Memorandum submitted by Iceland Frozen
Foods plc (F44)
1. INTRODUCTION
Iceland welcomes the inquiry by the Agriculture
Committee into organic farming and would like to contribute the
following points for consideration. Iceland has made a commitment
to provide its customers with organic produce because they have
been asking for more natural foods. The Committee will no doubt
be informed about the benefits of organic farming and organic
food by organisations who have a particular interest in its production.
Iceland is concerned with the supply end of the food chain. The
supply of organic food is the next logical step in the Company's
"Food you can trust" campaign which is described below.
As a food retailer, Iceland's aim is to make high quality organic
produce available to its customers at prices that they can afford.
2. COMPANY BACKGROUND
Iceland is a food retailing chain with 760 stores
in the UK and is the only food retailer to provide a nationwide
home shopping service by telephone and internet. The company employs
22,500 people. Its head office is located in Deeside, Flintshire,
North Wales.
The Company has consistently performed well
particularly over the last three years. Its Annual Results published
in March show double digit earnings growth with like-for-like
food sales for the year up 9 per cent. The Company's turnover
is £1.9 billion.
With stores based mainly the high street, Iceland
has approximately 3 per cent of the food retail market. Once known
as "Britain's leading frozen food retailer", Iceland's
frozen produce now only accounts for 50 per cent of its sales.
The company also sells appliances and recently announced that
it would not stock any refrigerators which contain ozone depleting
chemicals.
On 25 May, 2000, Iceland and Booker, the cash
and carry chain, announced an intention to merge. On 19 June 2000
the merger was approved by both companies shareholders. The two
businesses will continue to run separately from their respective
head offices.
Malcolm Walker will continue to chair the group
which will be formed as a result of the merger, whilst Stuart
Rose (of Booker) will take up the position of Chief Executive
with Andy Pritchard from Iceland as Finance Director. Russell
Ford will be the Managing Director of Iceland and Charles Wilson
will be the Managing Director of Booker.
A typical Iceland customer is represented as
a "modern mum" who is the person responsible (not necessarily
female) for preparing meals for the household consisting of three
to four people. Most of our customers are on a low income and
are aged anywhere between 25-65 plus.
3. ICELAND'S
FOOD YOU
CAN TRUST
CAMPAIGN
Iceland is well known for its campaigning approach
to providing its customers with safer, more natural foods, hence
its ongoing "Food you can trust" campaign. Iceland was
the first retailer in the world to ban GM ingredients and derivatives
from its own product range back in May 1998, following a programme
which had been in operation since 1996, long before consumers,
the Government and competitors were aware of the issue. In 1999
it removed artificial colours and flavours from its own brand
food.
4. ICELAND AND
ORGANIC FOOD
On 14 June 2000 Iceland announced that it would
be switching whole ranges of its own label conventional food to
organic—at no extra cost to the consumer. Instead of raising
prices to secure large profits on organic food, Iceland will reduce
its own margins on organic food to the tune of £8 million
in the first year. The first organic range in store will be Iceland's
own label frozen vegetables.
At the same time, the company also announced
that it would be investing £1 million in a unique partnership
with the National Trust to support its "Whole Farm Planning"
programme. This will help the charity's tenant farmers develop
environmentally-friendly farming practices, including the potential
for organic conversion.
As well as sending its buying teams out to research
the market, we are also running a series of advertisements in
the farming press directed at farmers who may be able to provide
organic produce to us.
Patrick Holden, Director, The Soil Association
said the following about Iceland's decision to go organic:
"The Soil Association very much welcomes
this exciting initiative from Iceland, which looks certain to
make organic food a realistic price option for millions of consumers
who did not have access to it before. While we originally had
concerns on a possible threat to producer prices we have been
reassured that Iceland is achieving nil price premium without
putting downward pressure on producers. Iceland's commitment to
make organic food available to a mass market while giving a fair
price to producers is vitally important to encourage more farmers
to convert to organic".
The initiative has also been endorsed by Friends
of the Earth, Greenpeace and the World Wide Fund.
