22
European Affairs Committee
Protocol on Ireland/Northern Ireland Sub‑Committee
Corrected oral evidence: Northern Ireland Protocol Bill
Wednesday 7 September 2022
3.30 pm
Members present: Lord Jay of Ewelme (The Chair); Lord Dodds of Duncairn; Lord Empey; Lord Godson; Baroness Goudie; Lord Hain; Lord Hannan of Kingsclere; Baroness O’Loan; Baroness Ritchie of Downpatrick; Lord Thomas of Gresford.
Evidence Session No. 1 Heard in Public Questions 1 - 10
Witnesses
I: Roger Pollen, Head, FSB Northern Ireland, Federation of Small Businesses; Michael Hanley, Chief Executive, Lakeland Dairies; Peter Summerton, Managing Director, McCulla Ireland.
Examination of witnesses
Roger Pollen, Michael Hanley and Peter Summerton.
Q1 The Chair: Good afternoon, all of you, and welcome to this public meeting of the Sub-Committee on the Protocol on Ireland/Northern Ireland. We are holding the first evidence session of our new inquiry into the Northern Ireland Protocol Bill, which was introduced to the House of Lords in late July. This inquiry follows the publication of our follow-up report into the economic and political impact of the protocol on Ireland/Northern Ireland, also in July.
We are joined by a panel of business representatives: Michael Hanley, Chief Executive of Lakeland Dairies; Roger Pollen, Head of the Federation of Small Businesses in Northern Ireland; and Peter Summerton, Managing Director of McCulla Ireland. You are all very welcome. We are grateful to you for coming to give us evidence, and we very much look forward to the evidence that we will hear from you. Perhaps you could introduce yourselves briefly when you first speak, and if you want to say a bit about yourselves or your company, that would be welcome as well, although it is not an obligation.
I should say that today’s meeting is being broadcast and a verbatim transcript will be taken for subsequent publication, which will be sent to you to check for accuracy. I refer to the list of members’ interests as published on the committee's website, and I declare my own interests also as published on that website.
That is by way of introduction. Michael Hanley, would you like to say a few words and introduce yourself? We will then move on to Roger Pollen and Peter Summerton.
Michael Hanley: Thank you very much, chair, and thank you for the invite. I am CEO of Lakeland Dairies Co-operative Society Limited, which has been processing milk for 120 years on the island of Ireland. The Northern Ireland protocol is working seamlessly for us today, as we purchase milk from more than 3,200 farmers on the island of Ireland, of which 1,200 of those farmers are farm families in Northern Ireland. We purchase about 20% of the island of Ireland milk pool and about 50% of the Northern Ireland milk pool.
We bring 40% of the Northern Ireland milk that we purchase to the Republic of Ireland for processing. As an industry, about 30% of the Northern Ireland milk pool must be processed in the Republic of Ireland due to the lack of processing capacity in Northern Ireland. As a farmer-owned co-op, our objective is to pay the farm families, who own Lakeland Dairies, as much as possible for their milk.
As a group, we export to 80 countries around the world. In 2021, the protocol enabled us to export from Northern Ireland to Europe and the rest of the world more than £427 million-worth of product, which represents about 27% of overall UK dairy exports. We are an exporting business and we have to export our dairy products off the island across the world. Our annual spend in Northern Ireland is over £500 million, including what we pay for our milk to our 1,200 farm families and the wages paid to our roughly 500 employees.
If the Northern Ireland Protocol Bill remains unchanged it will have an immediate negative impact on our business, as well as the whole of the Northern Ireland dairy sector. Under the proposed dual regulatory regime, veterinary certification challenges would prevent 30% of Northern Ireland milk and dairy products manufactured in Northern Ireland travelling to the Republic of Ireland for further processing. This would result in economic difficulties for Northern Ireland dairy farmers, the dairy processors and the Northern Ireland rural economy as a whole, and would undermine the economic benefits of the Good Friday agreement.
There is no better example of the outworkings of the Good Friday agreement as the Lakeland business model. The Good Friday agreement enabled the development of an all-island economy for agriculture and dairy processing, benefiting the farming community. Indeed, in recent days, findings from the All-Island Business Monitor from InterTradeIreland, a body formed under the terms of the Good Friday agreement, have shown for quarter 2 that companies that export cross-border are growing at twice the rate of companies that do not export cross-border.
The Chair: That was a very helpful introduction. Some of the issues you have raised I am sure will come up in the discussion that we will have as the session progresses.
Roger Pollen: I will not touch on the Bill itself. I will simply say that my role here is different from those of Peter and Michael, who run their businesses. I run the Federation of Small Businesses in Northern Ireland. We have about 6,000 business owners in our membership in Northern Ireland. My role is to understand the issues that affect them and their views on them, to collate them and bring them forward, in particular focusing on the problem areas rather than the solutions. You have heard from Michael something that we hear from a significant number of our members about where the protocol is working, but our job is to sift through and find out where it is not working and what needs to be done about that. I am here to try to represent the views of those 6,000 members in conversation and add to your discussion.
Peter Summerton: Thank you, chair and members, for the invite to come today. I am managing director of McCulla Ireland, a temperature-controlled haulage, storage, customs and energy business based in Mallusk and Lisburn in Northern Ireland, and in Dublin in the Republic of Ireland. Our main business is moving and distributing food across all the Irish Sea routes. A third of our business is on the island of Ireland, a third is GB to Northern Ireland and a third is ROI-GB. If you like, we are moving things in a circle around these islands. That is the key part of what we do.
Q2 The Chair: That is a very good introduction from all three of you. I am most grateful. I will move on to ask as a first question, which Michael Hanley has to an extent already answered. How would you summarise the impact of the protocol as it currently operates on your business or on the sectors you represent? How would you summarise the balance between the positive and the negative impacts of the protocol on your business or sector?
Peter Summerton: The key thing that I have to identify at the start is that our business operates in a complete circle. Trucks move goods from Britain to Northern Ireland, and then take goods from Northern Ireland back to Britain. It is a binary process—one truck in, one truck out—so it is vital for the Northern Ireland economy that we maintain that flow of traffic across the Irish Sea.
