More on Irish pigmeat compensation

The European Council at its last meeting under the French Presidency on 11-12 December had a weighty agenda, discussing the EU energy and climate change package, the European economic recovery plan and agreeing with the Irish government an approach which might allow the Lisbon Treaty to enter into force before the end of 2009. The Council also welcomed the political agreement on the CAP Health Check and, in a move surely made with one eye on the upcoming second referendum in Ireland on the Lisbon Treaty, it “expressed its support for Ireland’s effort to deal with the situation relating to pigmeat and its prompt precautionary action. It invites the Commission to support farmers and slaughterhouses in Ireland by way of co-financed measures to remove relevant animals and products from the market.”

In response, the Commission has proposed a measure to contribute to the cost of disposal of pigs that come from farms that used contaminated feed and the destruction of fresh, frozen and chilled pigmeat that may have been derived from such animals and that remain under the control of the primary processors. The measure also covers the relatively small number of cattle affected by the issue.  The measure allows for maximum EU support of EUR 20.7 million This is additional to the EUR 15m already being made available in the form of aid to private storage.

This move represents a new departure for the EU agricultural budget. The EU Emergency Veterinary Fund can provide EU co-financing for the costs involved in coping with an animal disease outbreak, including compensation to farmers, costs of disinfection, emergency vaccination, etc. But the Irish pigmeat crisis involved a food safety breakdown, not an animal disease outbreak. On previous occasions, such as in the Belgian dioxin crisis in 1999, the Commission refused to provide EU funding towards the Belgian compensation package and indeed initially rejected the Belgian national compensation package on state aid grounds.

Perhaps the European Council’s generosity towards the Irish was influenced by the Christmas season, but there may also be an element of realpolitik in the agreement. In welcoming the decision when announcing the Irish national compensation package to the Irish Parliament on 17 December last, the Irish Minister for Agriculture, Fisheries and Food noted that “these measures exemplify the solidarity and support that the Members of the Union give when another member, Ireland on this occasion, finds itself in difficulty.” Mrs Mariann Fishcer Boel, the Agriculture and Rural Development Commissioner, is quoted as saying “This is another concrete example of how the European Union can help Irish farmers at this difficult time.” Presumably Irish farmers will be reminded of this when voting takes place on the second Lisbon referendum.

In my earlier post raising questions about the consequences of the Irish pigmeat crisis, I predicted that a national compensation package would be provided to Irish pig producers and processors. Following a number of days of negotiation, this has now been agreed up to a ceiling of €180 million. It appears that, if the total costs were to exceed this amount, the government envisages introducing a levy on unspecified products to fund this amount.

Much of this amount appears to be a safeguard against contingencies. Compensation to producers for pigs slaughtered due to feed contamination and to the processors for meat destroyed which remained in their ownership would amount only to a fraction of this. The main unknown is not the additional cost of the recall from retailers, but possible claims by manufacturers of highly processed foods (such as pizza toppings with pork ingredients) where the pigmeat component is only a tiny part of the overall product value. This risk may have been diminished by the decision of the Standing Committee on the Food Chain and Animal Health (SCoFCAH) that composite foods, such as pizzas and sauces, containing up to 20% Irish pork and fat can still be consumed. However, some beef markets have also been disrupted by the crisis so there may be other actors in the compensation queue.

From an insurance viewpoint, this product recall goes well beyond the product liability risk of normal business operations. Insurance companies classify it as an ‘act of God’, and thus something they are not expected to contribute towards. With the certainty that food crises of this kind will occur in the future at regular, if unpredictable, intervals, there is now an urgent need to put the funding of these liabilities on a more structured basis than simply assuming that the taxpayer will always be there to pick up the tab.

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