Memorandum from Tesco Stores
Tesco employs 11,000 people in Wales in a variety
of different jobs. Our distribution depot in Magor alone employs
850 people. We have 35 stores in Wales.
We are pleased to provide the Committee with
our views on the issues surrounding the situation faced by livestock
farmers in Wales.
BACKGROUND
1. We are subject to many pressures from
different producer groups who naturally want us to buy their produce
at the expense of other suppliers. We have pressures to buy from
all parts of the United Kingdom and we cannot always meet these
demands in the way that suppliers would like. We are also the
largest food retailer in the Republic of Ireland where we also
have a supply base to nurture. It is unrealistic for us to be
able to meet all these expectations equally while trying to run
a commercial business and meet our commitment to keeping food
prices as low as possible. We must also provide customers with
choice and surety of supply.
2. In the last five years we have been proactive
in engaging with farmers' representatives throughout the UK to
build a positive dialogue about our role in the farming community.
3. The recent picketing of our depots and
the disruption to our vehicles and customers has occurred because
of our relatively large number of stores in Wales. Our record
of supporting British producers is outstanding as we will show.
We also gave strong support to the British beef industry during
the BSE crisis when consumer organisations questioned the safety
of Beef.
4. At the Oxford Farming Conference in January
our Chief Executive announced that we would ask London Economics
to prepare an analysis of our margins in relation to the rest
of the meat supply chain. We have offered to share the conclusions
and methodology with the NFU. This work is at an early stage but
we have referred to some of the emergent themes later in this
submission.
5. Our record of support for the UK livestock
industry:
(a) In Wales, specifically we are sourcing
local products for local sale. We have launched Tesco Welsh lamb,
and Welsh beef begins from 23 February. Our current supplier Cig
Mon launches their lamb producer club this summer, further showing
our commitment.
(b) Our long term relationship with one supplier
has enabled it to invest 25m in a new abattoir, cutting and packing
plant in Merthyr Tydfil.
(c) We continued to sell British beef throughout
the BSE crisis. We have worked hard to build confidence in this
market and last year we sold 30 per cent more fresh beef in terms
of volume.
(d) In the last 12 months we have:
— Sold over 40,000 tonnes of fresh
British beef
— In 1997 the UK imported 20 per cent
of its beef requirements—97 per cent of our fresh beef was
British
— In 1998 about 90 per cent of our
lamb will be British
(e) Welsh farmers have focused on Irish beef
imports. Despite being the largest supermarket in the Republic
of Ireland—which is a very important obligation for us—we
still import less beef from the Republic than any of our competitors,
despite intense pressure from within the Republic to grow their
own important livestock sector.
(f) We have signed up over 4,000 beef farmers
to join our Producer Clubs and we are currently paying a 5 per
cent premium over the auction price to members. Our objectives
are to build long term relations with members, grow the market
together and provide high quality food for our customers.
(g) We are investing £5m to establish
a comprehensive fresh beef livestock database and farm services
network through our Producer Clubs. The network will provide us
with the information to deliver traceability, welfare and safety
to meet customer requirements.
(h) In December beef from the Republic of
Ireland was significantly cheaper than British beef and we still
maintained a very high level of British supply. Some might argue
that we had an overriding duty to buy from the cheapest source
in order to cut the costs to customers—many low income customers
might agree with this.
LONDON ECONOMICS
BEEF AND
LAMB VALUE
CHAIN ANALYSIS
The aim of the study is to inform the debate
on how much work goes into getting meat to the supermarket shelf.
The study will look at, for each stage of production between the
farm and the supermarket: the activities taking place; the costs
and revenues of performing these activities; and, how companies
compete, and what determines their profitability. The study will
present the findings in an indexed format due to the commercial
sensitivity of much of the information. Retailers are certainly
of the view that there are other factors, unrelated to individual
supermarket bargaining power, responsible for some farmers' current
difficulties. The most obvious are changes in the green £
exchange rate, the system of agricultural support and the beef
export ban. With this in mind, London Economics aim to supplement
the value chain analysis with analysis of additional time series
information, comparing prices in various interesting dimensions:
retail vs farm gate; beef and lamb compared to other meats and
poultry; and beef and lamb in the UK vs the rest of the EU and
world market. The results are expected in the summer.
SUMMARY
We have not operated supernormal profits from
the livestock industry. We are balancing a conflicting series
of interests while attempting to have long term relationships
with farmers designed to build confidence and market growth. Agriculture
is going through global change and the problems facing farmers
are part of this wider trend. Tesco has been in the firing line
for some livestock farmers frustration and this is not altogether
fair given the wider changes underway. We are working towards
real long term partnerships and we will continue to build on our
existing excellent UK supplier base.
23 February 1998
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