltd Lavery Meats Harlow Agriculture Merchants Ltd Mark Lawrence Grain Ltd J H & J M C R Harris Lawson Farms Harrogate Wholesale Meat Co Patrick Leanard E F Harrold Ltd Leckpatrick Dairies Ltd N A Haworth Contracts Leeway (Wholesale) Meats Ltd Heart of England Grain Co Ltd Leivers Brothers J H Heath Ltd Lewes Farmers Ltd Allan Henry & Sons Wm Lillico & Sons Ltd Hewitt Bros W R & P R Lloyd Heygate March Ltd Lingrain Ltd Heygates Ltd Little Staughton Farms Ltd Highland Grain (Marketing) Ltd Livestock and Meat Commission Highland Meats Ltd Lockerbie Meat Packers Hilltop Seeds Lockwood Estate Ltd Hilton Meats (Cookstown) Ltd F E Lodge & Son F J A Hipperson & Sons Low Lindrick Farms Hoogwegt International B.V. Lower Blackgrove Farm Ltd P T Hosier & Son Lurgan Chilling Ltd Hosier Brothers Ltd C A C Macandrew & Co Houlton Meats Ltd Mainline Meats Ltd J & E Howard & Sons Malmesbury Farm Supplies Ltd Howard Bros (Farmers) Ltd J D Martin Ltd Edmund Howdle Mason Bros (Butchers) Ltd Humber Grain Services Ltd Master Pack Foods Ltd G M Hunter Ltd Mathers (Inverurie) Ltd Alexander Inglis & Son Ltd Matheson Jess (Dundee) Ltd Intercity Meats F W P Matthews Ltd Inverquhomery Farm McCreath Simpson & Prentice Ltd NWL Ireland Ltd McIntosh Donald Ltd J A R & C J Jackson James McIntosh & Co Ltd T/A McIntosh of Charles Jackson Co Ltd Dyce Jackson Wholesale Meat Suppliers Ltd M J & J McLaren Owen James Shoubrige Lory-Phillips McQuillan Meats Ltd W E Jameson & Son Ltd Meadow Food Ltd Alec Jarrett Ltd Meat Marketing Services Ltd Jaspers (Treburley) Ltd J B Megahey T/A J B Meats A P Jess Ltd J B Megahey T/A Megahey Meats O C Jewers & Sons Ltd Melkweg Holland B.V. Johnson & Saunt Ltd Mercer Farming Ltd Johnson Brothers Midland Meat Packers Ltd J R & C E Jones Ltd Midland Shires Farmers Ltd Oriel Jones & Sons Milk Marque N R & B P Kennaugh Charles E Mills & Son Ltd W R & B P Kennaugh Milltown Livestock & Meat Co 48 Monarch Foods International Ltd Scotbeef (Meat Packers) Ltd James Mortimer Ltd Scotch Premier Meats (Inverurie) Moy Meats Ltd c/o Granville Meat Co. Scotch Premier Meats (Edinburgh) Moy Meats Ltd (Strangford) Scotgrain Agriculture Ltd Muntons PLC John Scott Meat (Paisley) Ltd Murray Vernon Ltd Segrain Ltd c/o Scats Grain Mutch Meats Ltd Severn Grain Ltd Neerock Ltd T/A Woodhead Bros. Meat Co. Sherriff Grain Ltd Newman & Partners T/A P C Turner Shire Grain Ltd NIDCO Foods Ltd Shropshire Grain Ltd Nolands Farm S M Simon R A Norman Sims Foods Carnaby Norris Bros A G Sly & Sons North Country Quality Foods Ltd Frederic Smart & Son Ltd North Devon Meat Ltd J Soufflet Agric Mchts (Anglia) Ltd North East Grains Ltd Soufflet Agriculture Ltd North Eastern Farmers Ltd G W Soutar (Grain Traders) Ltd North Herts Farmers Grain Ltd South Devon Meat Packers North Hill Farms Ltd South Esk Farms - Haughs of Kinnard Northern Counties Meat Group Ltd Southdown Foods Ltd Oakfield Foods Ltd Southern Counties Fresh Foods Ltd Omagh Meats Southern Counties Grain Ltd Orkney Meats Ltd C K Squirrell & Sons Ltd B T Parker St Clere Farms John L Picken St Merryn Meat Ltd Robert Picken & Son Staple Dairy Products Ltd A F Pickles & Son Stapleford Farms Isaac Poad & Sons Ltd Sternberg Farms Poulton Priory Farms c/o CWS Agriculture J Stevenson – Willow Hall Farm Premier Meat Packers A K Stoddart Ltd (Edinburgh) P Radbourne & Son A K Stoddart Ltd(West Lothian) E H Radcliffe & Son Ltd Strathmore Agribusiness Rand Brothers Stratton Streles Estates Ltd John Rankin Grain & Protein Factor J C & M W Suckley Raymond Bros T H Sutcliffe (Meat Wholesalers) Ltd Colin Rayner-Green - Mitchells Farm G H Sutton Ltd Redlands Meat Ltd Edward Swale Ltd R M Rednall Joseph E Swiers Ltd Richmond Lonsdale Ltd Patrick J Swiers J W Rickett & Partners Tarelgin Farm Foods F W Ridout & Co Tayforth Marketing Group Ltd J & H Ritchie Tayside Grain Co Ltd Frank Antony Rix - Rookery Farm Teamtrain Ltd William Robertson & Co. The Rowston Estate Company Rose County Foods Ltd Thistle Meat Specialists Ltd R C Roundell Farm Partnership R K Thomas - Tretheuan Farm T J Rowland Farms Ltd V J Thomas & Son Rutter Bros R H Thompson Co Ltd E Sankey & Son Tiln Farms Ltd Saxon Agriculture Ltd G J W Titmuss Ltd Ian Scard"s Services to Agriculture Topcut Meat Co Scats Ltd Topping Meats 49 Toro Trading Ltd Towers Thompson Ltd Tranmere Meat Co Trans Oceanic Meat Co (Manchester) Ltd Twin Trade Ltd Universal Meats (UK) Ltd G E Unwin Grain Ltd Upthorpe Farms Valley Meats John Vergette Ltd M S Vernon & Partners W M Vernon Viking Cereals Ltd W D Meats Ltd Waddesdon Farms G T Wagstaff & Son R P Winder Wholesale Meat Ltd Alex Waugh & Partners Weald Granary Ltd c/o Scats Grain Ltd Weddel Swift Ltd Wells Agricultural Ltd Welsh County Foods Ltd Wessex Grain Ltd West Country Grain Ltd West Devon & North Cornwall Farmers Ltd West Devon Meat Ltd West Midland Farmers Association Ltd Western Arable Services Ltd Westgate Foods Westlers Foods Ltd G Williams & Co Seeds R E Williams & Sons H & M Wilson - Fishers Farm Kenneth Wilson Philip Wilson (Corn Factors) Ltd Philip Wilson (Grain) Ltd Wiltshire Grain Ltd c/o Scats Grain Ltd Windrush Agricultural Estates Ltd Witney Grain Ltd John Wharton Meats Ltd Woodhead Seeds Ltd Wrekin Farmers Ltd Yorkshire Premier Meats J W Young (Butchers) Ltd 50 TRADE ORGANISATIONS BCCCA (Biscuit, Cake, Chocolate & Confectionery Alliance) British Association of Green Crop Driers British Meat Manufacturers Association British Meat Federation Cold Storage Distribution Federation Dairy Industry Federation Farmers" Union of Wales Federation of Fresh Meat Wholesalers Food and Drink Federation Grain & Feed Trade Association Home Grown Cereals Authority International Meat Trade Association International Meat Trade Association Livestock Auctioneers Association Livestock Auctioneers Association Northern Ireland Livestock Auctioneers Association Scotland Meat and Livestock Commission Meat and Livestock Commission Agency Services National Dairyman"s Association National Farmers Union National Farmers Union Scotland National Farmers Union Wales National Federation of Meat & Food Traders Northern Ireland Meat Exporters Association PTF (Provisions & Trade Federation) Scottish Association of Meat Wholesalers Scottish Dairy Association Scottish Federation of Meat Traders Association UK Association of Frozen Food Producers Ulster Farmers Union United Kingdom Agricultural Supply Trade Association 51 ANNEX IV VOLUME OF INTERVENTION ACTIVITY – EU AND UK Quantities and costs of Intervention product stored by IB 1989-90 to 1998-99 Cost includes: Purchases, Offtakes, Financial Costs, Technical Costs. Costs relate to the FEOGA Financial year (mid-October to mid-October). Table 1. CEREALS PURCHASES SALES CLOSING STOCK COST YEAR (TONNES) (TONNES) (TONNES) (£M) 1989-1990 3,826 541,983 621,000 27 1990-1991 165,000 70,000 716,000 37 1991-1992 86,000 170,000 632,000 65 1992-1993 618,000 398,000 852,000 235 1993-1994 970,000 242,000 1,580,000 