Making the most of pig levy revenue

It’s five years since the AHDB set up its offices at Stoneleigh Park, Warwickshire, and took control of the UK’s agricultural levy bodies. Pig World editor Graeme Kirk recently sat down with BPEX director Mick Sloyan to discuss his organisation’s place within AHDB and some of the issues currently facing our industry. This is a full transcript of that interview.

Pig World: The pig industry is small compared to most other sectors within AHDB, is that a challenge for BPEX in terms of raising revenue?

Mick Sloyan: I don’t think so, we are a relatively small sector, but we’re not smallest – that’s horticulture. We’re about half the size of the Eblex and the HGCA. I don’t think it poses a problem, in fact if anything it was one of the big advantages of coming together under AHDB in that we can share costs on a reasonably efficient level now because back office functions that we used to have employ our own staff to do, or at least share them with beef and lamb in the old Meat and Livestock Commission days, are now spread between six sectors.

We probably employ one of the smallest teams in AHDB and have about 34 people who actually work on the dedicated BPEX team. Eblex would be 52 or 53 people, something of that nature, and the HGCA is probably about the same.

PW: One of the major roles here at BPEX is promotion, does the lower levy revenue impact on the mount of advertising you are able to do for a sector?

MS: It has had a fantastic impact over the years. If you went back to the old Meat and Livestock Commission days before BPEX existed the levy revenue that the pig sector had was somewhere in the region of £15 million a year. We now operate with about £8.4 million a year so you can see that the decline in the size of the industry is directly mirrored in the amount of levy income that we’ve had.

Now as a consequence of that we have to tailor our activities to the income that we’ve got, fairly obviously. We haven’t had a levy increase per pig since 1996 so we’ve had to manage a budget despite all the inflationary pressures around that to match that level of income. And one of the ways we’ve done that is we’ve retargeted the marketing function away from advertising i.e. TV type advertising and we’ve moved it much more towards PR activities. So it’s a much more tactical way of going about it. Which we believe is effective. It’s directed by our board which is made up of producers and processors, and we believe that’s been the right way to manage our budget, which of course in real terms has been shrinking over the years.

PW: One of the central pillars of that campaign is the Give a Fork campaign. Some people have suggested that that’s maybe a slightly crude approach, who is it actually aimed at?

MS: It’s aimed very squarely at consumers, and consumers probably in the slightly younger age group. Some might consider it to be crude, it’s certainly been eye-catching and when you’ve got a very small budget to actually spend you have to make it work, and you have to make it work well. It is a campaign that is effectively aimed at consumers of digital media these days, we’re gradually moving it into broadcast media through Channel 4, but these days it’s quite surprising and I’m afraid to say it’s probably leaving me behind in terms of how consumers get information through Facebook and Twitter and all of the various other sources that they have. And that’s the kind of person we’re trying to aim at.

PW: Is it a campaign that appeals to you personally?

MS: I think it’s fantastic. You might say I’m bound to say that of course but I think it’s very good indeed. The reason behind it is that we’ve actually got Jimmy Doherty who is both a celebrity and of course a farmer and what was interesting about that was of course that prior to this he wasn’t actually Red Tractor assured because he wasn’t operating in that part of the market. But we obviously said if you’re going to be promoting Red Tractor you need to be a Red Tractor farmer and he was quite surprised about the standards that he had to adhere to and all of the things that he was subjected to in terms of audits. So it’s been great because he’s really bought into it and he’s a good face to have promoting the industry.

PW: While we’re on the subject of levies a recent issue that’s come up is the repatriation of Scottish levies with so many stock being brought down here to England for slaughter, the Scottish producers are complaining they’re losing about 1.4 million a year in levies coming to AHDB rather than staying with their own Quality Meat Scotland. What’s the stance of BPEX on that?

MS: That 1.4 million they claim to lose covers all three species of course, that’s I can only really speak for what’s happening within the pig sector. But one thing that I can tell you is that the money that we spend, not just for repatriated levy that comes from Scotland but the levy that we spend is used to promote the Red Tractor. And the Red Tractor is a British mark, from which of course Scottish producers benefit considerably. They sell in a market in Great Britain that operates at a premium and that premium has been helped, I wouldn’t say caused, but certainly helped by the activity that BPEX has participated in.

