Memorandum submitted by Sainsbury's Supermarkets
Ltd (F19)
1. INTRODUCTION
1.1 Sainsbury's Supermarkets Ltd (Sainsbury's)
is the largest subsidiary of J Sainsbury plc which also operates
Homebase home and garden centres and Sainsbury's Bank in the UK,
Shaw's supermarkets in the US and Sainsbury's supermarkets in
Egypt.
1.2 Sainsbury's sources products from over
2,000 suppliers who provide some 12,000 food and 9,000 non-food
quality and value for money lines. Around 40 per cent are Sainsbury's
own brand products. 75 per cent of the food and drink that Sainsbury
sells is sourced from the UK, and 90 per cent of the food and
drink that we sell which could be sourced from the UK is from
the UK.
1.3 Each week over nine and a half million
customers shop in more than 430 Sainsbury's stores throughout
the UK. Further stores are planned including about 25 new local
stores (smaller stores) over the next year. In value terms, we
sell about £120 million of British food and drink each week.
We have 138,000 employees.
1.4 Sainsbury's started selling organic
fruit and vegetables 15 years ago and sales of organic foods have
increased fortyfold since 1996 from £75,000 per week to over
£3 million per week in 2000. In 1996 we sold 42 lines, we
now sell over 630 organic lines. Sainsbury's are market leaders
in organic produce with a market share estimated at around 30.2
per cent.
1.5 In 2000, the UK organic market is expected
to grow by 40 per cent. Predictions are putting the sales of organic
food at around £1 billion by the end of 2001.
2. EXPANSION
OF ORGANIC
FARMING IN
ALL AGRICULTURAL
SECTORS IN
THE UK
2.1 Sainsbury's has a "buy British"
policy and is committed to reducing the amount of imported food
both conventional and organic. We have to import some products
which could be produced in the UK but, for a number of reasons,
are not.
2.2 We import 70 per cent of the organic
foods we sell to meet the ever growing demand for organics in
the UK. By doing this, however, we are helping to establish the
UK organics market. We hope that UK producers will eventually
make this market their own, substituting with British product
wherever they can. We are concentrating on developing partnerships
with farmers, suppliers and research and development organisations
in order to boost the amount of organic food produced at home.
To date market forces alone have not delivered sufficient UK supplies
and other forces are necessary.
2.3 Sainsbury's recognises the problems
currently facing the British farming industry. In May this year,
Sainsbury's unveiled its Partnership in Fresh Food initiative
to revolutionise the way the company works with its suppliers
and their farmers. In a first for British retailing, the Partnership
uses the internet to forge closer links and facilitate a step
change in the whole supply chains understanding of the market
place. The company has developed the new partnership to help its
UK suppliers, and the farmers who supply them, tackle problems,
share best practice information and create and develop new business
opportunities. As well as general news pages, password protected
pages will be exclusive to Sainsbury's partner suppliers and the
farmers who supply them. These pages will include information
from around the world on developments within the industry to share
best practice, relevant technical specifications and information
from Sainsbury's technical team. Plus, through a link with Imperial
College at Wye, there will be information on Sainsbury's joint
research programmes.
2.4 Sainsbury's has worked with Imperial
College at Wye for many years on various research programmes to
develop ways of increasing the range and availability of British
produce. The new Partnership will extend the principles to all
fresh food areas. Through the new network, Sainsbury's will encourage
its British suppliers of fresh produce to supply their fresh ready
meals suppliers. It is hoped this change will increase the use
of British ingredients through economies of scale and better use
of British produce in season. In the autumn, a regular programme
of workshops will act as an open forum for discussion, information
sharing and problem solving. These will include representatives
from the whole chain including the National Farmers Union, Sainsbury's
suppliers and processors and the farmers who supply them.
2.5 Sainsbury's commitment to organic foods
is long-term. The company would like to offer its customers more
British organic products but is unable to because of the shortfalls
in UK supplies. For this reason Sainsbury's is supporting Sustain's
campaign for an Organic Food and Farming Targets Bill which requires
that by 2010 at least 30 per cent of UK farmland is organic and
that at least 20 per cent of the food consumed in the UK is organic.
