REVIEW OF REGULATORY BURDENS ON AGRICULTURE

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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