MONDAY 30 NOVEMBER 1998

MR RICHARD PACKER and MR GEORGE TREVELYAN

  20.  Just in case anyone suggests we are not dealing with a group of rather greedy businessmen, is it not a fact that the £87.50 has to be seen against the price of £129 that they were asking of you? They wanted five times as much as you eventually ended up paying them under competitive tendering.
  (Mr Trevelyan)  That is correct. As I said, Chairman, there were a wide range of estimates at the time as to what was a proper price since there was no experience of slaughtering without any revenue from byproducts for the slaughter. We took the view that it was appropriate to take a long view. The Thirty Month Scheme will be with us in all likelihood into the middle of the next decade. If it had two or three months at the beginning where there was a large incentive paid, that was probably an inevitable consequence of the crisis. The important thing was to move towards competitive tendering just as soon as we could and I think the Report correctly identifies that that moment could not come until we had cleared the backlog in November/December 1996.

  21.  Did many of the abattoirs who were part of the scheme go bankrupt?
  (Mr Trevelyan)  I do not have those figures, Chairman.

  22.  You are not aware of any off-hand?
  (Mr Trevelyan)  No, I am not.

Mr Williams:  Quite a lot of the farmers did, of course. I think my colleagues will want to follow up on that further. Mr Wardle?

  23.  Thank you, Chairman. Mr Packer, Mr Trevelyan, good evening. Mr Trevelyan, we meet again. I wonder if you would agree, Mr Packer, that when governments act with haste and the civil servants, albeit under pressure, try to respond they do tend to over-spend and someone gets rich. Mr Packer, I am all for people getting rich in a legitimate and sensible and fair way, but do you not think in this case, particularly with some of the abattoirs and renderers, some people have got very rich out of a price crisis? Do you think that makes sense?
  (Mr Packer)  Our objective as the Department was to maintain and to support the essential components of the beef chain which consist of farmers, slaughter-houses and renderers and the schemes were devised to do that and not to compensate anyone for losses as such. Quite a lot of people lost money; it may be some people made money as well.

  24.  I bet some people made quite a lot of money while others were losing their entire livelihoods. I want to pursue further what the Chairman was asking you a moment ago about the abattoirs. The Chairman was reminding you of the £82 provisional slaughter fee and then the reduction to £41 and then £25. The £41 figure was reached after examining the industry's costs. What you said a moment ago implied that you knew all about not just farmers but abattoirs and renderers. Why on earth had you not examined their costs before? Why on earth did not you have at your fingertips sufficient information such that you would have known that £82 was an outrageous random and that £41 should perhaps have been your starting point?
  (Mr Trevelyan)  I think that question is for me. I do not think there is any reason why the Intervention Board should have had cost data for the operation of slaughtering lines without any revenue from the fifth quarter.

  25.  You think that question was for you, Mr Trevelyan, but I think the question was for the Permanent Secretary. You run the Ministry, Mr Packer. Why on earth did not you have that information at your fingertips? We know Mr Trevelyan does not have the information at his fingertips. It is only a matter of a few months ago that he was here trying to explain a black hole in intervention sums to be disbursed. What about you, Mr Packer?
  (Mr Packer)  There would be no reason for us to have that degree of detailed knowledge of an industry. We would need a very much larger department if we did have it.

  26.  So simply for the occasional inspector from MAFF or some associated agency to visit an abattoir and say, "Let's just understand the economics of your business", is something beyond your contemplation, is it? And that will have cost you administratively much more money. I think that is nonsense.
  (Mr Packer)  We do not have a directed system in this country, though there is no reason why we should be aware of the detailed economics of slaughtering animals, and although it is generally appreciated in Meat and Livestock Commission publications that the slaughtering industry in general has been in a rocky position for a number of years.

  27.  Can we move on then to renderers. Why were there no competitive tenderers until January 1998? There can have been nobody at MAFF who was unaware that farmers up and down the country were muttering about the way renderers were ripping off the industry and the payment scheme here. You cannot not have known about that. Why was there not a competitive tendering scheme before January of this year?
  (Mr Packer)  That is for Mr Trevelyan.
  (Mr Trevelyan)  I have written alongside paragraph 2.34 that it takes a considerable time to break a cartel, Mr Chairman. The rendering industry chose to negotiate with the Intervention Board through their association. We indicated clearly that we wished to have a true competitive tender and throughout 1997 we maintained that position and as a result of maintaining that position we did finally get genuine competitive bids with the result which is reported in that paragraph.

  28.  So you persisted. I congratulate you for that. You are telling the Committee that there was effectively a cartel operating amongst renderers and, therefore, as with any such cartel, particularly with money flying around in this crisis and none of us deny it was a huge crisis, somebody was likely to profit excessively, is that correct?
  (Mr Trevelyan)  I do not think it is any secret that there are a very limited number of rendering companies and some of them operated a dominant position in the industry and that was well known to the public authorities.