Over 220 MPs have now signed up to an Early Day Motion to this
effect.
2.6 In March last year, Sainsbury's committed
to a further guaranteed price and volume deal with British farmers
who are members of the Organic Milk Suppliers Cooperative (OMSCo)—the
largest milk marketing agency trading solely in organic milk.
This five year deal between Sainsbury's and three dairy suppliers
offers a long-term volume guarantee and a minimum price per litre
as part of Sainsbury's commitment to British farmers and to give
them the confidence to invest in the two year transition period.
2.7 Sainsbury's is now into the third year
of an exclusive five year deal with Kentish Garden, our supplier
of organic strawberries. We are committed to taking the full organic
strawberry crop each year and pay double the price of conventionally
grown strawberries for this organic crop. Again this offers growers
a long-term commitment and guaranteed price for their produce.
We are progressing with partnerships in produce and meat and we
are also working with our main suppliers on category management
for organic foods.
2.8 The long-term success of farming and
the countryside relies on establishing a healthy balance between
commercial activities and nature. Biodiversity is key to maintaining
this balance as it forms part of farming's natural resource base.
Recent evidence has shown that organic farming methods support
biodiversity. Sainsbury's, seven of its produce suppliers, and
the Farming and Wildlife Advisory Group (FWAG) have been developing
ways of conserving and enhancing biodiversity on the farm. Several
livestock suppliers are now piloting Farm Biodiversity Action
Plans to ensure it is suitable for a wide variety of farms. The
plan is a farm-specific programme that helps deliver the objectives
of the National Biodiversity Action Plan—a Government-approved
strategy developed by expert groups in the field. It has the support
of English Nature, Royal Society for the Protection of Birds,
LEAF (Linking Environment and Countryside), Countryside Commission,
Plantlife and the World Wildlife Fund. The Farm Biodiversity Action
Plan places Sainsbury's and its suppliers at the leading edge
of biodiversity conservation.
3. MARKET TRENDS
AND CUSTOMER
DEMAND
3.1 In 1987 the UK organic foods market
was worth £30 million. The UK organic market is growing at
40 per cent per year and is expected to be worth well in excess
of £500 million by the end of this year. Organic baby food
could be worth 40 per cent of the market by the end of 2000. Organic
baby food now accounts for over 35 per cent of baby food sales
at Sainsbury's. Our range of baby food increased by over a third
in April this year to 90 products. Around 4.5 per cent of produce
sales are organic along with 10 per cent of yoghurts. In some
stores organic milk accounts for 20 per cent of store milk sales.
This huge demand for organic foods clearly illustrates the need
for more long-term commitment in terms of Government funding for
conversion.
3.2 Sainsbury's range of organic products
has increased enormously over the last few years. In 1986, Sainsbury's
offered only 10 organic fruit and vegetable products. By 1996,
42 organic lines were offered covering basic commodity items such
as flour, milk and chocolates as well as fruit and vegetables.
3.3 Then in 1997, Sainsbury's undertook
customer research to find out what products customers would most
like to see in store. Four out of the top 10 requests were for
organic products. In response, in 1998, Sainsbury's further increased
its organic range to include some 300 lines including many organic
own label "firsts" such as pre-packed salads, ice-cream,
bananas, sausages, ready meals and in-store bakery bread. This
expansion of the range is continuing and Sainsbury's now offers
over 630 organic products throughout the year. New lines now include
organic dried herbs, olives, dried fruits, goats cheese, vine
tomatoes, creme fraiche, frozen ready meals and organic gin and
vodka. Organic pet food is now also available at Sainsbury's.
3.4 Sainsbury's market research shows that
a broad range of customers now choose organic products. The popularity
of organic foods has certainly increased in line with consumers'
concerns about food safety. Recent food scares like e-coli, salmonella,
and BSE are some of the reasons why customers have a greater interest
in organic foods. More awareness about the presence of artificial
fertilisers, pesticides, veterinary medicines and additives have
led customers to make informed choices about the food they buy.
Also animal welfare concerns are growing. Recent controversy over
Genetically Modified Organisms has also projected organic foods
as an alternative choice for consumers. Customers now can enjoy
"going organic everyday".