I want to put this in as few words as possible. What we see is a Northern Ireland protocol that is not working. We have to clearly identify that it is not working. We saw, at the end of 2020, where Governments in the EU, in Northern Ireland and in Great Britain were going with the border arrangements. From the logistics side, we realised and called out quite quickly that the application of the rules of international trade, SPS and customs to a fast-moving consumer goods trail between Great Britain and Northern Ireland would have a severe consequence. I suggested that 1 April 2021, which was when the grace period was going to end, would be April Fools’ Day, because if anybody thought that the supply chains would realign that day, it would simply not happen.
I would also point out that, prior to the protocol and to Brexit, goods moved across these islands completely freely, so they moved along the most cost-effective routes for consumers. A divergence in trade away from those cost-effective routes cannot necessarily be seen as a good thing for general consumers in Northern Ireland.
We see a two-tier protocol in operation. That is defined, by me, as businesses that benefit from the UK’s unilateral extension of grace periods—mainly the supermarkets—understanding these schemes, while other businesses cannot benefit from the use of those schemes where we have seen the full implementation of EU regulations at Belfast, Warrenpoint and Larne. Secondly, we can model clearly what a fully implemented protocol would look like as it currently stands, because it is the same rules as apply between Holyhead and Dublin. We can see the impact that the application of Brexit has had on those routes and the extension in terms of costs and of time for traffic moving between GB and Northern Ireland.
So I need to be clear that when we are talking about the protocol today, we are talking about the protocol as it is written, not as it is currently being implemented, because currently it is being implemented in an extremely two-tier way. I have clear examples of this where I can demonstrate that goods have been returned to Britain because one letter was wrong on a health cert, and where different information is received from the ports on how they would like vets to administer this. Please remember that these are all veterinary certificates; they are nothing to do with the haulage part of the business. We simply move the goods.
I have evidence of triangular trading, where goods were returned due to the impact of triangular trading. One of the most worrying developments that I have seen was a full health cert of 13 lines. For the benefit of the committee, I will explain that these are retail goods: 13 pallets of goods coming into Northern Ireland. They are products of plant and animal origin so they need to be certified with a health cert. The normal model that we have seen if a vet makes a mistake, as the vet did in this case, with one line, was that that one line would be detained and sent back to Great Britain. In this case, Belfast City Council has decided to apply new EU guidance and reject everything on that health cert, so basically the whole consignment, the whole truckload, went back. At the time when the cost of living is where it is and when rising costs of fuel—in effect, hyperinflation—are hitting our sector, we find these things to be relatively useless.
Basically, it is clear that there is a portion of Northern Ireland business that currently has the full impact of the protocol applied to it. The section that is under standstill at the moment is a different conversation, because that is a unilateral move by the UK. That is not what I would refer to as the implementation of the protocol.
The Chair: Thank you very much for that. That was very clear. Michael Hanley, do you want to add to what you have already said on this?
Michael Hanley: Yes, there has been a small negative for Lakeland, in relation to some additional minor administration, which we have handled within the business. But, overall, the Northern Ireland protocol has worked extremely well for the dairy business in Northern Ireland and for our business in particular, and it has been seamless from pre Brexit to post Brexit: we have continued to export to 80 countries all over the world, service our customers, look after our farmers and pay a competitive milk price. So the Northern Ireland protocol is working extremely well for the dairy industry in Northern Ireland.
The Chair: I am going to ask Roger Pollen whether he wants to say a bit more generally about attitudes among small and medium-sized enterprises. We have just heard two very clear views.
Roger Pollen: I would say that those views are possibly at either end of the spectrum that we experience in our membership. We have hauliers in our membership—the people who own haulage businesses—and people who own dairy-related businesses, so we get a lot of these stories coming through.
We have assessed the whole membership, and our businesses fall into five categories when it comes to the way the protocol is working. For businesses that actively benefit from it in the way Michael’s does, the way it is working at the moment gives them good access to two markets, and they are doing well because of it and they see that it is a great benefit. We have a lot of businesses in that category.
Then there are those that are largely unaffected by it. Typically, these may well be in services, which are not affected by the single market for goods, so they are just carrying on. It does not really affect and touch them very much.
The Chair: Services, of course, are not covered by the protocol at all.
Roger Pollen: Exactly. The protocol is an interesting concept, but it is not impacting on their businesses per se.
We then have a third category, which is those which do not yet appear to have been affected. A lot of that comes under what Peter is talking about, which is that they are insulated to some extent by the grace periods or by the input and support of the Trader Support Service so they are not necessarily experiencing what it might be if the protocol were operating fully.
The fourth category is those that are affected by but unaware of it. Usually that is because they are one link down the chain, so somebody else, maybe a bigger operator, is taking the pain, bearing the cost, doing the service and then passing it on to them, with a charge for it, but they do not see any of the workings behind the scenes so they are unaware of how the protocol is impacting on them.
The fifth category is those that are badly affected by it. We did a piece of work recently to try to map that sector, not to understand the number in it but to try to understand the range. The range of businesses that are badly impacted is quite remarkable. As Peter said, the STAMNI grace period, which then became a unilaterally continued exemption, really squeezes a lot of the businesses that do not benefit from it. Smaller retailers, particularly delicatessens and shops bringing in small amounts of product from a wide range of sources within GB, are badly impacted by this, but we are also seeing the fish and chips sector badly impacted because it brings in the potatoes for chips from England, and widespread problems are being reported there. At the other end of that same thing, the fish side of things, the eel business, we found quite a lot of different businesses being impacted by the operation of the protocol in the eel sector, partly because of the CITES elements of the protocol.
Across the piece there are lots of different ways in which it is impacting, and all of that has to be taken with the fact that it is not yet operating in the way it was intended to or it is potentially likely to.
The Chair: Thank you very much. Those are very helpful introductory remarks from all of you. I should say that we will be a bit pressed for time as we go on, but that is a very good start.