Now one of the other things is that we also undertaken activity in other areas that’s operated for the benefit of British producers. Take, for example, access to the Chinese export market which BPEX started along with DEFRA and UKTI back in 2004. That now contributes a significant amount of money to the British economy and I can tell you that Scottish producers paid nothing towards that. That came out of English levy payers money. We did a calculation here with my colleagues in Eblex and we looked at what we saw as the benefit to Scottish producers from being part of that British activity rather than just the other way round, and we reckon that they’ve gained just over £7 million in benefit of levy spend across those species. So we don’t think it’s a particularly bad deal.

Now I have some sympathy with Quality Meat Scotland because of late, and particularly since Halls closed in Broxburn they’ve lost revenue and they have to adjust to that. And I understand that. Running an organisation like this one’s bound to. And they have some difficulties within that because they are losing that kind of revenue. Whether that’s a permanent thing remains to be seen. We do know that there are plans to increase the capacity for the kill in Scotland so it may well be that that returns to, they’ll get some levy to help the run their own organisation. But when you look at what they do with the money that they get out of Scotland, they promote Scottish product, they don’t promote British product, it’s Scottish product so I think at the moment it’s a fair deal.

PW: You talk there about the return on the levy money that is spent, how would you describe that return for England and Wales for the levy money spent down here?

MS: Personally I think, and again I’m bound to say this I suppose, but it’s a very good investment. But we leave others to judge whether what we do actually gives them the value that they want.

PW: But can you put a figure on it the way that the Scottish farmers have benefitted by £7 million?

MS: It’s not just the benefit that they’ve got, that’s the expenditure that we believe that they’ve benefitted from, collectively, across the whole of the livestock species so that’s about what we spend. So the amount of things we spent promoting British from which they benefited directly. That was what I was talking about there.

Now the question you ask is how does the levy benefit English pig producers now that’s a very difficult question to answer. And I tend to phrase the answer slightly differently in terms of putting a number on it. What we do is we promote Red Tractor pork and we believe that that has made a contribution towards the premium that English producers and indeed British producers currently receive in the marketplace. Now in the last couple of years that premium, if you measure it using the EU reference price which is a way of trying to gauge what is happening across the whole of the EU, that’s been of the order of about 9p/kg. If you looked at it over the last five years it’s been about 9p/kg. So we’re trading at a premium.

Now how have we achieved that premium? We’ve done that by promoting the products that we have, promoting the standards that we have, making people aware, making customers aware of why they should be paying more for British product. Would I claim that we are responsible for all of that? No I wouldn’t, there are obviously a lot of factors around it. But the question I would pose back to producers is our total levy comes out at around about just over 1p/kg, that’s what you would pay on a levy at the minute. If we’d been operating at a premium of 9p/kg I’m pretty convinced we’ve contributed at least a penny to that. We may have contributed two or three, in which case that’s a very good return for the levy. Now that just over a 1p/kg of course is for everything that we do, not just marketing. Marketing’s around about 40% of the budget. But if you put it all against just that price premium I think it’s a very good return.

PW: How do you measure your own performance with the levy payers? Do you have a metrics that you have to try to achieve every year to make sure you are achieving your aims?

MS: Let’s start at the beginning. We have a board, the BPEX board, and the BPEX board is made up of pig producers, levy payers some of them are extremely large levy payers others operate in different ends of the market. We have processors on that as well, we have an independent member and we have a chairman, it happens to be Stewart Houston, it could be anybody from the industry. So that board, who are levy payers, we’re spending their money, they represent if you like levy payers at large within England and they hold us to account. In fact they’re directors in what we should be spending our money on. And I’ve always used the phrase “it’s up to the board” to tell us what we should be doing. It’s up to me to make sure we do that properly. That’s my role as director in trying to run the organisation.

