Select Committee on Welsh Affairs Minutes of Evidence


Examination of Witnesses (Questions 603 - 619)

MONDAY 9 MARCH 1998

MR BARRY MARTYN AND MR TONY COMBES

Chairman

  603. Welcome, Mr Combes and Mr Martyn representing Safeway. If you would like to introduce yourselves please do so, and tell me what your role is in the company.

  (Mr Martyn) I am the fresh meat buying director responsible for all areas of fresh meat, fish, poultry and also a large amount of fresh further processed goods such as pizzas, pies, sausages, bacon, ready meals, etc.

  (Mr Combes) I am public affairs manager. I tend to look after agricultural interests including animal welfare and meetings with farmers.

  604. From your memorandum we deduce that fourteen of your 455 stores are in Wales and you employ 2,500 people. What is your turnover in Wales?

  (Mr Martyn) Just over £250 million.

  605. How much of that is related to meat?

  (Mr Martyn) I would prefer not to quote that actual figure. We are happy to give it to you afterwards, certainly.

  606. We will look forward to that. Thank you. As I have pointed out to your other colleagues, the general perception to people outside might be that a price spread increase from 37.8 per cent to 55 per cent for lamb and a price spread increase from 44.5 per cent to 54.1 per cent over the last two years to December 1997 might be considered by the lay person as taking excess profits at a time when red meat is suffering from all kinds of problems—in beef particularly a very fragile market. What would be your answer to that?

  (Mr Martyn) The first statement I would make is that we are not making any more profits year-on-year in those areas. If we look at lamb to start with, our own figures—and we were looking at February and trying to understand the total picture—would show that the live price was down about 43 per cent, in fact, and, tracing that through, our buying price is down about 20 per cent; our retail price is also down about 20 per cent.

  607. So you would say you are taking your share of the pain compared to the farmers?

  (Mr Martyn) I would say we are broadly maintaining a normal profit margin.

  608. So in a sense, then, you are taking less of the pain because you are maintaining your own margin and the farmers are taking a cut in their income of in the region of, we have heard from the farming unions, say 50 per cent?

  (Mr Martyn) I would agree with that statement. I would point to why the price is so low and I do not honestly think we are responsible for such low prices in the market place. We are passing on all cost price reductions that we get.

  609. In relation to beef, your memorandum emphasises the additional abattoir on-costs and the decline in fifth quarter values. To what extent are these costs reflected in the price you pay to your suppliers?

  (Mr Martyn) They would be pretty well fully reflected in the price we pay to our suppliers. In our written evidence we submitted that this equated to, at retail price, about 38 pence per kg. Our latest figures on that, examining that closely with suppliers, now come up to about 44 pence per kg.

  610. Also your memorandum shows there was a small reduction in retail prices for beef between 1995 and 1997. As I said before, it is very difficult for farmers to be reassured that you are not profiteering at their expense. We understand you may be prepared to give your profit margins in confidence.

  (Mr Martyn) We are happy to give you whatever information you wish in confidence. We have a fairly detailed breakdown of the way a carcass is broken down that we are happy to share with you.

Mr Paterson

  611. You do not mention the price spread for lamb in your memorandum. Can you give us some details on that?

  (Mr Martyn) It was lamb I was quoting just now. We would estimate in February, when we looked at the figures, that prices for lamb were down 43 per cent and retail prices were down 20 per cent. Our cost prices, the price we pay for the finished product, were also down about 20 per cent. On lamb it is important to say, in common with the other retailers you have spoken to, that we are buying a finished product. The product you see on our shelves is the product we are buying.

  612. How much of your total lamb is UK sourced? You mentioned 15 per cent is Welsh.

  (Mr Martyn) Of fresh lamb, outside of the New Zealand season, 100 per cent is UK. If we take into account the New Zealand season, that would amount to about 14 per cent.

  613. Given the glut of lamb at the moment, I have heard prices as low as £26. Do you see opportunities for increasing that?

  (Mr Martyn) Without a doubt, on UK source. We are not protective in any way towards New Zealand. Firstly, on frozen lamb, we have openly said that if there are any UK farmers or processors who can supply us with British or Welsh frozen lamb, we would be very pleased to talk to them. Secondly, on fresh lamb, you have already heard evidence about eating quality and, again, we would be very pleased to try to work with farmers and producers to see if there are ways of improving that quality so that we do not feel the need to import fresh New Zealand lamb.

