Full cost farrago
Tim Smith: It is fair to say that the consultation so far has seen a fair amount of heat and not a massive amount of light. At present, industry only pays part of the total costs of delivery, the balance is paid for by the budget given to us by the Treasury that's the £32m that's often quoted. The board set on this idea that the agency was never set up to be a sponsor of industry. That left us then with a principle of full cost recovery, but with some strings, such as we had to continue to support low-throughput plants as provided for in EU legislation.
The second string was that we felt we needed to offer options to phase these changes in, so we have suggested a three-year period. The next thing we'll do, when the consultation is over, is to publish the difference between our direct and our indirect costs. That work is largely complete, so we're going to be a position once this period is over to be able to say, 'This is what you're paying for'.
The final piece is that the agency and its stakeholders are spending a good deal of time gathering evidence to build a negotiating position to reform the controls they have in the EU.
We are open to be challenged, but we are substantially more efficient, but with some way to go. I've changed the management team and tried to reflect what the ongoing issues are, but while you've got a government body responsible for these activities, you will end up paying government pension costs for example, and that's an immutable fact unless somebody, politically, decides that has to be moved.
Stuart Roberts: We need to draw an absolute distinction between full cost recovery and what are the full costs and the two are very different. I have a lot of sympathy with where Tim's coming from, but I have real issues about what those costs are and about how the FSA is going about spending a lot of time gathering evidence. There are a lot of things that can be done better and many things which would drive those costs down, but am I going to make a strong argument that we should not be moving towards full cost recovery? No, I'm not. There is an argument that actually there is some public good delivered in this, which is probably not the primary objective of the FSA, but is the objective of the government, and therefore an element of contribution from the taxpayer should still be focused on these costs.
William Lloyd Williams: For low-throughput plants, it's not so much we want to be exempt; we'll pay for inspection, but what type of inspection? When you look at our plants, the ones I represent, if we got rid of 10cm of sheep intestine, the ileum, we would have cold inspections. It would suit the FSA, because they could deploy their staff much more easily and plan their months ahead. But we've got this 10cm of sheep intestine. I just think it is a travesty now; after all the money some of these plants have spent on getting approved, re-approved and so on to serve the independent communities they live in, their reward is a meat inspector that's going to cost them well, we don't know how much because no one will tell us.
Ed Bedington: But you don't know the costs. Is that something you can shed any light on Tim?
Smith: One of the clear objectives I've given Andrew Rhodes, the new director of operations, is to say you need to be able to sit any operator down, any business owner and explain to them, in a language that is clear and on the bill, what it is they've paid for and why. If those invoices and the statements are not clear, then there is no excuse for that. Clarity needs to be much better, and we've all accepted that one of the things we've done is to obscure the real costs and, frankly, people have been paying bills that perhaps they should have challenged.
Rob Barker: The poultry sector sees the proposals as, OK it's going to have an economic impact and it will be significant. Ninety eight per cent of the white meat industry is run by very large outlets, which are being run as efficiently as possible. Now, just at the moment, costs have shot up through outside influences and we're not making any money. In principle, we haven't got a problem paying for something that is doing a good job, but at the moment, quite frankly, what we're getting from the inspection is just a waste of time.
Bedington: This could put more cost into the supply chain and that must concern retailers?
David Mainon: We have to keep costs as low as possible. We cannot pass the costs on to the customers because, in the current economic climate, they will not accept them whatever retailer you go to. Have we looked at other countries? How do they operate? How does New Zealand operate? What enables them to have low costs? And what can we do, what can we mirror?
Roberts: The issue isn't big versus small, it's professional versus unprofessional. And there are, I'm sure, some unprofessional businesses in the meat sector, Tim highlighted it on Radio 4 relatively recently there is no place for those businesses in our industry. We've also got some of the most professional businesses in the world in this country, but we have a one-size-fits-all hygiene regime, which is the same, regardless of effectively what your risk is.
Smith: It's not a service [you'd want to] start off with. The problem we've all got is that none of us in this room today think that what happens in meat inspection is risk-based and proportionate. If we do not need to do all the things we all agree are wasting time energy and money, we can do other things with some of the costs.
I think we'll report this month on 40 plants that are cause for concern and none of us can do anything about that. It is not about how big you are; it's about how professional you are and how well you are performing in protecting people from risk.