3.5 We estimate that the market will continue
to grow strongly for a further three to four years and then begin
to level out and reach a peak at the 10 year mark by 2010. We
will continue to develop products and ranges to meet this demand.
Education will be critical, both in terms of understanding what
organic foods are and why they cost more.
4. THE ROLE
OF ORGANIC
CERTIFICATION SCHEMES
AND THE
SETTING OF
ORGANIC STANDARDS
AND DEROGATIONS
4.1 Sainsbury's fully supports the need
for independent organic standards and derogations. At Sainsbury's
we sell products sourced from elsewhere in the world and certified
by many different organisations. Most of our own brand organic
products are certified by the Soil Association who is working
hard to establish certification equivalence with the other major
organic certifiers around the world within the IFOAM accreditation
programme (see below).
4.2 In all EU countries, the production
and sale of any food described as organic is controlled by EC
Regulation 2092/91. That same Regulation also governs the importation
of any organic products from non-EU countries (so-called third
countries) by one of two methods:
— firstly through equivalence recognition
of that third country's organic standards by the European Commission;
— secondly through a system of product
authorisation granted by the competent authority in each EU state
to the importer of the particular organic product. UKROFS, the
UK register of organic food standards, is the UK authority (Sainsbury's
is represented on the Board of UKROFS).
4.3 There is, however a further system of
international organic standardisation which Sainsbury's is keen
to support. This is The International Federation of Organic Agricultural
Movements (IFOAM). IFOAM has developed its own independent accreditation
system whereby 15 major international certifiers (including the
Soil Association) are accredited to the IFOAM Basic Standard.
They can also demonstrate their commitment to a multilateral agreement
for standards equivalence. Sainsbury's is the only UK retailer
to be a member of IFOAM and Sainsbury's Organic Product Manager
is now on the Board of IFOAM's International Organic Accreditation
Service. In 1997, Sainsbury's sponsored the IFOAMs 25th trade
conference in Oxford.
4.4 The agreement on common European rules
for livestock production in August 1999 (EU Regulation 1804/99)
will be followed by implementation of new organic livestock production
standards by all Member States by August 2000. In certain areas,
the production standards in the EU Regulation (1804/99) are substantially
weaker than current UK standards (set many years ago, prior to
agreement of common rules in EU). Although there is some flexibility
for interpretation by Member States control authorities, and Member
States may set higher standards, it is a requirement that such
differentials in standards may not be applied in such a way as
to pose a restraint to trade.
4.5 In several areas, new UK organic livestock
standards (agreed by the sector) to be introduced by MAFF are
more stringent than EU standards. Important examples are in poultry
(stocking rates and flock sizes, derogation periods for existing
units) and conversion of livestock (allowance to convert animals
brought onto the organic holding). Sainsbury's is concerned about
the different livestock production standards and urges MAFF to
support efforts to ensure that all organic livestock products
made available to consumers in the UK are produced to the agreed
UK standards, whether produced in this country or not.
4.6 It should be noted that the manure-nitrogen
application rules and limits will pose an important barrier to
continued production on some livestock units after the implementation
of the new standards (including the specific derogations).
4.7 Organic regulations permit the use of
non-organic ingredients and standards up to 5 per cent of a processed
organic food. Currently not all ingredients are available in organic
form. However, we are aware that our customers are seeking organic
foods which, over time, will become entirely organic and we will
continue to respond to this. We are working with our suppliers
to reformulate ingredients to ensure that we limit, as far as
is practically possible, the use of non-organic ingredients. This
is also true for the feed for organic animals.
4.8 The labels of all Sainsbury's own label
organic foods clearly indicate any non-organic ingredients and
point out that these are permitted under the regulation. We have
also issued a customer leaflet explaining further background to
the "95 per cent rule". Through a combination of the
above two systems, Sainsbury's seeks to maintain the very highest
level of integrity for organic standards world-wide.
4.9 In January 1998 the European Commission
introduced a derogation within Regulation 2092/91 requiring organic
mushrooms to be grown on substrate, of which a minimum of 75 per
cent must be derived from organic straw, by 31 December 2001.