73 1994-1995 14,000 1,037,000 557,000 110 1995-1996 1,000 558,000 0 20 1996-1997 12,000 1,000 11,000 2 1997-1998 524,646 0 535,646 120 1998-1999 842,717 524,661 853,702 Figures not yet available Table 2. BEEF PURCHASES SALES CLOSING STOCK COST YEAR (TONNES) (TONNES) (TONNES) (£M) 1989-1990 12,721 25,702 10,572 153 1990-1991 98,415 16,549 92,438 377 1991-1992 86,221 40,434 138,225 335 1992-1993 64,786 41,151 161,860 274 1993-1994 3,615 96,730 68,745 166 1994-1995 0 56,668 12,077 95 1995-1996 0 6,749 5,328 98 1996-1997 59,082 200 64,210 212 1997-1998 46,819 12,098 98,931 72 1998-1999 3,933 29,164 73,700 Figures not yet available 52 ANNEX IV (cont.) Table 3. BUTTER PURCHASES SALES CLOSING STOCK COST YEAR (TONNES) (TONNES) (TONNES) (£M) 1989-1990 9,551 10,300 5,645 67 1990-1991 23,560 3,755 25,450 60 1991-1992 11,248 18,861 17,837 27 1992-1993 1,500 8,390 10,947 18 1993-1994 3,989 9,451 5,485 9 1994-1995 0 4,208 1,277 11 1995-1996 0 0 1,277 10 1996-1997 5,148 1,277 5,148 5 1997-1998 0 3,184 1,964 9 1998-1999 0 1,284 680 Figures not yet available Table 4. SMP PURCHASES SALES CLOSING STOCK COST YEAR (TONNES) (TONNES) (TONNES) (£M) 1989-1990 0 40 0 10 1990-1991 6,710 0 6,710 4 1991-1992 2,785 3,960 5,535 11 1992-1993 0 5,155 380 5 1993-1994 5,666 0 6,046 9 1994-1995 1,240 6,822 464 11 1995-1996 0 464 0 51 1996-1997 29,460 0 29,460 36 1997-1998 23,835 0 53,295 53 1998-1999 26,670 0 79,965 Figures not yet available 53 ANNEX IV (cont.) Table 5. EC and UK Intervention Stocks HIGHEST LEVELS SINCE 1/1/85 ('000 tonnes) Previous Highest Commodity Current Level Level (to end 1995) BEEF EC 978 (Jul 93) 226(a) UK 165 (Feb 93) 40(b) TOTAL CEREALS EC 31,585 (Jul 93) 13,233 UK 6,013 (Nov 85) 365 BARLEY EC 8,483 (July 93) 5,153 UK 2,087 (Nov 85) 365 WHEAT EC 14,569 (Jul 93) 4,678 UK 3,926 (Nov 85) 17 DURUM EC 4,682 (Feb 93) 0 UK * * MAIZE EC 3,315 (Jul 93) 44 UK * * RYE EC 3,,712 (Feb 92) 3,309 UK °°° 13 BUTTER EC 1,323 (Sep 86) 43 UK 259 (Oct 86) 7 SMP EC 960 (Jul 86) 254 UK (Jan 85) 91 OLIVE OIL EC 417 (Sep 88) 25(c) Key °°° = less than 500 tonnes (a) Latest figure is for May 1999 (b) Latest figure is for July 1999 (c) Latest figure is for July 1999 * = no Intervention price arrangements in the UK for durum, maize, sorghum and rice Source: MAFF European Union Division 'B' 54 ANNEX V REGULATIONS (EXTRACTS) COMMODITY In Paragraph REG. SUBJECT EXTRACT Number Order Cereals 689/92 Aggregation of Article 3.5. The quality characteristic Para 5.1.1-5.1.7 Samples for Analysis shall be established on the basis of a representative sample of the lot offered made up of samples taken at the rate of one sample per delivery and at least one every 60 tonnes. Para 5.1.12-5.1.14 689/92 Appropriateness of Article 2.2. In addition in cases where Dough Machinability analysis indicate that the Zeleny Index of a Test batch of common wheat is between 20 and 30, in order to be deemed sound, fair and of marketable quality within the meaning of paragraph 1, the dough obtained from this wheat must be judged to be non-sticky and machinable in accordance with the method laid down in Annex IV to Regulation (EEC) No 1908/84 of the Commission. Para 5.1.35-5.1.38 2731/75 Moisture Derogation Annex 1 of 689/92 and Art 1.1.b of & 2731/75. Maximum moisture content 689/92 14.5% – at the request of the Member State, a decision shall be taken in accordance with the procedure provided for in Article 23 of Reg (EEC) No 1766/92, to fix the maximum moisture content at 15% for