Q3 Baroness Ritchie of Downpatrick: What is your overall assessment of the UK Government’s approach in bringing forward the Northern Ireland Protocol Bill? Does the Bill represent a viable means to address the issues that have arisen under the protocol? I am conscious that the Bill brings forward proposals for the dual regulatory regime. I know that the dairy sector in Northern Ireland has a particular view on that. Michael?
Michael Hanley: As far as we are concerned, there are no issues with the Northern Ireland protocol as it currently stands. Although well intended, the Northern Ireland Protocol Bill is creating significant unintended negative consequences in complex food supply chains. That is in relation to the dual regulatory regime. We have been able to continue to supply all our customers around the world due to the protocol. We would like this to continue as it stands. Although the dual regulatory regime is well intended, as I say, and will possibly work for retail, it will not work where you are in primary processing and where product has to be certified by vets otherwise the product will not move. If our product is not certified by the vets by DAERA in Northern Ireland, it cannot move to southern Ireland, the EU or export markets. It is as simple as that. The issue is certification, and the dual regulatory regime puts a question mark over all of that it.
Baroness Ritchie of Downpatrick: Roger, what is the impact on the small business regime?
Roger Pollen: As I mapped out earlier, it is not consistent. Some are suffering significantly under it. They tend not to have the resources that larger companies would have to find workarounds and accommodate the new processes and so on.
On the question of what the Bill is doing, without taking sides on it, the Bill seems to be the vehicle that has been chosen to try to address the problems that have been mapped out. The concern we had was that not enough effort had been put in by either side of the negotiations to understand the problems. If the consultation that we have had over the last few weeks and months had happened before the protocol was signed, we would have understood much more about the environment that we were trying to regulate and trying to put a framework into. It was not so we are now trying to reverse-engineer something.
In our view, the Bill contains a lot of good suggestions and solutions to the problems that have been brought to our attention by members. That is not surprising, because when members have brought problems to our attention we have done something: we have raised a lot of awareness of those problems. So to a certain extent the Government’s response—the Command Paper, the Bill, and so on—is because they have been listening to industry and hearing the problems that they need to try to resolve. It would be much better and preferable if it had been done through a common approach by both sides, but that clearly had run into the sand, so I suppose this is one side pressing forward with its responsibilities to try to address the problems. We see quite a lot of useful suggestions and solutions within the Bill, but we would not want to see that as being the way that this is achieved and delivered.
To pick up Michael’s point about dual regulation, if you accept the principle that two sets of regulations could operate there, what could that achieve? What do you need to be concerned about? We see that it could achieve a way to have the retail and hospitality sectors carrying on largely as they have until now, but we would need a completely different carve-out for producers and manufacturers that are then exporting out. We would not set our face against any of the solutions in it, but we would certainly want to shape them and make sure that they do not do damage and that we do not lose the benefits that we think the protocol has brought to that first pillar of our membership, which sees that it is using it well, in trying to solve the problems for the others.
Baroness Ritchie of Downpatrick: In that respect, we need a negotiated solution between the UK and the EU to deal with all the various areas you have just outlined.
Roger Pollen: A negotiated solution has to be the most attractive and robust endpoint, because anything unilateral is always open to challenge. Therefore, we see that the Bill maps out a very sensible landing ground. It would be hard for anybody to go out and talk to businesses and not see that there are problems for which the Bill could provide solutions. I am not dismissing Michael’s concerns about the damage that could be done if those were brought in wrongly, but the Bill proposes a lot of good solutions if we can get into a sensible dialogue about whether these are the right solutions and what mitigations we would need to put in place to make sure that the other side of the negotiation is not negatively impacted and that everybody sticks to the principle behind the original agreement but delivers it in a more subtle and responsive way.
Peter Summerton: Quite simply, we do not have sides in our business, because we operate in a circle. I can understand Michael’s position, because we move goods from north to south, from south to north, from the Republic to Britain, where there is very little friction, and from Britain to the Republic, where there is lots of friction. Specifically because we are talking about the protocol today, I note that going forward we see most difficulty in moving goods between Britain and Northern Ireland. That is simply because the supply chain between Britain and Northern Ireland is fundamentally more integrated. It is a regional, just-in-time supply chain. It happens by the minutes, not the hours or the days. Whenever you apply the sort of legislation that the protocol has brought to that supply chain, you end up adding days and days to the process with pre-notification, checks and how the system runs.
If we look at small businesses, I have here the SPS controls for half a pallet for one small business coming into Belfast. This is currently paid for by the UK Government through the movement assistance scheme. When we consider the veterinary piece, the haulage piece, the delays and the extra costs for businesses, which go directly on to the supply chain, we are simply turning small businesses off. It is really important that we do not just focus on border checks as the single issue. Fundamentally, what we see as the issue chilling trade is the fact that Northern Ireland has become an export market to GB in the mentality of English, Scottish and Welsh businesses, because they do not have to do this to move goods between England, Scotland and Wales, but they do in order to move them to Northern Ireland. Whereas before it was integrated in the UK market, it is now clearly seen as an export. For 2% of the entire UK market, that is a challenge to many UK businesses, which have enough going on with things such as the energy crisis and people problems to focus on this.
This is the paperwork for half a load for a business. It is less than the number of certs for half a pallet, but when we start to look at the schedules attached to it and the number of lines and products, we see that all these lines turn into a potential check. I can clearly evidence that a wrong letter on a health cert or a wrong product code can result in the whole load going back. At that point, we have to say that there is a fundamental flaw in trying to apply legislation designed for bulk movements across international frontiers over days and weeks to a supply chain that used to put an order in today and receive the goods tomorrow. That is fundamentally where these rules simply do not work with the type of supply chain.
I know the EU’s original vision was that supply chains would redirect, and we have seen some redirection of supply chains. I go back to the point that if that was the right thing to do, those things would have happened under the free market when we were part of the EU. If they were the most cost-effective things to do, they would already have happened. We are simply making it more expensive to move goods from our cheapest source, which is GB, to Northern Ireland at a time when other businesses and our customers are creaking.
The Chair: I am slightly conscious of the time. You have made a very clear point.