  614. Do you have active schemes planned? You say you are prepared to help.

  (Mr Martyn) We have spoken to the Farmers' Union of Wales and the NFU about frozen lamb and the ball is in their court—or your court, if you like, for the people in this room. We are very happy to discuss that. Other than opening the door, I am not sure there is more we can do at this stage.

  (Mr Combes) Can I add that sales of New Zealand fresh lamb are incremental. What tends to happen is customers will stop buying lamb because they do not think the quality of the British lamb or the Welsh lamb at the time we are selling New Zealand lamb is as good so, rather than them go off and buy something else, we say "Stick with lamb by buying New Zealand lamb", so these are incremental sales.

Mr Caton

  615. As I understand your answer to the Chairman's first question you are saying basically that you are not exploiting the situation of low farm gate prices but you are maintaining your profit margins. If, as you say in your letters provided to us and to farmers and growers, you have a commitment to UK agriculture, do you not think you should prove that at this critical time—firstly, by being prepared to cut into your profit margins if necessary, and also to increase your purchase of UK produce?

  (Mr Martyn) Taking the second part of your question first, yes, we have done that. On the first question, I think it is for us to work with producers and the industry to try to improve the market—not just to slash our own profit margins. We need to find ways together of improving the market.

Ms Jackie Lawrence

  616. When you wrote your memorandum, you said that 80 per cent of your beef came from the UK and 20 per cent from southern Ireland—although this was less than you bought three years ago. You now say you are getting all of your beef from the UK. What was the reason for the change?

  (Mr Martyn) Let me give you some background on the historical reasons—and it may be familiar ground to what you have heard. We have dealt with southern Ireland for about twenty years. The key reason is that we can buy from southern Ireland anything we want so, if we are going to promote sirloin steaks in the summer, we can buy sirloin primals, boneless, to go through our retail packing plant. When we promote an item our sales go up four, five, six-fold. As many of you know, prime steaks represent only about 5 per cent of the animal. That gives a major problem on imbalances so, historically, we have always kept a toe in the water—perhaps more than that because we are not a business that dives in and out of a supplier—so we have always had a level of business with southern Ireland in order that, when we want to buy in particular cuts, we can do that to promote. I think those purchases for promotions have actually helped the whole UK because we have been able to promote when we would not be able to. Now you ask what has made us change our mind? Well, we have had farmers and consumers talking to us saying "We want to know where products are coming from and we would like you to buy British". Mr Caton asked whether we could do more to help the situation and we have switched to 100 per cent British sourcing. I am delighted to say that we can do that at this moment in time. I would have to be honest and say that, in the height of summer, if we are promoting steaks and at Christmas if we are promoting topside joints, I find it difficult to see how we can get sufficient products but I am very pleased we can do that at the moment.

  617. I am delighted to hear you responded to the pressures from the consumer who seem to be wanting British beef. What percentage of that beef comes from Wales?

  (Mr Martyn) It is about 9 per cent.

  618. Just to follow on from what was said before, can you let us have a similar percentage that comes from Northern Ireland, a source from Northern Ireland and the rest of the UK so we can make a comparison?

  (Mr Martyn) Certainly[7]

Chairman

  619. Where do you source your processed beef and lamb?

  (Mr Martyn) That is a trickier subject. I think our long term goal is clearly that meat in processed food should be to exactly the same standards that we have currently in fresh foods—that it is farm assured, etc. At the moment a fair proportion would be that way—I can quote individual products: pies in Scotland are Scottish beef, sausage rolls are all sourced from the UK, etc. It is a very big subject: we are competing on processed foods from some large branded manufacturers, particularly on frozen foods which is not my area, and it is something we are going down the route of and pushing the boundaries further and further back. We have a lot of work to do on that at the moment.


7   Note from witness: The percentage of Safeway Fresh Meat sourced from Northern Ireland in February 1998 was 12%. The balance was made up of Wales 9%, Scotland 34% and England 45%. Back


 
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