Now against that we produce a corporate plan every year. The corporate plan has some considerable detail in it in terms of our activities and within that there are various metrics that we aim for. Some of them are in terms of industry performance, so if you take our overall campaign to actually try to improve breeding performance now Breed+3 we’ll monitor whether we’re actually achieving that. We’ll also monitor our activity at a specific level so when the KT team for example work with people they try to get their individual business metrics to make sure that they’re actually making a difference. And then overall to try and judge whether we’re actually giving value for money every year we conduct a survey amongst our levy payers and we ask them how they value BPEX services and I have to say for the last three or four years that number has been pretty good. People believe we deliver good value for money.

PW: But the most recent survey has shown a fall in the number of respondents using your service among producers.

MS: Among producers, yes there has. Now we’re trying to understand how that and why that should be the case. Obviously the industry has got a little bit smaller, that has been the case over the years, and we are in the middle of having a strategic review particularly of our KT activity but also our ND activity.

Now I’m aware that people have found some of the things that we do particularly real welfare and welfare outcomes have been a challenge to people and that undoubtedly has an impact on how people view the work that BPEX does. But sometimes there are things that the board decide, we decide that we need to engage in that actually will benefit the industry in the long term that may be unpopular in the short term. But I think personally if you take something like welfare outcomes we can demonstrate that we actually have good welfare at a time when the differential between ourselves and the rest of the EU has become somewhat blurred by the sow stall ban and the claims that we’ve made over the years about the fact that we’re a high welfare industry we can now prove it. We can have information that is collected by vets that will give us objective information that we can then use as a benchmark. Now if that helps us to maintain the premium we think it’s worth it.

PW: Coming back to the survey though, it also showed that processors and the allied industries are using you services more. Are they contributing to the levies?

MS: Processors do because the way the levy works at the moment is 85p to producers and 20p to processors. And we’ve always been conscious of the fact that we have to serve all of those markets and so in that case it’s good to see that processors are using it a bit more. The allied industries of course are a route in to producers particularly, and a very valuable one because they’ve got more legs on the ground than we have. So if they’re using our services to actually help the industry become more profitable then I think it’s a great thing. Sometimes a little frustrating maybe that we’re giving them information that actually then gets translated and not seen as emanating from levy payers, but we just have to live with it.

PW: Are you happy with the quality of service scores that came out of the survey? 56% of producers currently think the service is good; 33.3% satisfactory and 8% excellent. Have you got targets?

MS: Oh yes, we want to keep them moving up. We want to be seen to be the organisation that delivers excellent performance. But we’re also conscious of the fact that we’re doing this with levy funds. If we were a consultancy business that operated in the market place then we could judge it by the number of customers that we had that turned over and generated etcetera. The difficulty we have of course, and it’s a difficulty we’ll take on without any problem, is it’s a statutory levy. So people have to pay it regardless of whether they want to or not and that of course colours people’s attitudes at times. But we are determined to actually move those scores up and we have within our corporate plan a target to do so and we only do that, we’re not driven by the target, we’re driven by performance. Hence, as I said, we’ve got a review on at the moment of KT activity. We’re going out to the industry, we’re asking them what they think of knowledge transfer, what they think of the health teams that we have, how can we improve and we’ll continue to push those scores up.

PW: You touched there on the two tonne sow and the breed plus three initiatives, where would you put your focus on those two initiatives? Because there’s two ways of looking at it, there’s an overall increase in production or there’s maintaining production with fewer sow numbers.

MS: It’s about productivity in that context and it’s about competitiveness in a wider context. Now why do we do it? Well, one of the things that we’ve always been keen to ensure that we do is to be evidence based. We know that one of the reasons that the industry got into such difficulties eight or 10 years ago was that we weren’t competitive in relation to our European colleagues. And don’t forget we import around about 60% of all the pork, bacon, ham and all the other products that get sold on this market, so we have to try and compete with that.

In order to do that what we do is we go out and we measure other people’s performance across other European markets. And one of the really big challenges is that what that data shows you is that whilst we have monies to recover and improve our levels of productivity, actually all our competition are doing so at an equal, in some cases greater, pace than that. So that the gap in productivity and thereby cost to production is not being closed fast enough. Now, we could think in terms of saying we don’t want to beat ourselves up about that. What do we do about that? We collect that information and we collect it in great detail. And the reason for that is you can then say OK, why is our cost of production actually that bit higher? Take out exchange rates.

