How Holland bit bullet & trimmed its own fat
THE Dutch abattoir industry differs from that in the UK in many ways.
For a start, it is dominated by pigs. Over 19m of them are killed each year compared with 14m in the UK. In contrast, cattle only account for 1.2m slaughterings a year – less than half the number in the UK – while sheep, at less than 1m, are eclipsed by the UKs 20m plus annual throughput.
The Dutch meat sector is also much more integrated than the UKs with almost half the countrys pigs contracted to one giant co-op – Dumeco.
But there are similarities. The Dutch market is still a competitive one, with about 70% of pig producers and 80% of cattle producers having no contracts and choosing their buyers each week according to price.
There is also a significant live animal trade, with six auctioneering companies handling between 60% and 70% of all cattle
But the greatest similarity, at least until a year ago, was the chronic over-capacity and diminishing margins that led to a number of bankruptcies in the early 1990s.
"We have always suffered from over-capacity," says Rob Tazelaar, chairman of PVE – the Dutch equivalent of the MLC.
At its worst, in 1994, this had reached 20% in pigs and 30% in cattle slaughtering.
In response, the Dutch developed a self-funded rationalisation programme to buy out the most marginal operators, a scheme which is now the basis of the MLC de-commissioning proposals.
Under the Dutch programme, which got under way in April 1995, abattoirs slaughtering more than 1000 head of cattle or 50,000 pigs a year were offered compensation to quit the industry.
This was financed by a bank loan, currently being paid off by a levy on continuing operators worth 1.5 guilders (60p) a pig and 15 guilders (£6) a cow .
The uptake was surprisingly high, says Mr Tazelaar, showing just how low profits were at the time.
By the end of 1995 the industry had shed all its over-capacity for a total cost of 120m guilders (£48m) in the pig sector and 64m guilders (£26m) for cattle.
The benefits have already started to show through as better profits for slaughterhouses, claims the PVE.
But, even though the programme bans meat companies from invoicing producers with this levy, Mr Tazelaar admits some of the cost has been passed back indirectly. But this was a price producers were aware of and were prepared to pay when they voted in favour of the scheme, he says.
"Our farmers were fearful it would result in a lower price, and this was possibly true in the beef sector. But pigs operate in an EU market and, had prices dropped, it would merely have attracted buyers from France, Germany and Denmark.
"What I said to the doubting farmers was that, if they were planning to quit the industry in the next four years, they may not see the benefits of this scheme. But if they are in it for longer it has to be good news. The whole chain needs to be performing successfuly. Without decent profits, no-one can invest for the future."
Not far enough?
Indeed Mr Tazelaars main concern about the MLCs plan for the UK is that it does not go far enough. "Only taking 25% instead of the full 45% over-capacity is not the way to do it. If there is any spare capacity left, the industry will not reap the full benefits."
In Holland, rationalising has greatly reduced the risk of bankruptcies, says PVE head of structures, Peter Spitters. This is one of the reasons why farmers and live traders were able to give it their support.
"Had we done nothing, the situation would have got worse and worse," he argues. "Lower support prices, the GATT agreement and milk quotas have already caused reduced beef throughputs, while the manure quota system is reducing pig numbers."
But Mr Spitters disagrees with UK producer concern about such a levy-based scheme leading to lower prices. There are much bigger market factors determining returns to livestock farmers, he says.
He believes Dutch farmers can only benefit from a more profitable meat sector, which is able to invest in the value added end of the business.
The prospect of continuing operators simply expanding to fill the gap left by closing abattoirs is also dismissed. "The Dutch banks would not finance any new capacity, though they will lend for cutting and de-boning facilities."
says Mr Spitters.
Abattoirs would also be reluctant to expand again. Having experienced the pain of over-capacity, they would not "cut their own throats" a second time.
But to make sure, the PVE is working on a "capacity stabilisation" programme, or quota system, though approval is still awaited from Brussels and from the Dutch government.
Meat and Livestock Commission plans to rationalise UK abattoirs are based on a scheme which is already up and running in Holland. Philip Clarke went to find out about the Dutch experience
Much of the fat has now been trimmed from the Dutch abattoir industry, where a restructuring programme has taken out 20% over-capacity in the pig sector