Whilst Sainsbury's would support the notion that organic mushrooms
should be grown from organically derived material, we believe
the time-scale set to achieve compliance is too short.
4.10 The issue here is one of simple arithmetic.
Based on current organic production data, the current requirement
of straw for organic mushrooms is some 18,000 tonnes annually.
Of that total tonnage, only about 10 per cent is available as
organically grown straw. If the current end to the derogation
is enforced, we will see a 90 per cent drop in the production
of organic mushrooms at the end of next year.
4.11 It has been proposed by the Soil Association
and the organic mushroom growers that this derogation is allowed
to continue until 2006, but with gradual steps up in percentage
over that period eg 2002: 25 per cent, 2004: 50 per cent, achieving
75 per cent by 2006. Sainsbury's support this proposal.
4.12 Organic Seed Regulation 2092/91 requires
all seeds for organic crops to have been grown within an organic
system by the end of 2003. Sainsbury's supports the reasoning
behind this requirement but is concerned by the short time-scale
involved. The implications on choice and diversity need to be
addressed and support for the seed industry in the breeding and
production of organic seed is required.
4.13 Sainsbury's have been very supportive
of work being undertaken by The Soil Association and Elm Farm
Research Centre to develop a clear strategy of response. It is
suggested that a high level of co-ordination between all interested
parties is maintained in order that organic farmers and growers
are not disadvantaged by this requirement.
5. THE AVAILABILITY
AND SUITABILITY
OF PUBLIC
AND PRIVATE
ASSISTANCE FOR
ORGANIC CONVERSION:
INCLUDING THE
ROLE OF
TRADE ASSOCIATIONS,
FOOD PROCESSORS,
SUPERMARKETS AND
THE GOVERNMENT
5.1 The UK Government provides a subsidy
to farmers converting from conventional growing methods to organic
production. In 1999 the rates of support increased to between
£350 and £450 per hectare paid over a five year period.
The UK Government does not provide any subsidy post-conversion
and the grant has been oversubscribed on two occasions. Funding
for organic conversion ran out in November 1999 and no new money
is available until April 2001.
5.2 Compared with other EU member states,
the new grant aid for conversion now stands at about the EU average
level but given that the UK Government does not provide post-conversion
support, UK farmers receive a lower financial incentive than most
of their EU counterparts. There is the concern that there is lack
of commitment by the Government to encourage long term organic
agriculture development. Organic farming is set to receive just
1.8 per cent of the research budget allocated to agriculture this
year. Farmers need the confidence that funding is not going to
run out again. Some farmers have had to apply more than once only
to be turned down due to lack of funds. We at Sainsbury's would
like to see Government spending target specific products in specific
areas over the long term so that all stakeholders share the risk
post conversion.
5.3 Given that demand for organic products
in the UK outstrips supply, Sainsbury's initiated the Sainsbury's
Organic Resourcing Club (SOURCE) which aims to help suppliers
develop the UK organic food market. The SOURCE group, set up in
1997, seeks to identify problems and concerns of organic suppliers
for mutual resolution in conjunction with us and to meet our customers'
needs.
5.4 Sainsbury's has led the way in encouraging
all UK supermarkets to join forces with the Soil Association to
form a joint retailer initiative (Soil Association/Multiple Retailers
Working Group) to support the integrity of organic foods.
5.5 Organisations such as the Elm Farm Research
Centre which is a charitable trust and the National Institute
of Agricultural Botany are working closely with Sainsbury's to
help growers and farmers rise to the challenges that organic production
standards present and to help develop new organic technical initiatives.
5.6 In November 1996, Sainsbury's initiated
a feasibility study with Elm Farm to review current and potential
capacity for Sainsbury's suppliers to develop organic production;
this has identified 10 target crops representing 25 per cent of
all organic produce sales. The full report has been made available
to a group of suppliers.
5.7 Sainsbury's has sponsored four Soil
Association's conferences. At the second, Sainsbury's funded places
for some of its major fruit and vegetable suppliers and as a result
over half have taken up organic conversion trials. The conference
was an enormous success to the extent that it was doubly over
subscribed. Sainsbury's sponsorship of this year's Millennium
Conference supported the cost of the whole conference which was
based on the theme of food quality.