Let’s look at the constituent parts of productivity and what that actually shows you is when it comes to finishing pigs we’re not bad at all, compared to our European colleagues. We’re not at the top of the tree, but we’re in the same ballpark. We can compete on that basis. But where we are lacking is, and the figures show this, is actually our levels or productivity in terms of our pigs per sale per year finished are not as good as they could be. And we are behind our competitors in that. So that tells us that where we need to focus is actually on improving productivity particularly in the breeding herd, hence the reason we have the two tonnes and the breed plus three to try to actually close that particular gap.

PW: But are we looking at increasing productivity so we can reduce the herd size, or do we want to try increase production overall and become more self-sufficient here in the UK?

MS: I think inevitably that we do. But as an objective for the industry as a whole one would hope that if we become more competitive and therefore more profitable one of the consequences of that will be that we’ll increase production, and that will help to once again help improve our self-sufficiency levels. We have been in the past a lot higher than we are at the moment, so we know there is scope to actually do that. But we can only do it if we’re competitive.

Does competitive mean lowest cost? No it doesn’t. We’re never going to be that just because the way we operate in this country, we have a lot more straw-based finishing in this country, a lot more outdoor units in this country, so it’s inevitable that we’re actually going to be a higher cost producer. But does that mean we can’t be competitive? The answer’s yes we can be more competitive in that. Because competitiveness is not about the lowest cost of production, it’s about the greatest margin. So if you like, we need to be more of a kind of BMW type operator than a Ford. If we can sell at a higher price we can keep the gap that we’ve got in terms of profit, and actually then use that to then invest and grow the industry. But the objective is to help people get more productive, that’s the first key. They have to be more competitive in terms of the productivity elements against our major competitors.

PW: It’s clear to see the improvements that have been made and the people that are getting close to the breed plus three and the two tonne sow, but do you believe there’s more that BPEX can do to help producers sell the pigs they produce?

MS: Our activity in that particular area is about promoting the product. In terms of physically selling them I’m not so sure there’s an enormous amount that we can do there. What we can do is seek out how supply chains work best; we can look at the experience of other supply chains in other countries, or successful supply chains in this country and actually bring that information to the market place so that people can see if you like best practice in the way that those things operate.

At the moment the way in which we organise our selling of pigs it has some good points, it has some not so good points. There are some areas around carcase grading for example that for a long time we’ve felt needed to be improved. We have, if you want to know what that means we have a grading system, a valuation system, at the minute which is about the absence of fat. It’s not about anything else, it’s just can you produce less and less fat? Now I’ve been around long enough to remember that that contract, the reason we do that, is basically associated with the bacon market in the 1990s where you were producing and selling rind-on bacon, so you had to get that kind of appearance. That market’s gone, it doesn’t exist anymore, and yet we still have a grading system that actually does that.

In this country we’ve produced heavier pigs with the same level of back fat, so in other words we’ve produced leaner and leaner pigs which are yielding more and more lean meat for sale. Yet we have a pricing system that doesn’t reward that in any kind of way. So there are things within the way in which we actually buy and sell pigs that can improve, but for us our activity is mostly in terms of trying to add value, to try and maximise the value of English pigs that are actually sold.

PW: I know you recently looked at the DAPP with a view to how it helped or hindered the actual selling process. In the end it was decided not to make any changes.

MS: We didn’t look at the DAPP for that reason because the DAPP is like a thermometer, it measures what’s happened in the market place, it doesn’t then tell you what you need to do in terms of marketing your pigs. Never has done, never been designed to do that. It is merely a way of measuring the average market price in the industry itself. Why did we take a review of it? It’s good to do that kind of thing, because most people’s livelihood depends on at least knowing where the market is so that they can negotiate efficiently.