Q4 Lord Dodds of Duncairn: Thank you for your evidence thus far. It seems to me that it is harder to move goods from one part of the United Kingdom to the other—say, from Scotland to Northern Ireland—than from Dublin to Holyhead, across an international border, which is quite amazing. What do the witnesses think is the impact of the continuing political uncertainty around the protocol? What effect is it having on the economic climate? Obviously, we now have the cost of living issues and energy prices as a result of the Ukraine war and so on. What do you think would be the impact of the protocol Bill, if it were passed? Would it bring certainty? What would be the effect on the political and economic climate?
Roger Pollen: I have certainly picked up strongly from within our membership a deep concern about the continuing stalemate at Stormont and the connection that has been made—some people would argue that it is right and others that it is wrong—between the protocol Bill and the resolution and resumption of activities at Stormont. I will leave you to connect those two as much or as little as anybody else can. The increasing pressures in Northern Ireland—the increase in energy costs and the inability to respond to those in the same way that you might in GB—are causing immense frustration, concern and more than alarm among business owners.
On political stability, to go back to the point made to Baroness Ritchie, anything not done through agreement is always less stable than something done through agreement. We are looking to try to get to a point where we have a settled trading relationship between these islands that recognises all the points that Peter has made so eloquently. He is dealing on behalf of a lot of our members, moving their stuff and doing the paperwork for them. That is the sort of pain. They are in the category of those who do not yet necessarily know how much the protocol is impacting on them because somebody else is taking the trouble for them, but they are seeing the cost of that. Until we get to the point where we can say, “Right, we now know what we’re dealing with. We can now start to invest in our businesses and move forward”, it is instability, which is not a good place for any of us.
Michael Hanley: For the dairy sector, the Northern Ireland Protocol Bill would cause major issues on certification. At the moment there is uncertainty in relation to ongoing and long-term investment in the business. Historically, Lakeland has invested strongly in its sites, but some uncertainty has been created by the Northern Ireland Protocol Bill. If it came into law, the issue is in relation to certification, the movement of product and primary processing. Straightaway, 30% of the milk in Northern Ireland would have no home to be handled or processed. There is no spare processing capacity either in Northern Ireland or across in GB, so what happens to that milk? It cannot be produced because it cannot be processed, as it currently stands. Effects animals, the economics of farms that have borrowings, et cetera, and environmental and animal welfare issues would arise as a consequence of that. In primary processing, without certification you cannot export, and if you cannot export then the product cannot leave the island. It cannot be processed, and we serve 80 markets all over the world. We need certification.
I know Peter said that there are issues in relation to health certs, et cetera. We are used to dealing with health certs for the last 20, 30 or 40 years, and in the main, whether you are putting product into Asia, China, the Middle East or the rest of Europe, the health certs and the wording have to be right—he is correct about that—but the industry can handle those issues. It takes time to get into that way of working. But without health certs and certification by DAERA vets, the product cannot move. That means mayhem, chaos and a massive hit to the dairy industry and, as I said, to the primary processing industry in Northern Ireland.
Lord Dodds of Duncairn: Presumably you can still certify to EU standards and produce to them as you do currently, even under a dual system.
Michael Hanley: Under a dual system, the question is: what will the DAERA vet certify? For a product under the SPS and under the protocol as we currently have it, everything is aligned to EU standards. The issue then is of the dual regulatory regime. If products come into Northern Ireland under a red or green line that are not approved under EU legislation, the DAERA vet cannot stamp that, the Department of Agriculture vet in southern Ireland cannot accept it and then the business stops. You cannot export that product out of Northern Ireland. It can stay within GB and the UK, but straightaway we have 30% of the milk—800 million litres—that has no home to be processed. That milk cannot go anywhere because there is no vet to stamp it.
Lord Dodds of Duncairn: Yes, I know the Ulster Farmers’ Union has made it clear that there are benefits for the dairy sector, sheep and so on, but it also outlines in terms of agri-food the big negatives for seed potato people, arable grassland and livestock movements. I come back to Roger’s point: it works for some, but does not work for others at all.
Peter Summerton: The certification of bulk movements is something that I do not think anybody across GB finds challenging—moving goods into the Republic of Ireland. Quite simply, for a single commodity moving under one health cert, which is repeat business, the time and space it moves in is something that I would say was far less challenging than whenever you look at the integrated supply chain between Britain and Northern Ireland, whenever you have 300 commodities in a truck or multiples of the certificates. If you start getting into composite products, it is a much more challenging position.
The continued political position is something that I find quite frustrating. For example, one of the key networks connecting Great Britain to Northern Ireland is the groupage where multiple traders—small traders like Roger’s business—use and share the same truck coming across the Irish Sea, just for efficiency’s sake. In preparation for this, I got the first guidance notes from DAERA on a grouping system because I asked for them on 31 December 2020 at 15.46 hours. The next day, we were expected to be operating to that system, which quite simply could not be operated to.
In terms of GB controls for goods that we are moving from Ireland to GB, the continual stalling and stalling of those controls, and last-minute notifications about them, meant that we were recruiting people to process those transactions, and then we found that we did not need them. We needed them; we did not need them.
Whenever we look forward at the protocol Bill, one key thing we really need to do here is to make sure that the science of logistics, not just the art of politics, is sitting in the room. Over the last number of sessions, and after maybe 40 months of technical conversations, we are seeing suggestions that simply do not work logistically for the supply chain between Britain and Northern Ireland. That even comes down to the current proposals around green lanes. We need to be really careful how we understand a green lane or a red lane will work and, even more notably, how products that have an undetermined end use whenever they enter Northern Ireland will fit into the model. That is key to keeping costs down and goods freely moving, and resource properly allocated across the Irish Sea.
Q5 Baroness Goudie: The answers you have given my colleagues have been very interesting. What would be your assessment of the EU’s response to the publication of the Bill, including the recommencement of paused—and the launching of new—infringement proceedings? What other remedies is the EU likely to pursue and what would the consequences be should it do so, and have you had any negotiations with the EU yourselves?
Peter Summerton: In the world of aviation transport, people suggest that take-offs are optional but landings are mandatory. In this case, the take-off happened before proper challenges were made to how the process would work. We have had some conversations with EU representatives. We find some of those conversations challenging because, quite simply, we end up with the bottom line “Your Government signed this”. For a business that is centred on Ireland and Britain, and Northern Ireland, we are looking for everybody to understand how the supply chain works.