Bedington: John, what is the farmers' view?
John Mercer: This comes on the back of a number of years of low profitability within the meat sector. A majority of businesses are working at a loss and this is another cost to come back. I think we recognise, as well, that there is an element of public good here and this burden should not be shouldered by the livestock-keepers alone. We've been told all the time to safeguard our businesses and we've got to look for ways of tapping into niche markets, tapping into the localism agenda. But if you take away these small plants, where else will I get it done?
We all seem to accept that these regulations are not fit-for-purpose and it's not proportionate to the risk here. Excellent work in what you've been doing in bringing down the costs so far, Tim, but from speaking to people in the industry, there seems to be this view that considerable savings can be made again. Industry is being asked to pick up the costs of an overly costly and bureaucratic service, but we don't see what those costs really are until after the consultation is published.
Bedington: Has enough been done by the FSA to reduce costs? And is industry doing enough to support and to help FSA to bring down those costs?
Roberts: I think a considerable amount has been done, and you have to give credit for that. I think the industry has to be given some credit for that too. Significant costs have been driven out, but have they been entirely driven out? No.
Bedington: Should industry be paying for the FSA's pension?
Smith: The terms and conditions under which the FSA staff in operations are employed are very clear everybody can see them. Those 1,434 meat inspectors have to be employed on those terms unless they are negotiated away and that is the discussion we have constantly with unions, because they are very nervous that we might be about to sell their terms down some sort of privatised model.
I think John has actually raised the point that we are a monopoly provider it is not a service, we have to do it, we're a government authority and the only way of convincing people that it is being done as efficiently as possible is by being as open and as clear as you possibly can be. If, politically in the future, somebody wants to open this up for competition, then I think you [would] end up with quite a big fuss from both Europe and consumer bodies saying: "Is this the right thing to do?"
roberts: A huge pension deficit is, in my opinion, a public liability that has been built up because of terms and conditions of public servants over a number of years. The problem is you cannot actually have the discussion until you have the costs; because we don't have transparency in them, we don't know is it £2m? Or is it £50m? Bringing the costs out before the end of the consultation might distract or confuse people and I accept that, Tim. But you're asking people to accept something before the end of the consultation without having clarity about what the calculation is that is going to sit behind what you are asking them to agree to. That is a big leap of faith.
Smith: It just happens that it wasn't ready for the consultation, and it is only just about to be completed. So timing-wise it could have been better. I'm sure it would suit some people in the room if we constantly reviewed and delayed, reviewed and delayed, and reviewed and delayed.
Lloyd Williams: I want to cut to the chase here, because we are talking about pensions and whatever, and costs in an abattoir the bills that you get from the MHS, I think you need to be a bit of a scholar to understand them. I've got a bill here from a plant that will give you an example of why operators are scared. It is a May 2009 bill. There is a week here: 43 lambs, two cattle, three pigs, five and a quarter hours' charge; then, the following week: 45 lambs, two cattle, six pigs so you have got two extra lambs and three pigs extra but it is three-and-a-quarter hours less. So the cost here in the first week is £174.40 and the second vet £73.40. Immediately, our abattoir operators are saying, "I want that vet". What would you rather have? Would you rather pay an inspector £174.40 or £73.40 for the same service?
Smith: It's simply not good enough. If somebody's been asked to pay for something, they need to understand what they're being asked to pay for. We're constantly checking how many complaints we get about invoices or queries and I suspect there has been a bit of complacency on both sides, where people just pay it.
Lloyd Williams: Especially the small guys: they see it and, if it was £145, they think that's about right, [but] if it was about £500 a year, they query it straight away.
Bedington: Wil, where will you pass the cost of all this?
Lloyd Williams: We've got a niche market. Most of the guys who have got small abattoirs linked to butcher's shops put things like producer lists in the window every week this is where your beef is coming from. The buzz words are "sustainability" and "low carbon footprint". We seem to be doing exactly what the government wants and ticking all the right boxes and our reward for that is a slap in the face and a hefty meat inspection charge.
I mentioned earlier, what would you rather pay? £174.40 or £73.40? Or would you rather pay nothing at all? Because if you [slaughtered] them in someone's farm shed you'll get customers. No that's not a threat, that is happening, now. I just feel we're being financially penalised.
