What to do with Levy Monies?

Survival of the fittest ... or why change is good for you - This month in his regular monthly report, Dr John Strak questions the use of pigmeat levy money and proposes some changes to the system.
calendar icon 16 October 2001
clock icon 7 minute read
Dr John Strak

Dr Strak's views on the UK and global pig markets are produced in Whole Hog every fortnight. For more details click the link at the foot of the article.

This month's Strak report will begin with a fairy story.....
Once upon a time there was group of farmers in a far off country who paid a statutory levy to a marketing agency. For many years this agency spent the farmers’ levy money on a generic promotion campaign for the product that the farmers produced. But all was not well in this far off land as consumption of the product fell and farmers’ returns from the market fell even further., and consumers turned to competing products.

After many years of argument, relaunches and name changes the farmers finally lost patience with their marketing agency and had a referendum. This vote of all the producers returned a resounding vote of no confidence in the marketing agency.

The government of the far off land had to act. The agency was scrapped, its Board of Directors and senior managers were sacked or moved sideways and a new agency was created with a new managing director from outside the industry.

The new agency was told that it could only spend the farmers’ levy money on research and product development and that this research was to be closely linked to the market and benefits for farmers.

Now if I told you that this isn’t actually a fairy story but is a brief but accurate description of what has happened in the Australian wool industry in the last ten years – what would you think? What I would like you to think is that if others can change then, perhaps, the British pig industry can change. Indeed, I would remind you of the eloquence of Charles Darwin when he said, “It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change”.

Now, if you have got this far I have made the point I wanted to make (with the help of Charles Darwin) and I have reminded you that change is often a necessary condition for survival. I have also given you one practical and recent example (thanks to my Australian friends) of where farmers have changed their way of using a statutory levy. I could also have given you the example of the USA’s pig farmers who recently voted to scrap their generic promotion levy.

These are valid points to make in the current debate on the way forward for the British pig industry marketing efforts. The rest of this month's Strak report presents some ideas on how some specific changes might produce beneficial effects in the supply chain and the market for British pigmeat.

It’s no accident that I think that the focus of change needs to be on the statutory promotion levy. It’s currently 65p per pig and is the highest levy (proportionately) on pig producers anywhere in the world. The amount of the levy spent on R&D by British pig farmers, by the way, is amongst the lowest in the world (see my Strak report in November 1999 for details).

In the UK the producers’ promotion levy is the single greatest source of marketing money available to the pig industry and amounted to almost £9 million in 1999/2000. So, it’s important that it is spent wisely and with the greatest leverage. There is hot debate about the effectiveness of the industry’s promotion spend and I am sure that BPEX will be aware of the recommendations of the Parliamentary Select Committee of Agriculture when it reported in January 1999.

The Committee recommended that, “….the results of the MLC’s 1999 campaign for British pigmeat be subjected by MAFF to an independent analysis of the quality and effectiveness of the campaign, with the conclusions of such analysis made available to all sections of the industry.” The Committee also recommended that, “…the MLC publish an annual account of how the statutory levy from the UK pig industry is spent and what precisely has been achieved for the UK industry with this investment.

This information should be subjected to independent analysis commissioned and published by MAFF.”

Whilst BPEX is reflecting on the value for money that pig farmers get for their past promotion expenditures I will add my two pennyworth on how the pig industry could change its use of the pigmeat promotion levy in the future. (I touched on this in a previous Strak report in December 1999) - and this is where I need to go back into fairy tale mode.

In this second fairy story the farmers in a far off country have a small supervisory agency which operates as a commercial company and regularly bids for the contract to collect and allocate the industry’s levy expenditures.

The statutory levy can be used for marketing or research and product development but all contracts are external with only a few internal staff to administer the There is no generic promotion.

Instead, farmers and pigmeat processors are told that they can make a bid for an allocation of the levy money towards their own marketing and product development programmes which they put forward and run themselves. R&D spend is significantly increased and is also allocated on a competitive basis amongst competing research institutions and groups who can demonstrate direct benefits to farmers from their results. The levy paid by processors is also increased so that farmers do not bear all the costs.

This isn’t quite a fairy story because the Australian pig industry has already adopted the supervisory agency approach and Australia Pork Ltd is now the current winning bidder for the contract to collect and allocate Australian pig levies. But if APL doesn’t perform it may not win the next contract. Similarly,the British beet sugar industry voted to scrap its statutory levy but has carried on collecting a voluntary levy from farmers and processors and allocates it to R&D via a new commercially directed agency. So, change can happen if farmers want it to.

My other suggested change in the second fairy tale was to stop generic promotion and give industry groupings a chance to use the levy money to push their own marketing and product development initiatives. This is entirely in line with the constant exhortations we hear from Ministers that farmers and processors should operate together more closely in the supply chain and in the marketing arena.

Many beneficial affects will flow from this and it’s very important to encourage these developments. That’s why this part of the fairy story needs to become reality.

If my idea was taken up it would give farmers and processors a real incentive to get closer because successful collaboration would mean that farmers’levy money would be returned to them for their direct commercial application when they are working together. And any collaboration that wasn’t successful would give farmers a clear signal to move away from a particular group or processor link and try another more successful one.

That’s competition in action. Who could argue with this except those who say that change is too difficult, not needed, or will take too long?

Darwin might well have said that the dinosaurs responded with similar excuses. Surely, British pig farmers will see that Darwin’s observations have some relevance to them and that change can help them survive.

See you next month.

Dr John Strak was Chief Economist at the International Wool Secretariat 1989-91 with responsibility for all research into the £60 million generic advertising budget for wool. The Board of Directors of the International Wool Secretariat and its successor WoolMark was given a majority vote of no confidence in referendum of Australian wool producers in 1999. Dr Strak is currently a Special Advisor to the Board of the replacement organisation, Australian Wool Innovation, which was set up in early 2001.

Reproduced courtesy

Source: Whole Hog, October 2001
© 2000 - 2022 - Global Ag Media. All Rights Reserved | No part of this site may be reproduced without permission.