The focus on supply chains redirecting is particularly challenging to us, because there simply is not the infrastructure to store, handle or move those sorts of goods on the scale of 1.8 million people, which you would have to have in Northern Ireland. It is not useful that the current deadlock is resulting in legal proceedings. I do not think that is useful.
Roger Pollen: I agree. It is unfortunate that we have got to where we are by the means that we have. When the UK Government published their Bill, they had not yet brought it into law or passed it through Parliament, so it had not become operational. Yet we saw a fairly strong reaction by the EU, which simply served to increase the temperature yet further and make the likelihood of sitting down round the table and reaching a sensible landing ground by negotiation a little more difficult. That said, we have engaged with the EU a lot over the past number of months, or more. We are going across to Brussels again in a couple of weeks, simply to try to keep on raising the issues and make sure that people focus on the problems that need to be resolved, rather than digging in and saying why there is going to be no movement on any side or all sides.
We try not to point the finger but to keep the focus very much on what needs to be sorted, by whom and to what end. That is why we see the solutions that are brought forward in the Bill, with all the caveats around them, as an interesting area to explore in a lot of detail. But that is much better done by everyone sitting down and saying “Okay, could these be solutions to the problems that you are having?”, and by taking a bit more interest in understanding the problems, rather than saying “We don’t see that as a problem”, because, frankly, it truthfully is.
Peter showed the paperwork that businesses are having to go through. That stuff is only part of the problem. The redirection of supply chains is a massive one, because the implication of it is that customers cannot get what they want and will have to do something else. We have a business in Belfast, for instance, that has had 20 different suppliers in GB cease supplying it because of the hassle—or perceived hassle—of doing that. So that business is no longer able to offer that range of products to its customers. A 100 year-old business that does not trade outside Northern Ireland, so presents no risk to the single market whatever, is finding that it is caught up, as Peter says, in the intent behind international mass movements being applied to regional supply chains for retail-facing businesses. So the response was not helpful, and hopefully cool heads will prevail over the next few days and weeks. With a new regime here in Westminster, maybe we will see some sort of focus on the problems and solutions that really need to be arrived at.
Baroness Goudie: I hope so. I also feel that talking is quite important. Michael, can I hear your views?
Michael Hanley: Yes, we have had limited communication with the EU side for the last number of months, but we had a lot of communication prior to the protocol itself. As I said previously, we are extremely happy with the way the protocol has worked. It has been seamless for our business, but we are a co-op; we are owned by the farmers. Our goal is to operate an environment that can return as much as possible for every litre of milk to our farmers who own the business, so it will be important for us that we can continue to do our business or anything that will enhance it. We would be very concerned about anything that would damage our business, because that damages the earning power of 1,200 farm families in Northern Ireland as a consequence.
Q6 Lord Godson: Thank you again to our witnesses today. Something has already been said on dual regulation, but could you say a bit more on how dual regulation would increase the risks to the EU single market from the point of view of your specific industries? If that is indeed the case, what could be done to ensure that said increased risk would be mitigated?
Michael Hanley: We can see the dual regulatory regime working for retail, because the product is consumed; there is no further processing with the particular product. It would be positive for the retail environment in Northern Ireland. However, there would be unintended consequences for food processing in Northern Ireland, and the issue is the impossibility of certifying products. If that product stays in Northern Ireland and is consumed in GB, that is okay, but ours is an exporting business. The dairy industry in Northern Ireland exports, and the other major processors also export across the world.
Certification is critical. The volume of milk to be handled in Northern Ireland cannot be facilitated, so it needs certification. It cannot be handled within the UK, so it has to be processed in the Republic of Ireland. The Northern Ireland dairy sector needs certification to be able to export. It needs the health certs that Peter talked about, which break his heart, but certification is needed to allow goods from Northern Ireland to be sold to the EU and to the rest of the world.
Maybe I can spell this out in detail. To export milk and dairy intermediates out of Northern Ireland, we need DAERA vets to sign the veterinary certificates. They are signing that milk produced in Northern Ireland is produced to EU standards. To be able to certify that milk and dairy products are produced to EU standards, the vet also has to consider the grain fed to the animal, the animal healthcare products used on the animal and whether they have also been produced to EU standards. With products being available in Northern Ireland that could be produced to one of two regulatory regimes, how can a DAERA vet sign off on the veterinary certificate? That is the issue. If a vet signed off on a cert that was proven to be incorrect, he would run the risk of being struck off or of losing his job.
We cannot get confirmation of the additional information that will be needed by Northern Ireland farmers to allow a DAERA vet to sign the veterinary cert. Nobody can tell us that yet. The crucial part is that the product needs a veterinary cert to leave Northern Ireland for export. Under the current protocol there is SPS alignment, so there is no problem there. I can see the benefits of diverging from that for the retail sector, because the product is pre-packaged when it comes in, it goes on the shelf and it is consumed in Northern Ireland. Our product is exported for further processing. Lakeland is not the end consumer; it goes to another consumer.
I hope that helps to explain it. If the product does not get a cert, it cannot be exported. Northern Ireland is very different from mainland UK in that a high percentage—over 50%—of the milk is consumed fresh here on the mainland. In Northern Ireland we have to export 85% to 90% of what we buy from our farmers, so it needs to have a veterinary cert. Without that, it cannot move.
Roger Pollen: Michael summarises exactly why an agreed dual regulatory regime could be excellent, because certain sectors could say, “It won’t work for us for these reasons and we want to sit within this regulatory environment”, but others, particularly in retail, as Michael says, would have the flexibility to say, “Yes, it would work for us”. Therefore, if that dual regulatory zone was agreed between the EU and the UK, you could work out how to make it best operate to protect businesses that would see it as a risk and to free up businesses that would see its absence as a threat.
