More Flexibility - Prime Factor for Tulip Re-negotiations

by 5m Editor
16 January 2008, at 10:13am

UK - Producers who supply pigs to Tulip abattoirs, including Geo Adams, will have thier contracts renegotiated. However, Tulip has assured that it is not planning to cut contract numbers.

The move has caused concern, but Tulip chief Andrew Saunders has stressed that there are no plans to make cuts. He told NPA that Tulip wanted to continue buying all the pigs it currently buys, and to improve supply chains, making the most of the new opportunities available following the purchase of Geo Adams.

Tulip buys over 50,000 pigs a week and provides circa 50 percent of the price input to the DAPP. Regotiation of contracts has been triggered in part by Tulip’s recent purchase of Geo Adams. The company wants to streamline its extensive range of contracts. But in the main, says Saunders, it is because most cost-of-production contracts are linked strongly to DAPP and have, as a result, become “self-feeding”.

“We need more flexibility. We have lost orders because we haven’t been able to compete when imported product is, for example, 100p and British product is 110p. I am not saying those prices are fair - but we do definitely need sales,” said Saunders to the NPA.

He promised the letter did not mean Tulip was “tearing up contracts”.

“We will be going into mature discussions with producers and marketing groups about where we go from here,” he added.

Tulip needed a more responsive DAPP, greater flexibility when selling pigmeat, and to put an end to some cost of production contracts which caused self-feeding of the DAPP (Deadweight Average Pig Price).

No fixed ideas

The company says it does not have fixed ideas about how future contracts will look. The answers would emerge in “mature discussions” with producers.

NPA says that producers are deeply concerned they will in future be getting even less for their pigs as a result of the Tulip renegotiation.

Andrew Saunders’ response was that for every contract that is currently a “cracking deal” there has to be a reverse - someone who is getting a poorer deal. He says that greater flexibility in the DAPP could work in producers’ favour as well as against it, he said.

“I honestly believe that as things are at the moment, when prices recover the DAPP will not respond, because it can’t. Reorganising contracts now could mean we end up paying more for pigs in six months’ time,” he said.

BPEX was adamant that DAPP was supposed to be a price-reporting - not a price-fixing - mechanism.

“The fact that it did not move during foot and mouth is a miracle. Forces that were pushing it down were being counteracted as cost-of-production contracts fed into it. By the same token, when prices improve, as things are at the moment, it won’t respond - because it can’t,” said Mr Saunders.

5m Editor