Outlook: Dalgety pays price of appointing an insider

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The Independent Online
Dalgety is one of Britain's biggest animal feeds companies, so it was always inevitable that its fortunes would get intimately caught up in the BSE crisis. When the scandal broke, Dalgety was instantly fingered as one of the companies responsible. It was no worse than most others in the industry and immediately changed its practices when the horrific side-effects of feeding animal remains to animals became apparent. But the damage was done.

Looking at Dalgety now, it is tempting to view its huge losses, boardroom changes and savaged dividend as a kind of divine retribution - a reaping of the bitter harvest of mad cow disease.

Actually, BSE is only one of a number of causes behind Dalgety's woes. The real villain of the piece is pet foods. There was a BSE element here too. The company was hit by an export ban and had to reformulate some of its flavours as a result. But there was bad judgement aplenty too. When Dalgety paid pounds 440m for the petfoods division of Quaker's two years ago, some analysts questioned the deal's wisdom. Why go into battle with the much stronger Mars-owned Pedigree Petfoods, they asked. And would the southern European countries such as Italy and Spain, really start feeding Fido with posh canned delights rather than scraps? Yes, this really was advanced as a rip-roaring market opportunity for Dalgety.

As it turned the ensuing battle with Mars was only part of the problem. Dalgety simply failed to manage the business it had bought. The integration was botched, costs were left too high and production facilities were inefficient. New management was brought in, but too late.

Richard Clothier, the now departed chief executive, has clearly had his fair share of bad luck over the past couple of years but there were also lots of mistakes and the company took too long to sort them out. He is also a ringing reminder of the dangers of opting for the "inside" choice of chief executive over the new-broom outsider. With 20 years of service behind him at Dalgety, he was not the right man to be at the helm when the company hit stormy waters.

RECs not on the endangered list

The one question that Coopers & Lybrand has failed to answer in its analysis of the deregulated electricity market is, in many respects, the most important one. How many new entrants will take the plunge when the regional electricity companies start to lose their domestic monopolies next spring?

If its research is correct then there is huge pent-up demand on the part of consumers to switch from their local REC even for very modest price reductions. Satisfaction with an existing supplier will not, it seems, guarantee continuing loyalty once electricity can be bought at a bank, a supermarket or a petrol station. Some 55 per cent of households say they would definitely switch or consider doing so for as little as 2 per cent off their bills. That is more than double the number that have switched supplier since gas competition was introduced in the south west.

It is one thing having 22 million customers just begging to be freed from their local REC. It is another creating a competitive market. On the face of it, electricity supply is not particularly attractive. Most of the money is made by generating and distributing electricity over the national and local wires, not by pumping it the last few yards into the home.

Moreover, even if Virgin, Barclays or Shell did enter the market, they would have no direct control over the service their customers receive. There is another side to the argument, however. New entrants will be trading on the strength of their brand, not on whether their electricity is better than the chap next door.

The other argument is that what Virgin et al are really after is another way of accessing the customer so as to sell other products and services. Here's your electricity and by the way we can also service your electrical appliances. While we're at it, what about a household contents policy and, since you ask, yes, we also do life policies and PEPs.

This may sound plausible but experience of the deregulated gas market suggests it is improbable. No supermarkets or banks bothered to set up in competition to British Gas and two of the rival energy suppliers who did enter the market have already withdrawn or are in the process of doing so. The RECs may not be quite such an endangered species as Coopers thinks.

No solutions for global integration

From the comfortable vantage point of our well-off, air conditioned, Western lives, it is easy to view the process of globalisation, deregulation, convergence and integration sweeping the world economy as an entirely benign, even benevolent thing, that will enhance the economic prospects of developing and developed countries in equal measure. Not so, says the latest Trade and Development report from the United Nations, which comes up with the disturbing conclusion that these apparently irresistible forces and trends are much more likely to increase further present inequalities and divisions. The report's reminder of the way faith in markets and economic openness quickly degenerated in the 1920s and 1930s into protectionism and totalitarianism may seem just a trifle alarmist; in an age when democracy and capitalism seem finally to have emerged triumphant, it is hard to imagine such a dramatic change of events and perspective.

Even so, the report poses some very worrying questions about what most of us would see as an entirely desirable set of economic developments and objectives. The report lists a number of alarming features of the contemporary world economy. For starters it is growing too slowly to generate sufficient employment with adequate pay or to alleviate poverty; the gap between the developed and the developing world is continuing to widen steadily; everywhere, the rich are getting richer and the poor are getting poorer while shrinkage in the middle classes is a feature both of the developed and developing world; in the developed world, finance is gaining the upper hand over industry and endeavour with the result that trading in existing assets is more lucrative than creating wealth through investment; the gap between skilled and unskilled labour is becoming a global problem with falls of up to 30 per cent in the real wages of unskilled workers in some developed countries during the 1980s.

If all this sounds like that tired old "third worlder" complaint about globalisation - the whole process is designed by the West in order to benefit the West and exploit the poorer nations and people of the world - that is actually not what the United Nations is trying to say here. The report leaves no doubt that the adverse consequences of international economic disintegration, were current trends to be put into reverse, would be borne by those that can least afford it. Instead the UN urges a more imaginative, sensitive and phased approach to integration. This unfortunately is where the UN's table thumping comes over all wishy-washy. Other than urging policy makers the world over to try harder, the report is unable to offer much in the way of solutions. All the same, the UN deserves some credit for highlighting the darker side of global integration. For the great bulk of the world, the process has yet to yield significant benefits. And if it doesn't eventually do so, the people will speak, with possibly calamitous consequences for everyone.

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