We see it as an attractive prospect that would be better introduced and be much more robust if it were done by agreement as part of the solution to the problems that various sectors have brought forward. That is what is missing: the problems have not been universally accepted by all sides and then the solutions arrived at. The problems have been recognised by the UK Government and they have put forward solutions, but that is not a really robust and sustainable way of delivering them, in our view.
Peter Summerton: Rather than repeat what Michael and Roger have said, I will challenge the terminology of “at risk”. We see goods move between Britain and Ireland, Ireland and Britain, Britain and Northern Ireland, and Northern Ireland and Britain. In 20 months of SPS checks, which are meant to prevent disease, pests and contaminants crossing the Irish Sea into the EU, there has not been a single newspaper headline that they have prevented a single risk. The British food supply is inherently safe. The goods that have been returned in the events that I have mentioned were returned back into free circulation in GB; they were documentation issues. We have issues at ports because of documentation, not because our foodstuffs have health issues.
A bit of work needs to be done to secure a solution for people who are exporting goods off the island of Ireland, which tend to be bulk movements that happen in the right time and the right space for those solutions. If we appreciate those problems, we will be looking only at a magnification of them whenever we bring it down to the goods that move across. I will be really fair: McCulla Ireland does not move lots of retail goods. We tend to move goods that are difficult to move, that are going for further processing, to hospitality or to wholesale. We are not a retail-driven business. Front end, we actually see the challenges, but we see them on a multiple scale from what the primary sectors would have.
Respect needs to be given to the dairy sector to find a sectoral solution. One might also be required for people exporting vast quantities of beef. But whenever we are down to retail goods, we have to consider the supply chains and the cost of living issues and energy issues that we have as nations at the moment. We have to make sure that we are not simply adding bureaucracy and cost, and spending hundreds of millions of pounds creating paperwork, when the paperwork then becomes the issue. It is not the foodstuff. We are talking about “at risk”; the British food supply chain is inherently safe.
Whenever we take that challenge forward, we have always had a concern, as a business that moves goods from the EU into Northern Ireland, about where the SPS controls will be if there is an SPS problem in Europe, in Galway or in Berlin. Where will the controls be for those goods moving through the EU, through Ireland, into Northern Ireland and then across into GB, because there are no checks between Northern Ireland and GB? Inherently, in looking at that problem, we may find that the solution to goods moving the other way can be seen.
Q7 Lord Hannan of Kingsclere: Thank you very much, gentlemen. That has been immensely informative—for me, at any rate. You have largely anticipated my question, which was going to be about the red and green channels, in your answers to Lord Godson. Let me widen this little and phrase it like this.
Suppose there is no agreed solution. Hypothesise that it is not possible to reach a deal. The legislation takes effect anyway and the UK unilaterally moves ahead with red and green channels, the dual regulatory regime, a different form of enforcement or arbitration. What is the worst-case scenario? What are you most worried about in terms of either retaliation or some logistical consequence that would negatively impact your operations? You do not all have to answer this, but please do come in if you have an answer.
Michael Hanley: It would be a disaster for the dairy industry in Northern Ireland, in a nutshell. Straightaway, 30% of the milk—800 million litres—would have to stop production, because there would be no place to process it. It would cause an environmental issue if it was produced due to effluent, water contamination et cetera. It could not be produced, so those animals would have to be taken out of the food chain.
Lord Hannan of Kingsclere: Talk me through why that is. With the dual regulatory regime you can stay within the current arrangement. Why does it follow?
Michael Hanley: It follows, because there is a question mark now over certification. The issue with certification is: can the Northern Ireland vet certify that the product is produced to EU standards? If that is the case, that is grand. If that is not the case, if the vet cannot stamp that the product was produced to EU standards—under the dual regulatory regime there would be a big question mark over that, and remember that at this stage, under the green and red lanes, there will be product coming here that is not approved under the aligned EU SPS—you will have gone away from alignment.
There is a mix of ingredients and products on farms across Northern Ireland, so will the vet put his reputation on the line to stamp and certify that product? Therein lies the issue. If the vet cannot certify it, 30% of the milk cannot go for processing; that is 800 million litres. That is the profit. That is the decimation of dairy farms and all farms across Northern Ireland. We have 1,200 farm families. We buy 47% to 48% of the milk in Northern Ireland. So there is devastation across the dairy industry in Northern Ireland at that stage.
Roger Pollen: It is always risky to start answering hypothetical situations and questions such as this, but it is an interesting one. I think we would share that analysis of the real concerns about the chaotic response that might follow from it and the damage that could be done. With the loss of access for the people for whom it is working—the first of the five sectors that I identified—would they lose the benefits of that?
I suppose it comes back to whether it is being done within the spirit of continuing to meet the UK’s commitments under the protocol as opposed to getting rid of the protocol. If this was the UK saying, “We’re sticking with the protocol, but we’re going to meet our commitments under it in this way”, that is massively different from walking away completely from their protocol, so you get into trying to work out what will be the responses and why, and I think that takes us down a long and winding path that we have not modelled for yet.
Lord Hannan of Kingsclere: I am always struck that whenever I raise this with European colleagues—I am on the joint parliamentary assembly—and I ask them what they are worried about and what harm could come their way as a result of this, I never get an answer. The answer is always, “Well, you signed it”. It is never about anything specific. You will have heard Simon Coveney saying a couple of days ago that there could be a terrible trade war. Who is threatening the trade war?
Roger Pollen: I come back to the point I made about ingredients in the Bill: trusted trader, green and red, and so on. If you are trusted, trusted has to count for several things. It has to mean that you live up to certain commitments, but it also has to reduce the number of things that you are required to do, because you are trusted. That is why the ingredients in here are quite good for a lot of solutions to the problems and why we have always urged that unilateral imposition must be avoided if at all possible.
Peter Summerton: It is important to recognise the reality of what is happening at the border control posts. The further we get away from where the rubber really hits the road, the more hypothetical everything becomes. In reality, goods are very close to freely moving between the Republic of Ireland and Britain. There are no SPS checks. I have not had a single truck stopped yet on that route. Between Great Britain and Northern Ireland, we have the UK Government’s unilateral action, effectively running the green lane; it has been rebranded from STAMNI to STAMNI plus green lane. The goods that are at risk of entering the Republic are the key area, and how they will be handled is very important. That is very important for Northern Ireland traders because a lot of goods move across the border control posts and, in good faith, someone does not know when they move those goods across the border control posts where they are going to sell them, because they are buying stock. That stock could be sold in County Antrim or in Limerick. That will have to be handled as a post declaration if it enters the Republic of Ireland, and it will be down to traders to manage that properly.