We had expanded the sample two years ago and we said when we expanded that sample which now probably includes or gets us to probably over 80% of the available pigs within Great Britain, what we said was let’s look to see if we can generate any extra information from all of the data that we collect. Just by way of an explanation I think people have a kind of view that the DAP’s produced maybe by ringing up four or five people and saying what are you paying for the pigs, it doesn’t work like that. Because we know how important it is what we do is we collect the price of individual pigs, from the abattoirs that are participating in our sample. So believe it or not this last week we had 109,000 lines of data, each one representing an individual pig with an individual price. We then aggregate all that altogether to give us the DAP the average pig price because that’s a nice simple way people can understand that.

What we looked at was seeing whether there’s any way that we could dissect that data, split it into different groups for different parts of the market that might add some value. In the end the board said yes that’s a nice possibly slightly academic exercise, but to be honest we don’t think it will add any value in the market so they said, no need to go any further with that. But they did say make sure that the DAP sample stays to be quite a large one and make sure it’s accurate about what producers are getting paid.

PW: But would it be fair to say there will be some premiums going to producers that are not included in that price that is reported back to you?

MS: There are some rumours around that that’s actually the case at the moment. And we’re looking into that at the minute. It shouldn’t, we’ve said that. Now the DAP itself, and we’re very clear on our website, so if people want to look at who’s in it and participating they can do, if they want to look at specification they can do. So we’re very open and transparent about what’s included in it. And you’ll see it, it says in there it’s the gross price, so it’s the price producers get before any deductions are made. It’s for any pig that’s priced on a weekly basis, so if you have a price for that week that goes in there as well.

The only things we exclude, we exclude organic pigs because we don’t believe that’s necessarily part of the market, part of the commercial market, and in any event they probably wouldn’t have a big impact. We also exclude inter-company traded pigs, and as most people know you’ve actually got a couple of companies, probably more than a couple of companies now, that own their own pigs, so they can price them however they like. So to save any ambiguity we’ve excluded those. So we’re very, very clear about that.

What we’ve always said to our participants, who participate on a voluntary basis, is that we want that gross price to be accurately reported. As I’ve said we’ve heard rumours about premiums being paid over and above that, and we’re looking into it at the minute to make sure that that doesn’t happen, the DAP is an accurate reflection of what is actually happening in the market place.

PW: Finally, in light of recent examples of footage from farms being put out there as being examples of poor stockmanship, is it time for us to stop being so defensive and to come out and actually give people some of the realities of pig production? Some piglets will always die and there will always be health issues on units; small issues, but that’s the realities of farming. Is there more we should be doing on that front?

MS: I’m not so sure. We do a lot already, if you mean should we be trying to change the mind of, what I would call, disinterest groups, extremist groups, well the answer is no because I don’t think we’re going to change their mind. So the issue then is how should we try and change the mind of others.

And to be honest the one thing we do at the minute is when we get accusations we look into them very quickly, particularly with assured producers because then Red tractor can go and inspect them and I can give you an example of something very recently that most people will never have heard of, because it never made it out into the press. Someone went in, filmed overnight slightly grainy black and white type images, we got a pig veterinary society vet, not associated with that unit, to look at the footage to tell us whether there was anything wrong with it; we knew already that there wasn’t, but we wanted that independent view and they came back with that view. The farm was inspected by independent auditors from the Red tractor scheme, and that was done within two or three days, and at the end people concluded that there was no case to answer in that. And as a consequence the story never really took off. So we see that as a valuable role.

Now, where do we take it, do we want to go to consumers and try and explain all the ins and outs of production, I’d love to but I don’t think we’ve actually got the resources to do that. Do we try and hide it anyway? No we don’t. If you look on the BPEX website, and particularly we’ve just produced an app that actually produces short clips of production, aimed mainly at producers but that looks at the reality of production and they are available to anybody who wants to look at them, so I have no problems at all with how we produce. I think the standards of production in the UK, particularly on Red Tractor assured and other assured farms is very good indeed. And we’re proud of it.

But I don’t see a reason for a campaign for that specifically. Where we should be communicating with consumers is through things like Jimmy Doherty who can explain, in relatively simple ways, how we go about producing pigs particularly under an assured standards scheme such as Red Tractor.

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