MONDAY 30 NOVEMBER 1998

MR RICHARD PACKER and MR GEORGE TREVELYAN

  1.  Good afternoon. May I welcome you, if that is the appropriate word, to the Committee. The hearing this afternoon is on the C&AG's Report entitled BSE: The Cost of a Crisis. The cost of a crisis may actually be appropriate in this particular case, as I think will be revealed in the questioning. May I welcome Mr Packer, the Permanent Secretary at the Ministry of Agriculture, and Mr George Trevelyan, the Chief Executive. Perhaps we can start, Mr Packer, with you. Can we turn to pages 68, 69 and 70 because while we may have a problem tracing the wretched animals at the centre of this analysis, there is another trail to be followed which is spelt out in those three pages. As I understand it, another Department in the same Government had introduced in Northern Ireland a computerised database of cattle in 1988. Is that correct?
  (Mr Packer)  That is correct, Chairman.

  2.  In 1990, as it says in paragraph 3.41, the Agriculture Select Committee recommended a comprehensive scheme for identifying and tracing all cattle and recommended that it should be implemented immediately. The Ministry carried out a feasibility study but nothing further ensued, is that correct? It should be as it says it in the Report.
  (Mr Packer)  It should indeed. Nothing happened directly, that is true. Of course, there is a cattle traceability system now.

  3.  We happen to be ten years ahead. There is a little gap I want to fill in before we come on to what exists at the moment because the gap is rather fascinating. In 1992 the EC Commission, according to paragraph 3.49, issued a Directive requiring cattle to be given a unique identification number and for it to be recorded on a tag attached to an ear. Am I correct in saying that the normal Directive takes up to five years to prepare before it is eventually ratified?
  (Mr Packer)  That may be the case in some cases, Chairman. I cannot tell you how long this one took.

  4.  But it would not have been a matter of months or weeks, it would have been a matter of years?
  (Mr Packer)  It would not have been a matter of weeks and probably not a matter of months.

  5.  So we are now up to 1992 and for an undisclosed number of years before that you were aware that a Directive was emerging from the EC, but still nothing was done until an Order was introduced three years later, in 1995, is that correct?
  (Mr Packer)  The Order was introduced in 1995, that is correct.

  6.  So we are now seven years behind Ireland, another Department in the same Government. In between times the Agriculture Committee came back again and again recommended that you should make a new assessment of the need for some system and, according to paragraph 3.43, the response to that was that the Government would propose to consider the timing of a national database feasibility study in 1996-97. So we are now very near the current date and still all that was being considered was the timing of a feasibility study when BSE was already recognised and with us.
  (Mr Packer)  Yes.

  7.  So the facts are all acceptable. Then you had a feasibility study in 1996 and that reported in September 1996 and the recommendations in that report pointed out that the cost of converting the paper passport to an electronic form would grow by about £900,000 for each month of further delay, that is over £10 million a year just for the increase in costs. Is that correct?
  (Mr Packer)  If one were to go backwards then that would be correct, yes.

  8.  You agreed the Report so we know it must be correct. In November 1996, following Treasury approval, the Ministry sought Ministers' approval in December 1996 to consult the industry. So we are now way ahead of the Irish decision and the date of the Directive. If you go to paragraph 3.48, we then find that further delays resulted as ministerial approval was not obtained before the General Election. So we are now into May of last year and Ministers still had not made a decision, is that correct?
  (Mr Packer)  Correct.

  9.  And it was not until after the Election that, since there had been no preparatory work, the go-ahead was given to prepare a scheme. Do you not find this not just a tragic trail of neglect but an almost incomprehensible one in view of the cost that has subsequently arisen for the country and the damage that has been done to the farming industry?
  (Mr Packer)  No, Chairman, I do not.

  10.  Tell us why not.
  (Mr Packer)  The cost that would have been saved by the institution of a traceability system is a very small proportion of the total costs recorded in this document. There are a number of other points. The EU were developing their own proposals and it was important to ensure that anything we did would be compatible with what they proposed and as the end of paragraph 3.42 notes, reporting the Agriculture Committee's views, it was also noted that such systems were expensive to establish and to run and that the benefits were likely to be long term rather than immediate. I think that is a perceptive comment by the Committee and I do not think we would have been right to push ahead very rapidly. The Northern Ireland scheme was instituted because of the particular difficulties in the Province, i.e. the tuberculosis problems which we did not have.

  11.  You say that the costs were small by comparison with the total costs in the Report. That still means they can be quite considerable. What would you estimate the savings might have been had we had a scheme in place when BSE was first admitted?
  (Mr Packer)  The savings in the main would be in staff time for tracing animals, for example for the selected cull. Staff time is valuable and it meant the people were not doing something else, but we do not have a precise estimate.

  12.  It does seem that everyone felt there was a need for something except the Department. Let us move to you, Mr Trevelyan, and turn to page 30 headed "Determination of Slaughter Fees". It is stated quite clearly in the Report that at the time you realised that you were going to have to enter into these contracts there was considerable over-capacity in our abattoirs, is that correct?
  (Mr Trevelyan)  I believe so, Chairman.

  13.  You believe so or you know so?
  (Mr Trevelyan)  I am not the sponsor in the Intervention Board for the slaughter house industry, they are a service industry whom we face, but I have no reason to doubt that that statement is correct.

  14.  It was some time before we got around to competitive tendering. It is stated in the Report that at the start you agreed a price of £87.50 for the slaughter of each animal, which was a temporary agreement. Then some time later, after an analysis, you reduced that to £41, correct?
  (Mr Trevelyan)  Yes.

  15.  So that is less than half of what you were paying originally.
  (Mr Trevelyan)  Yes.

  16.  Did you try to claw back any of the excess that had been paid at a time of high surplus capacity in the abattoirs?
  (Mr Trevelyan)  We considered clawing it back, but in the situation in which we were in where, as you recall, this renegotiation was taking place before we had addressed the major backlog that was building up in the countryside of cattle who had to enter the scheme before winter, we had concluded that it was not feasible to claw it back in any substantial measure, but the £41 was set rather lower than it would otherwise have been and therefore contained an element of recovery.

  17.  Yes, but that was also to take account of the fact that the hide was not included in the calculation from your consultants, so they had that as an extra profit as well. It compensated for that in part, although it probably did not fully compensate for that. Having got it down to £41, you then eventually, in July last year, fixed by competitive tender a rate of £25 per animal.
  (Mr Trevelyan)  That is correct.

  18.  So we move from £87.50 down to £25, less than a third of what it was originally costing. Do you not think you have been absolutely ripped off by the industry?
  (Mr Trevelyan)  It was extremely difficult in May 1996 to establish what the proper price for a slaughtering service was from the industry. Previous to that a large proportion of abattoirs' costs had been met from what is called the fifth quarter, i.e. the offals from the carcasses. Large amounts of that element were no longer permitted to be marketed. So there was no experience as to what the street price for a slaughtering service was. Added to that, of course, slaughter houses who entered the scheme had to do a large amount of servicing of the Thirty Month Scheme and the agency a large amount of paperwork and that had to be taken into account.

  19.  Do you think that the original £82 was rather high in hindsight?
  (Mr Trevelyan)  As our consultants stated in their review, it certainly contained a large element of incentive.