cereals offered for Intervention with the exception of maize and sorghum. Para 5.1.39-5.1.41 689/92 Moisture Content of Articles 3.5. The quality characteristic Wheat at time of shall be established on the basis of a Technical Testing representative sample of the lot offered 55 ANNEX V (continued) Para 5.1.51- 5.1.53 689/92 Load Rejections Articles 2.1 and 2.2. In order to be accepted for intervention, the cereals must be of sound, fair and of marketable quality. They shall be considered of sound and fair merchantable quality if they are of the typical colour of the cereal in question, free from abnormal smell and live pests (including mites) at every stage of their development, meet the minimum quality requirements set out in *Annex I* and the radioactivity levels of which do not exceed the maximum levels permitted under Community Regulations Beef 2456/93 Process Margin & Articles 14.1 and 14.3 – plus ECU 10 per Para 5.2.1-5.2.3 Deboning Fee 100 Kilograms carcass weight. However, in the case of Member States or regions of a Member State meeting the conditions laid down in Article 6.4 of Reg (EEC) No 805,68, the amount added shall be ECU 6 per 100 kg. EC 2417/95 Art 2.11.b. Where the buying-in price awarded to a tenderer under an invitation to tender pursuant of Article 6 of Reg (EEC) No 805/68 is higher than the average market price as referred to in paragraph 1, the price awarded shall be adjusted by multiplying it by the coefficient obtained by applying formula A in Annex VI hereto. However, that coefficient may not: - be greater than 1, - result in a reduction in the price awarded which is greater than the difference between that price and the average market price. Para 5.2.11-5.2.13 2456/93 Acceptance Article 17. The acceptance procedure Procedure shall cover a systematic examination of the presentation and classification. 56 ANNEX V (continued) Para 5.2.14-5.2.16 2456/93 Reduction in Tender Article 14.3. Where the buying-in price Prices with Fall in awarded to a tenderer under an invitation Market Prices to tender pursuant to Article 6 of Regulation (EEC) No 805/68 is higher than the average market price as referred to in paragraph 1, the price awarded shall be adjusted by multiplying it by the co- efficient obtained by applying formula A in Annex VI hereto. However, the co- efficient may not: - be greater than 1. - result in a reduction in the price awarded which is greater than the difference between that price and the average market price. Should the Member State possess reliable data and have suitable means of verification, it may decide to calculate the correcting co-efficient for each tenderer using formula B in that Annex. Para 5.2.17-5.2.19 2456/93 Level of Securities Article 12.2. Notwithstanding Articles 8.1 and 11 of Commission Regulation (EEC) No 2220/85, securities shall be lodged only in the form of cash deposits as defined in Articles 13 and 14.1 and 14.3 of that Regulation. Para 5.2.20-5.2.22 2456/93 Weighing-in all Article 17.6 (as per Intervention Boning Contracts Prior to Agreement: Clause 2Bi. Each Boning consignment of the beef allotted to him by the Agency shall after checking and weighing-in by the Agency"s agent be held securely from any other meat until commencement of the boning operation). 