  29.  Thank you. Can I move, Mr Packer, to a general question. Bearing in mind the terrible experience farmers, MAFF and everybody else has been through in this crisis, are there strictly comparable controls on beef production in the rest of the European Union?
  (Mr Packer)  Of course, Mr Wardle, there is no comparable control to the Over Thirty Month Scheme in any other European country and that constitutes the bulk of the expense here. I think your question would be perhaps are there comparable controls on specified risk material in other Member States?

  30.  Yes.
  (Mr Packer)  I think the answer to that is there are in some of them.

  31.  What about the rest of the world, the wider picture? You are absolutely right about the direction of my question. Thank you.
  (Mr Packer)  I am not aware of any country outside the European Union and Switzerland which operates specified risk material controls.

  32.  So in spite of the fact that farmers are being brought to their knees the taxpayer has had to foot an enormous bill, your Department and Mr Trevelyan's agency undoubtedly have had to work morning, noon and night, you are saying that the British consumer has no absolute guarantee about the quality of meat that is imported into this country?
  (Mr Packer)  Imports are required to have specified risk material removed.

  33.  Do you believe the assurances given for that purpose from your vantage point?
  (Mr Packer)  It is not so much assurances, Mr Wardle, it is checks. It is illegal to sell beef which contains specified risk material in this country from whatever origin.

  34.  Thank you. Can we revert for a second to page 4, paragraph 11, where we are told that farmers taking beef cattle straight to abattoirs and not via the market were overpaid because the liveweight to deadweight ratio was miscalculated for beef cattle. Whose miscalculation was that? The cost I think was £13 million.
  (Mr Packer)  That was a consequence of the Council conclusions on 3 April 1996 which contained this specification that the compensation rates would be at a ratio of 2:1. I believe it was initially proposed by the Commission and adopted by the Council, with the United Kingdom dissenting at that time—not necessarily on that ground but that is the formal position—and subsequently the Commission were reluctant to change the figure since it had figured in the Council's conclusion.

  35.  Thank you. Can we move on to page 85, paragraph 4.20, where the NAO noted that extra reimbursement from the EC could have been claimed. How much extra could have been claimed? Can we ask the C&AG that question first? In the NAO's view how much extra could have been claimed that was not claimed? If you look at 4.20, it says, "the claims were drawn up manually due to the absence of a computerised payments system", and we will no doubt come to that. The claims were based on the number of animals slaughtered with adjustments being made for animals that were not eligible. I realise it is an administrative and accounting nightmare, but how much is the shortfall in terms of potential reimbursement?
  (Mr Le Marechal)  We do not have a figure to hand, Mr Wardle, but we can provide you with one.

  36.  But you were able to assert with confidence in this Report, were you not, that there is a shortfall in terms of reimbursements claimed and apparently neither Mr Packer nor Mr Trevelyan disagreed with you? Perhaps Mr Trevelyan can throw some light on this?
  (Mr Trevelyan)  Taking the 1997 FEOGA figure[1] which ended in October 1997, we have recently submitted a claim to the Commission for 30 million sterling as being what we regard as the balance amount for what we readily acknowledge was our conservative claiming policy.

  37.  Can you substantiate that, or is that going to be subject to negotiation?
  (Mr Trevelyan)  It can be fully substantiated because what has happened since this report was written was that the back-loading exercise on our cattle data base has been completed, we are fully confident there are no double claims anywhere within the system, and we can safely make our balancing claim to the European Commission. To put that in context, that is approximately 8 per cent of the total claim in relation to 19971.

  38.  But the point is, you have done it, you have overcome the accounting gaps, as it were, filled them, got the information and taken it to the Commission. I am encouraged by that. Can I finally turn to page 44, paragraph 2.59 and the introduction of a computer system? I am sure colleagues may have questions to ask about this. How on earth can the Board have hoped to implement a computer scheme in May 1996 only to find out very shortly that it was not feasible? Who had done the prior feasibility study? Who was assuring you it could be done? Or was this just a pipe dream?
  (Mr Trevelyan)  The inwardness of that is that the question put to our in-house computer experts was, if we had a live weight only cull scheme with a very limited range of questions asked, then with six or seven data fields we could construct a data base which could be up and running in a couple of months. I can go on further as to what happened.

  39.  Can we just hear a little more on that?
  (Mr Trevelyan)  In reality, Chairman, we ended up with a scheme which has four separate collection centres in its maturity—we have live weight centres, dead weight centres, incineration points for casualties and now renderers treated as collection centres. Every single one of them has to have a separate data entry into the system, and they all have a wide range of data fields. We are into the high 90s and low 100s in terms of data fields. That took a great deal longer to develop and it was not possible to develop it until well into 1997 because this scheme was not stable; we did not have the basis on which a computer programmer could safely operate.

Mr Wardle:  In the midst of all of this nightmare, Chairman, I am encouraged by Mr Trevelyan's frankness and by the hint of progress being made. Bearing in mind that I hope to catch your eye when we come to a further session of this Committee before the evening is over, I think I will leave it at that.