5. THE CHALLENGES
WHICH FACE
THE ORGANIC
FARMING INDUSTRY
IN THE
UK
5.1 Organic acreage
Only 3 per cent[1]
of British agricultural land is organic, while the market is predicted
to grow by 40 per cent per year for the next five years. This
means there is a substantial gap between supply and demand and
70 per cent of all organic food sold in British supermarkets already
comes from overseas. Currently 70 per cent of conventional supermarket
frozen vegetables are sourced overseas.
Iceland therefore supports the Organic Food
and Farming Targets Bill and endorses the need for a strategy
and framework to be put in place to help increase organic acreage
in the UK.
5.2 What our customers want
Iceland's own research shows that 40 per cent
of consumers are already convinced about the advantages of organic
food. Research commissioned by Iceland shows health and environmental
benefits are important to customers. 77 per cent of people said
they would buy more organic food if it cost the same as ordinary
food and 76 per cent said they would buy it if they knew it was
better for the environment. Iceland's research also shows that
there is a clear demand for a better range of organic food. 53
per cent of people questioned said they would like to be able
to do a complete organic shop.
5.3 Sourcing from outside the UK
In order to overcome the short-term difficulties
with finding high volumes of organic supply, Iceland will be sourcing
80 per cent of its frozen vegetables from overseas—mainly
the US and Europe (this compares with the 70 per cent of conventional
vegetables sourced overseas by British supermarkets). Iceland's
buying team has secured nearly 40 per cent of the world's organic
produce and has set up long-term contracts with suppliers which
will assist sustainability, by enabling growers to develop new
organic acreage in a way which will be environmentally sustainable
and commercially viable in the long term.
5.4 Economies of scale
Demand for organic produce in the UK far exceeds
supply. One of the major issues which Iceland has to face is that
in the main organic farming in the UK is not carried out on a
large enough scale to satisfy the demand created by the supermarkets
for products. In many cases, farmers can only produce small quantities
of livestock and produce which in turn costs more to transport
to the very small number of processing plants which are certified
to process organic food. By converting whole ranges Iceland has
created a greater demand allowing large players to enter the market
and achieve the necessary economies of scale.
We believe that more investment is needed in
the infrastructure which will enable organic farming to compete
and exist alongside conventional farming.
5.5 Certification
We are concerned that the competent authority
and inspection bodies involved in certifying organic farms are
finding it difficult to keep up with the demand for certification
with inspections taking months to arrange. Government support
for UKROF and the inspection bodies in order that those bodies
can keep ahead of the demand for inspections, which would certainly
help increase the speed of UK organic products coming to market.
These issues have resulted in Iceland having to switch between
inspection bodies in order to guarantee that our deadlines will
be met.
At present, the process undoubtedly takes too
long and we are concerned over the level of independence of UKROFS
in particular when reviewing applications and the access to confidential
information available to our competitors. Unless the performance
of this body improves, we may have to consider supporting a move
for an organisation such as UKAS to act as the competent authority
for certification.
5.6 Financial support for organic farmers
The UK Government has been criticised for not
investing adequately in organic farming. We believe that due to
the "dependency culture" within the agricultural industry,
many farmers do not expect to make changes without financial incentives,
even if a failure to change will lead to bankruptcy. We believe
that finances could be targeted at farmers who have no way of
funding conversion themselves or at sectors that will provide
the most environmental benefit or help in the conversion of other
farms, hence our support of the National Trust's Whole Farm Planning
Programme. It would be beneficial if environmentally linked funding
schemes could be joined so that the work within the countryside
could be better co-ordinated through regional agencies.
6. CONCLUSION
Iceland believes that we need to take a more
holistic approach to providing a framework for the sustainable
and successful development of organic farming in the UK and is
happy to contribute where it can and where it is appropriate.
We also believe that there is a place for both conventional and
organic farming in the UK. The issue is choice and at present
there is little real choice for the average family. We would prefer
to supply organic British produce to our customers if we could
guarantee that the products could be organically grown and processed
in this country.
26 June 2000
1 Soil Association. Back
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