What we are really looking at here is a green lane with a trusted trader scheme beside it. From what I can see, that scheme is becoming more and more onerous and much less like moving goods from Birmingham to Glasgow being the same as moving goods from Birmingham to Belfast. That onerous scheme in itself is making the green lane slightly discoloured, and it is pushing product that could have been in the green lane because it is being brought into Northern Ireland into the red lane. I have concerns that the definitions of “green lane” and “red lane” are not quite matching the original piece that the now Prime Minister told us in our offices in Lisburn. We were told that the green lane was for goods coming into Northern Ireland and the red lane was for goods that were destined for the Republic. We need to make sure that those definitions are maintained.
Lord Hannan of Kingsclere: Briefly, what tweak would you make, legislatively or in terms of formal government advice, to ensure that that happened?
Peter Summerton: The key thing here in terms of the customs controls is that it is very easy retrospectively to control customs for goods that move into the Republic of Ireland. Given the free trade agreement, that is something that traders could probably manage, especially when they do not know where the goods they bring into the country may end up.
The difficulty with SPS is that you cannot retrospectively run SPS because the goods have already moved across the border control post. So when it comes to SPS it is key that the EU recognises that the UK food supply chain is safe and allows those goods to move. Given the scale of what we are facing across Europe—we are landing Russian cod, but we cannot bring a tin of beans from Birmingham to Belfast—we have to be really clear where this sits in European terms. From what I can see, we are adding tremendous amounts of cost and complexity and are slowing down the supply chain at a time when consumers need quite the opposite.
Q8 Lord Empey: Thank you very much for your contributions, which have been very interesting. This question may be somewhat academic, but what is your assessment of the Government’s proposals to disapply the provisions of the protocol on state aid and to give ministerial powers to override the provisions of the protocol in relation to VAT?
Roger Pollen: At present, Northern Ireland may lose out unless there are derogations. For example, on VAT, it was quite well highlighted in the Budget on solar products. There are other areas where it is starting to come to the fore as well, to do with bank lending and the government underwriting of bank loans. Freeports are another opportunity for which Northern Ireland seems to be falling behind other regions and nations within the UK. The question is whether the new UK subsidy regime will ensure that Northern Ireland has equivalence to EU state aid to avoid significant trade distortion. The underlying concern that we hear from members is that they could find themselves falling foul of, being left behind by or cut out of support systems from both the EU and the UK, and that Northern Ireland businesses will find themselves at a disadvantage.
Interestingly, the solar issue was brought to us by our members, trying to understand whether a competitor in GB could come and provide goods and services at zero rate in Northern Ireland, whereas the Northern Ireland business could not quote for that same work in Northern Ireland on those same terms. That highlighted the challenge within this that needs to be resolved.
Lord Empey: Do you think this is more negligence than a policy objective in and of itself?
Roger Pollen: I do not know what the intent and spirit behind it are. It is one of those things where it is a problem that has emerged that perhaps was not anticipated at the start and we just need to get everybody to focus on how to resolve it and make sure that we do not leave some of the smallest businesses in Northern Ireland suffering as a result of a policy intent that does not have any great relevance there.
Lord Empey: Michael, this might not affect your members in the same way.
Michael Hanley: Indirectly it does. Personally, I have no opinion on the VAT and excise question. But in relation to state-aid rules, as I understand it they were included in the Northern Ireland protocol to provide confidence that there would be a level playing field in the context of Northern Ireland’s access to the EU single market. As I understand it, the specific arrangement for agriculture created a carve-out from state-aid rules and provided Northern Ireland with significant policy flexibility in designing a replacement for the CAP.
Removing this provision would potentially jeopardise access to the single market, as I understand it, but the dairy sector is comfortable with the state aid provisions in the Northern Ireland protocol and the agricultural and food policies that DAERA has developed in line with those provisions.
Peter Summerton: With rising fuel and labour costs, state aid does not factor very highly in McCulla Ireland’s agenda. However, we watch the cost of electricity, the relationship between SONI on the island of Ireland and what can happen to the regulation of power prices in Northern Ireland with particular interest, especially as a business that has been pioneering in biomethane in electric production and in trucks. We will be at the forefront of trying to create green energies, and it will be really interesting to see just how the green energy strategy for Northern Ireland could be pulled back by the relationship with SONI on the island of Ireland.
Lord Empey: Of course, our consumption profile is different from Great Britain’s. We are heavily dependent on oil, for instance.
Q9 Lord Hain: Do you think the EU is being sufficiently flexible in its overall approach to the protocol? In particular, how do you feel about its stance on the Bill?
Roger Pollen: I suppose the fact that we are where we are suggests that nobody is being sufficiently flexible. We have a Bill brought forward by one side to resolve a problem that should have been resolved through negotiation if the thing had been working properly. In addressing the problems, I suppose I would go upstream of that and ask whether enough work has been done to recognise and understand the problems first, before then addressing them. It is unfortunate that all sides seem to have dug in a bit and tried to defend ground that they have landed on, probably too quickly, as Peter said about some of the things done in the last hours before the protocol came into operation. This process has been fast. People have then held that ground, and I do not think that has been particularly helpful in trying to map, understand and then bring proper resolution to the problems on all sides.
Lord Hain: There has been a failure of negotiation, has there not?
Roger Pollen: Yes.
Michael Hanley: From a Lakeland perspective, we certainly share the view and statement from the Northern Ireland Business Brexit working group. We think the only solution is a negotiated outcome working to a final agreement based on compromise, so we encourage everybody to get to discussions, get around the table and improve what the protocol has already done, if there is improvement there. From a Lakeland perspective, the protocol is working quite well for us, so we have no complaints at this moment.
Lord Hain: Why do you think there have been no proper negotiations?