5.8 We are currently looking at plans to
support the creation of the country's first regional organic food
processing centre using locally sourced organic foods in the West
Midlands. If successful, the centre would give an opportunity
for local farmers and growers to convert their conventional production
to an organic regime while enabling local manufacturers to trial
and develop new products, using the centre to help launch them
into the market.
5.9 Where we cannot source organic produce
in the UK, we encourage partnerships with other countries. In
1999 we announced a long-term partnership with Geest Bananas in
the Windward Islands to supply a range of crops including exotic
fruit, production of organic bananas and the total conversion
of all available fruits to be produced organically by the year
2002. This creates a guaranteed supply of organic fruits which
cannot be sourced in the UK and farmers on the Windward Islands
both large and small have a market for their produce and a future
in new markets.
5.10 The Sainsbury's/Blue Skies Organic
Project partnership in Ghana was set up in early 1999 and the
Soil Association gave clearance for the production of prepared
organic pineapples for Sainsbury's customers in August last year.
The pineapples supplied by 40 farmers in the region are prepared,
packaged and flown to the UK on the same day.
6. OUTLETS AND
DISTRIBUTION SYSTEMS
FOR ORGANIC
PRODUCE
6.1 Sainsbury's and its suppliers are undertaking
further customer research to find out just what its customers
expect from retailers selling organic products. Initial results
suggest that customers want:
(i) more information about organic products
generally including standards;
(ii) cheaper organic foods (see section 7
below);
(iii) consistent quality and availability
(see sections 3 and 4);
(iv) organic products to be easy to find
in store.
6.2 Sainsbury's has changed the labelling
of its organic products to include an information box about the
organic standards attained as well as the regional origin if appropriate.
6.3 To help customers find our organic range,
merchandising in store has resulted in the blocking of organic
produce, dairy, grocery, meat and baby food displays. Labelling
gives a common theme and distinct identification to all organic
own label foods in store. Our Merton Store in South Wimbledon
and our London Colney Store both have their own organic "shop-in-shops".
We have just invested in a second TV campaign for organic foods
and have distributed redesigned sales promotional material.
7. RETAIL PRICING
7.1 There has been much debate about the
true cost of organic foods. At Sainsbury's we have a pricing policy
which has given confidence to our suppliers because Sainsbury's
passes back the organic premium to the producers.
7.2 Organically produced products do cost
more but we are continuing to look at ways of reducing the costs
incurred in organic systems, compared with conventional. Methods
we are investigating include the indication to suppliers of future
volume requirements, using the whole crop and working with key
suppliers to keep costs low. We do not make additional profit
on any organic products. We believe that our customers should
be aware of these additional costs borne by organic farmers and
growers.
8. THE LEVEL
OF IMPORTS
AND EXPORTS
OF ORGANIC
FOODS
8.1 Sainsbury's buys all of its organic
product from about 100 UK based suppliers who source the products
from UK and overseas growers and producers. Since 1996, the company
has doubled its organic supplier base by encouraging existing
conventional suppliers to switch to organic food, and by taking
on new organic suppliers. Sainsbury's has expanded its business
with its long-standing organic suppliers who now provide a broader
range. Sainsbury's is constantly looking for new sources of organic
food, preferably from within the UK, and would consider no operation
to be too small.
8.2 Some products, however by their very
nature are 100 per cent imported, for example exotic fruit and
vegetables, others are 100 per cent UK sourced, for example liquid
milk and some meat.
8.3 Sainsbury's sells organic foods grown
and produced in about 50 countries around the world. From within
the EC, for example, Sainsbury's sells organic jams, chickens,
fruit and vegetables from France; citrus fruit and avocados from
Spain; stone fruit, olive oil and pastas from Italy; pork from
Sweden; vegetables from the Netherlands, and cheese and butter
from Denmark. Organic foods bought from further afield include
vegetables and fruit from Israel; potatoes and onions from Egypt;
apples, grapes and wine from the US; apples and grapes from the
Argentine and Chile; avocados and apples from South Africa and
apples and kiwi fruit from New Zealand. All these products are
certified (see section 4).
9 June 2000
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