57 ANNEX V (continued) Para 5.2.23-5.2.25 2456/93 Removal of Pleura Article 17.5. As regards the taking over of bone-in meat intended for boning in Intervention centres which do not meet the requirements laid down in the first subparagraph of Article 5.2, the requirements in respect of identification, delivery and control should include the following provisions: - at the time of taking over referred to in paragraph 1, the forequarters and hindquarters for boning must be identified by marking the letters INT inside and outside, in accordance with the same rules as those laid down in Article 4.3.c. for marking the category, the slaughter number and the location of the corresponding marks; however, the letters INT shall be marked on the inner side of each quarter at the level of the third or fourth rib in the case of forequarters and of the seventh or eighth rib in the case of hindquarters; in addition, the pleura must be removed beforehand at the level of and within those sites; Para 5.2.29-5.2.31 2456/93 On-site Blast Article 5.1. Intervention centres shall be Freezers selected by Member States with a view to ensuring the effectiveness of Intervention measures. - freezing without further processing of all meat to be preserved. Para 5.2.32-5.2.34 2456/93 Prohibition on Article 17. Note – No provision for this Presenting type of presentation contained in this Forequarters from Article concerning inter alia, storage. Hip Suspended Sides Para 5.2.39-5.2.41 2456/93 Prohibition of Blue Article 25.2. Polyethylene used to line Polythene Bags for cartons and polyethylene sheet or bags Wrapping used to wrap cuts must be at least 0.05mm Intervention Beef thick and suitable for wrapping foodstuffs. Butter and SMP Para 5.3.4-5.3.7 1547/87 Butter Price Article 1.2. Where buying in is re- Reporting established the offers to sell referred to in the last sub-paragraph of Article 4.5 of Reg (EEC) No 404/95 may in no case be recorded. 58 ANNEX V (continued) Para 5.3.15-5.3.17 322/96 Creamery Inspections Article 2.2. Those inspections must (Butter and SMP) include at least - one inspection per period of 28 days of manufacture for Intervention with at least one inspection every six months to examine the records referred to in paragraph 1.b (repeated in Art 3 of R 454/95) Para 5.3.18-5.3.20 322/96 Minimum Lot Size Article 1.3. The minimum quantity (SMP) offered for sale shall be 20 tonnes. Member States may increase the minimum quantity and/or lay down that the SMP must be offered in whole tonnes. Horticulture 2220/96 Disposal of Articles 30.1, 30.2 and 30.4. Products Para 5.4.1-5.4.6 Withdrawn Produce withdrawn from the market under Article 23.1 which remain unsold shall be disposed of as follows: - free distribution to charitable organisations and foundations, - free distribution to penal institutions and to children"s holiday camps as well as to hospitals and old people"s homes, - free distribution outside the Community, and secondly - use for non-food purposes, - use in animal feed, either fresh or after processing by the feeding stuffs industry, - fruit: free distribution to school children, other than as part of the meals served in school canteens. - In cases where none of the destinations referred to in paragraph 1 is possible, products withdrawn may be destined for composting or for biodegradation processes authorised by the Member State concerned. Member States shall help to establish contacts between producer organisations and charitable organisations and other bodies which may be interested in suing products withdrawn from the market within their territory. 59
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