Bedington: But where would you pass the costs?
Lloyd Williams: They would have to go on to the consumer. That's what you have to do.
Bedington: Why can this cost not go to the consumer, David?
Mainon: It's due to the current economic climate; they shouldn't have to take this burden.
Bedington: But should it not be shared equally amongst everyone?
Mainon: We may get to that position, in the future, but at the moment what we need to get to is where there is transparency, where we know where the costs are coming from. Then, the suppliers will be happy for a proportion of the full cost, or the full cost. We have got to have transparency, we have got to look at our operating model, look at how we inspect meat and then you'll be happy at the way we inspect meat, you'll be happy with the way the costs are recovered, and maybe, the cost can then be passed on.
Bedington: But if you cannot pass them on to the consumer, everyone in the chain is expected to share the burden. Is the retail sector going to also absorb some of that burden?
Mainon: I don't think they would, because we have to look at efficiencies all the way through the supply chain and, once those efficiencies have been achieved, maybe there will be a price reduction on the open market.
Barker: If we go to full cost recovery, it would triple our expected costs; these are really scary numbers. And to try and be able to recoup that wherever in the chain, I don't think anybody knows how they can do that. If that was a real cost and you got some real benefit from it, then maybe you would have to just grin and bear it.
Bedington: Essentially, in principle, industry doesn't mind paying; what they object to is what it is they are paying for. Are we putting the cart in front of the horse a little bit, Tim?
Smith: Our nervousness about pressing for full cost recovery with an overtly inefficient system three years ago was more to do with the fact we'd just get shot down, and that until we had gone through the first and second phases of modernising the service and doing away with as much as we possibly could the restricted practices, the waste of management effort and all that sort of duplication others have talked about then it was pointless trying to introduce full cost recovery.
You could make the argument, 'Let's wait until [the EU regulation] is all sorted before we go on to full cost recovery'. The principle the agency has adopted that we're not prepared to continue sponsoring industry is partly based on that and partly that the government is under so much pressure to reduce its own costs, it has to look to pass those costs on to the industry. I'm not surprised on the timing that we have caught a particular crest of a wave, but we're still left, as everybody knows, with the longer-term issue of reducing the cost of the things that we do that do not add anything to public health, but, as a consistent authority, we cannot stop doing them.
Bedington: So cost recovery is inevitable?
Smith: From the agency's point of view, it is. What will happen, if you assume that those costs are, broadly speaking, £50m for two to three years' time when we have got that down, the agency and the stakeholders can work together to say, 'What if you took out, let's say, the non risk-based stuff £30m in total now how do we get there? You don't get there by doing anything other than providing the evidence-based system that will allow the European Commission to make its regulatory changes and we've got them candidly on-side at the moment. We don't want anything to go wrong and going wrong includes 40 plants that are cause for concern by the way.
Roberts: And I agree with everything you've said there, Tim. It is about actually what you end up with. While your cost base may stay the same, the benefit to the consumer has gone up significantly, because you've actually targeted where it needs to be.
The thing I don't see and the thing that hasn't been talked about is there isn't a clear UK strategy on how we are going to deliver this. So what is the industry goingto do? What are the regulators going to do? What are our publications in terms of communications going to do to support us in some of this? What are our farming organisations going to do? We don't have a clear strategy on this; we're all trying to do our own thing and we're all saying we want to get to the same point, but there isn't that clarity.
Mainon: There is a lot of work going on to do the right thing for the customer, to do the right thing for the producer, the right thing for the farmer. We need to join up, then maybe, with this risk-based analysis, everyone has done their own bit. We just need to come together to build it together
Bedington: So how do we push that forward? Who drives that?
Mainon: We need a working group to bring everybody together, so we can get all our ideas on the table for the consumer. If we think of the consumer first, then work our way backwards, everyone's interests will be considered [and] everyone will consider what is right for the customer, the consumer.
Tim Smith, chief executive, FSA
Rob Barker, technical manager Cargill Meats Europe
Stuart Roberts, agriculture strategy director, ABP
William Lloyd Williams, abattoir operator and butcher
Ed Bedington, (chair), editor, MTJ
David Mainon, senior technical manager, Asda
John Mercer, chief livestock advisor, NFU
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