Michael Hanley: Discussions have been ongoing for four or four and a half years. From a retail perspective, I can certainly see that when a product finishes up in Northern Ireland, the intended consequence of the new protocol Bill would be a big help there. There is a danger of the unintended consequences of that, so discussions are important and we encourage everybody to get around the table and discuss. Hopefully, compromise can be agreed that makes sense but that does not jeopardise the strong dairy industry and primary processing that we have in Northern Ireland.
Peter Summerton: This is a political question for a logistics person. It would be nice to duck it, but I will not.
The EU’s position in defending the single market from any goods coming in from outside the market is that the same border controls are in place in Dublin as in Paris, which always creates a problem whenever you have a Northern Ireland. The EU’s position seems very clear: it seems to have no desire for flexibility at the ports of Belfast, Larne or Warrenpoint. We can see that with at-risk goods, because on a weekly basis we see continual notes for guidance provided to DAERA for enforcement at the ports. That position is quite clear. On how to negotiate that position, to be honest I do not know how the UK Government did not see the conflict that this would create for the supply chain in signing up for full SPS and customs controls.
Lord Hain: You mean in agreeing the original treaty.
Peter Summerton: Absolutely. There was three months of, “There is no border in the Irish Sea”, when our trucks were stopped on day one. We have to be real about this. We have SPS and customs controls in the Irish Sea, and the only thing that has given any mitigation against that has been the free trade agreement. Full customs on top of the SPS would have been an absolute nightmare, with tariffs and duties.
To be clear, we are in the air now and we have to sensibly get this back on the ground again. The model for that, which I suggest to anybody I speak to, is that if we go away from product and look at people, we have a common travel area whereby people travel freely across these islands. It is quite unique in terms of the European settlement and how the rest of Europe works, with passport controls. Surely we can apply the same logic that we apply to the common travel area to goods moving across and between these islands. Surely the UK should be looking to see whether it can grasp for this model the flexibility that Europe has already demonstrated there.
We have already seen pragmatism in the Irish and the UK Governments both welcoming no checks on Irish goods travelling between Ireland and Britain. It has to be seen as a precedent when a UK and an Irish Government both welcome exactly the same thing. These checks are not required because Irish food going to Britain is safe, and British food going to Ireland is safe too.
Lord Hain: You have all been admirably succinct. Can I ask you to be even more so? What would happen if the grace period were suddenly ended?
Peter Summerton: There are no grace periods. We have a unilateral standstill by the UK Government. The grace period ended as soon as the UK unilaterally extended it. In my business, where we are right down to the rubber on the road, we have to be really clear on that. It creates a misconception that we have grace. There are infraction proceedings running against that unilateral action. What we have seen below the grace period or the standstill is certainly not a standstill. At the ports of Belfast, Larne and Warrenpoint, we have seen continual increases in controls on British goods moving into Northern Ireland, as exemplified by certification on frozen breads, triangular trading, one letter wrong on a health cert resulting in the return of a full consignment of goods and now a new note for guidance suggesting that if one line is wrong on a health cert, every product on that health cert potentially goes back. I point out that we have not even seen that at the port of Dublin yet; we are seeing it at the port of Belfast first.
The Chair: We have to move on. We are almost running late.
Q10 Lord Thomas of Gresford: I apologise for being absent for some of your evidence due to being in the Chamber. I shall read everything I missed.
I would really just like some final thoughts about the way forward. Do you see any way forward to resolve the current impasse? Peter, thank you very much for bringing those documents. I had not realised the extent of the paperwork involved.
Peter Summerton: My final thoughts are the same as my opening thoughts: that the introduction matches the conclusion. The application of third-country-to-EU rules to a regional, fully integrated supply chain such as exists between Great Britain and Northern Ireland simply does not work. It cannot work in the time and space that happens in. I qualify that as Irish haulier of the year, Irish supply chain excellence winner and Irish green award winner this year, so our company says that with some standing. Whenever I look at how this could work in future, the main challenge for me is very much a recognition of the regional difference that Northern Ireland has.
Roger Pollen: I would say two things. First, it would be very helpful if all sides could come together and say, “Okay, maybe we don’t like where we’re at, but let’s try to improve the situation”. To take Peter’s point, let us reinstate those grace periods, the things that have happened by unilateral action, and get them agreed by the EU as a mark of good faith to say, “Yes, we have a more stable way, which is unchallenged, for continuing to trade until we really work out the way we’re going to go beyond that”.
We still call them grace periods, but you are right that, because they were unilaterally extended, they are unstable. It would be a mark of good faith for the EU to say, “Okay, we recognise that they’re what’s making things work and we’ll go with those for the people of Northern Ireland, and then we’ll focus on a lot of the solutions that have come forward here”, and, as part of doing that, engage much better with the industry—to a certain extent in the way the various departments of Whitehall have been doing this summer—really map the problems, and then come together, with industry in the room, to get an agreement on what is not working, what is working, and what needs to be done to resolve it and move it forward in a spirit of co-operation and optimism.
That is probably where we will eventually get to. It just may take us longer than it should. We have so many pressures. Our businesses are under immense strain from every quarter, as are their customers, so this is quite a high priority and it is really quite an easy win to get it sorted.
Lord Thomas of Gresford: So I take it that no unilateralism, but co-operation and agreement, is your message.
Roger Pollen: That is by far the preferred choice.
Michael Hanley: As I said before we came into the room, the protocol works for the dairy industry in Northern Ireland and for primary processing. As I say, we export 80% to 90% of what we produce off the island, and we need certification and so on. The SPS and the alignment work for us and our business.
If we are going to have a solution and an improvement here, it needs to be a negotiated outcome, with all parties working together to get an agreement based on some compromise but not one that compromises the integrity of the dairy industry and the provenance of the dairy products that come out of Northern Ireland and are exported to more than 80 countries all over the world.
The Chair: Thank you all very much indeed. It has been extremely helpful to us, and you have spoken with great clarity, and a certain amount of passion at times, about the problems that the industries face. We are grateful to you for coming and giving evidence. That will be helpful to us as we write our next work.