One of Europe’s biggest poultry processors which has a near monopoly in Northern Ireland has effectively been receiving a backdoor subsidy from taxpayers via the RHI scheme, it has been revealed.
Although multi-million pound subsidy payments have been made to poultry farmers who were encouraged by Moy Park to install wood pellet boilers under the scheme, evidence at the RHI Inquiry yesterday points to much of that money ultimately ending up in the profits of Moy Park’s US owners, Pilgrim’s Pride.
Because of the lucrative nature of the ‘cash for ash’ subsidy, the multinational company was able to improve the quality of its product while slashing the proportion of what it paid farmers to heat poultry sheds – in the knowledge that they had a separate income stream from taxpayers.
In evidence which raises questions about whether Stormont knew about what was going on and may raise questions about state aid distorting the commercial market, the public inquiry into the RHI scandal yesterday was told that Northern Ireland’s biggest company was a major indirect beneficiary of the scheme.
The inquiry has already heard how the poultry processor – which supplies a high proportion of the chicken sold by Marks & Spencer, Tesco, Sainsburys and Waitrose, is exceptionally well connected, with unique access to both civil servants and some senior DUP figures, giving it an inside track on several pieces of commercially-sensitive information as changes were being made to the green energy scheme.
Yesterday Tom Forgrave, one of Northern Ireland’s most prominent poultry farmers, set out details of Moy Park’s “clever business model” which he said had the effect of driving poultry farmers into the RHI scheme.
The award-winning farmer, pictured, said that prior to RHI Moy Park set chicken prices in a way which effectively covered all its farmers’ costs of production. However, he said that after RHI the company – despite gaining significantly with improved meat quality, the ability to sell more parts of each carcass and the birds putting on more weight which allowed it to cut its feed bill – no longer covered all heating costs.
Farmers instead found the RHI making up the significant shortfall in their income.
Inquiry barrister Donal Lunny said that although Moy Park’s formal statement of what it paid each farmer “doesn’t take any express account of the RHI income...it appears that on one view Moy Park get the benefit of your RHI income here because they’re able to continue paying you or allowing you a lot less for fuel than you’re actually using – because the RHI income is more than covering the gap”.
Mr Forgrave told the inquiry: “As more hot water systems went live the performance and welfare continued to improve and at almost every quarterly monthly meeting [with the company] a further 50% of the total financial savings brought about by improved performance was removed from the price paid to the farmer.
“This continued each and every quarter to the point where any financial benefits to the grower [farmer] due to improved performance had been eroded to zero.”
He added: “As of present day, all financial benefits derived from any improvements in performance achieved from the move to hot water heating have been removed from the growers [farmers] and they remain on the same margin that they were on in 2013, with only a small inflationary linked increase.”
The north Antrim supplier to Moy Park said that the switch from problematic ‘wet’ heating provided by gas burners to ‘dry’ heat from indirect hot water heating fuelled by biomass boilers was “one of the biggest changes implemented in the poultry industry in the last 30 years” and enthusiastically promoted by the company to drive its ambitious expansion plans, which were supported by Stormont.
He said that economic benefits from improved production practices - such as the biomass heating systems installed under RHI - only stay with the farmer for a limited period because, in the words of inquiry barrister Donal Lunny Moy Park’s quarterly reviews “catch up with you”.
He said that meant that once enough Moy Park suppliers were using the biomass-fuelled hot water heating systems so that the average performance was improved, Moy Park’s calculations “starts to remove the benefit, 50% at the time”.
The system which the company had in place meant that after it had successfully encouraged a critical mass of its farmers to switch to the new heating system the others either had to follow suit or would find themselves at a serious competitive disadvantage.
Mr Forgrave said Moy Park, or anyone who understood its pricing system, could have predicted that once a significant number of its suppliers had switched to the RHI-eligible heating system then the rest were likely to follow.
Mr Forgrave said there was tension between farmers and Moy Park because the company had set an acceptable figure for heat usage which was far short of what was required to maintain poultry sheds to optimal standards for bird welfare.
He said that farmers then had to decide whether to make up the heat shortfall out of their own pocket or see conditions for their birds deteriorate.
Mr Lunny put it to him that the RHI scheme “was masking or making up for an adverse feature of your arrangement with Moy Park...the very large RHI income was making up for the fact there was a huge shortfall between what Moy Park were paying you to cover fuel and what you were having to spend on fuel”. Mr Forgrave said: “I wouldn’t say the RHI income was there to make up the shortfall...”
Mr Lunny said that it was not intended by government to make up the shortfall “but it appears to have been masking or making up for that shortfall - if, instead of paying you £118,000 for fuel, Moy Park had allowed you £453,000 then the bottom line on that first column [showing his payments from Moy Park] would be £330,000 better than it is”.
Mr Lunny said that it seemed clear that the big gap between what Moy Park would pay and the costs of production and some income was being “supplemented” by RHI income.
Inquiry panel member Dame Una O’Brien said that it was never said when the RHI scheme was launched that “this is intended to be a major subsidy to the poultry production industry – or to a particular company”.
Dame Una, a former Whitehall civil servant said that “fortunately we’ll be hearing from them [Moy Park] next week” – a reference to the fact that Moy Park’s recently-departed chief executive Janet McCollum and senior manager David Mark will give evidence next Friday.
Keith MacLean, the inquiry panel’s technical assessor, asked Mr Forgrave: “What I’m struggling to understand is why a canny farmer like yourself and the others in here are prepared, or were prepared, to allow that gap to open up between a 1:1 [Moy Park covering the full cost of heat] and a 1:4 – it seems like the only sensible answer to that is that you were getting enough from the RHI that it didn’t matter and you accepted that that benefit, or at least some of that benefit, would be accruing to Moy Park but as along as it left you with something at the end of the day, that was OK.”
Mr Forgrave – who received £750,000 in subsidy during the first three years of the scheme – said that when the panel questions Mr Mark next week “I think he will say that at no point did we accept that – we had extremely robust discussions with Moy Park to get up to what we needed [in payments from the company for heat]”.
Inquiry chairman Sir Patrick Coghlin put it to the witness: “Isn’t it pretty clear that the basis of the agreement, the deal, whatever you want to call it is: We’re not going to pay you your full [fuel] pellet use because by using pellets you’re getting RHI? And you don’t have to be an economist to see [that] – that’s what the deal was.”
Mr Forgrave – who told the inquiry that he is essentially a freelance supplier of Moy Park with no guarantee that they will buy his chickens beyond the next 16 weeks – said: “I have to be very careful, sitting here, because I’m very dependent on Moy Park. I’ve a 16-week rolling contract with them.
“But to go behind the scenes of this, Moy Park are winning both ways. Moy Park are not paying us the fuel allowance that we need for actual cost. And also under the performance adjustment [where the price it pays is continually reset] every time we do spend the money on fuel [out of the farmers’ pocket] and improve the performance, the flesh price is coming down.
“We’re caught in quite a difficult position. Our committee have challenged Moy Park very strongly. The only reason I presented this was to show the commercial reality of the position I’m in.”