Examination of Witnesses (Questions 420
- 439)
WEDNESDAY 25 OCTOBER 2000
MR IAN
MERTON, MR
ROBERT DUXBURY
AND MR
BILL WADSWORTH
Mr Jack
420. Mr Merton, you made it very clear that
Sainsbury's does not make any more profit out of its organic lines.
Do you have the same cash margin, or the same percentage margin?
I am thinking that a higher based price for organics is rather
good news for Sainsbury's balance sheet.
(Mr Merton) We are working on net margins, which takes
into account all aspects of cost and cash. So it is true like
for like.
Mr Mitchell
421. Can I ask, does that mean you are going
to diversify everything in the stores and we are eventually going
to be able to choose between an organic tomato dip and a non-organic
tomato dip? It is going to be enormously costly and it is going
to drive the customers insane.
(Mr Merton) We have spent a lot of time with our suppliers
actually researching what our customers are asking for. What they
are asking for is a wider range of products, to make it more convenient,
and make it as affordable as you can.
422. Make everything a choice?
(Mr Merton) No, I do not think we would do everything
as a choice. I think we would be persuaded to provide products
for customers if they feel that is what they want. We go and ask
them. It is not something we are guessing on, and that is why
we are heavily into an innovation programme on the organics sector
at the moment, developing new ideas, to meet that consumer demand.
So, it would not be that we would duplicate every single thing.
(Mr Duxbury) Actually, organic standards would limit
that amount of duplication, because there are limits to the amount
of processing and the processing aids that you can use in organic
standards.
(Mr Merton) We are being driven by what customers
want.
423. I pity that, although I doubt that you
are being driven entirely by customers as a market. This stuff
is being merchandised with zeal to force it down largely middle-class,
fussy middle-class, throats. That being so, can I ask—because
Iceland is merchandising with this kind of zeal—what your
reaction is to Professor Krebs' effort, rightly, to pour cold
water on the organic production side?
(Mr Wadsworth) I was very disappointed with Professor
Krebs' statement.
424. Well, it will cost you sales?
(Mr Wadsworth) Not because it costs us sales, but
because it may lose credibility for FSA which we hold to be more
important. The reality was that he made a statement on Country
File about the fact that organic food was no better than the conventional
samples that he had had, which had no pesticides in. He actually
chose three samples that were tested, which is hardly representative
of the United Kingdom. At the same time his own department was
in possession of the report—which they did not publish until
the week after—which identified the high levels of pesticides
in some of the United Kingdom products and some of them at inappropriate
levels. I think it was very disappointing that Professor Krebs
chose to pour cold water over organic foods, and it makes you
wonder about the bias that he has had on other issues. Certainly,
from my point of view, that is a real problem for the Food Standards
Agency, because now consumers are getting advice, "Please
peel your carrots", one day from one department, and the
next day actually there is nothing wrong with conventional because
it has not got any pesticide in it anyway. If that is the case,
the Advisory Committee is actually providing contrary information
to consumers, which is more likely to confuse consumers about
what they should and should not do, more likely to cause a scare
and more likely to drive people to buy organic foods. Actually,
long-term it is more likely to give me extra sales, because consumers
will not trust anybody else any more. From my point of view that
is where Professor Krebs would be in terms of his view.
425. I thought he was talking plain common sense,
but let me ask you, why this fervour on the part of Iceland? I
can see it for Sainsbury's selling to a more middle-class consumer
who is fussy and pernickety and all the other things that are
associated with middle-class status, but your customers are more
down market. You say that the Iceland customer is represented
as a modern mum or dad, and they are low-income consumers. They
are likely to be less interested in all this mish-mash about organic
food.
(Mr Wadsworth) About 50 per cent of the consumers
in the UK actually do shop in an Iceland store at some time of
the year, although the lower income consumers tend to come in
more often. That is the reality of the situation. We are within
10 miles of 95 per cent of the population as well, so there is
good access here. There is a misconception as well about the fact
that people do not care what they eat if they are on low income.
The reality is, yes, if you have greater income and you have more
time and take more interest in food you may choose to buy the
organic food which is very expensive. However, when we actually
did a survey of our consumers, our customers are low income customers.
Three quarters of them actually wanted to buy organic if it was
a sensible price. 53 per cent would buy a total shop organically
if it was available. That is a very strong market requirement.
The reality is that most of those consumers are the ones that
may choose to buy economy beef burgers, but they are very concerned
about what is in that beef burger when they feed it to their child,
they feel guilty about that but actually do not feel that they
can do anything else because they cannot afford not to. That is
one of the reasons why it is not just that organic issue we have
tackled but also the quality cuts of meat, particularly because
of BSE and CJD, we have actually drawn a line and we will not
use certain meat, we define the cuts that we would put in to the
economy products, because that is our customer saying, "We
want to eat good food like everybody else", and why should
they not.
Mr Mitchell: Persecuting working-class mums
and making them feel guilty.
Chairman
426. I think Mr Duxbury was nodding in agreement
in relation to Professor Krebs.
(Mr Duxbury) My nodding in agreement was to try to
recall some of the beliefs of the organic movement, which, if
you read The Living Soil by Lady Balfour, are to do with this
association between the health of the nation and agriculture.
I was nodding because I think there is a fundamental interest
here that clearly a large proportion of the population is not
getting the nutrition they require, and whether there is a possibility
that organic foods could provide that in the future.
Mr Jack
427. Even though the nutrition is available
to them? You said people are not getting it, but it is available.
So, is it not their choice that they are not getting it when it
is available?
(Mr Duxbury) The choice is linked to the money that
they have to pay for that product.
428. You do not make any claims about nutrition
in any of your literature, you said so at the beginning and you
say so in your publications.
(Mr Merton) We sell food, we do not just sell organic
food. We sell all different types of food, ranging from economy,
we have standard own label products, we have higher premium label
products with other qualities to them, because quality and all
these issues are interlinked. So, organics is another part of
the choice for the customer. We believe we have four or five choices
for them to choose from in our stores, depending on the product,
and it is their choice. I just want to correct that. I did not
want our customers to be typecast.
Mr Mitchell
429. Organic food you call wholesome, good,
nutritious food, and the rest rubbish. The distinction is really
between proper, efficient, effective agriculture and the distinction
Professor Krebs was making, and inefficient agriculture. That
is the real distinction. I just want to put to you the point that
there might be a vested interest in promoting and selling organic
food simply because so much more of it has to be imported—in
Iceland's case 80 per cent. That means that you are taking advantage
of the strong pound to buy more cheaply overseas, rather than
buying British products. So, there is an economic incentive to
you, given the value of sterling, to importing more under the
guise of you have to do it because it is organic?
(Mr Wadsworth) Not only that, but that the actual
proposition from the European Government to expand Europe will
allow us to access much cheaper farm produce abroad—in Hungary,
for example. When we have the next round with the WTO I am sure
that the money provided for subsidy for farmers will be reduced
and not go up. The reality is that farmers' subsidy as help is
going to be reduced. That is government policy across Europe.
The European Government has decided to make Europe more prosperous.
By doing that the whole intention is by doing that the whole intention
is that we will be able to import cheaper food as part of that
regime. I understand that the Committee appreciates that last
year the European position was to remove the tariffs from 29 developing
countries on food, because they wanted to help those countries
develop and everybody gain trade. So we cannot have a situation
where people who are controlling a financial situation and the
market itself, are driving us to actually go global and access
further markets and complain when we do so. I think that is really
strange. At the same time, we would love to support the UK agricultural
infrastructure. We do work in some areas where it is a commodity
product and that is where we have to work and UK agriculture will
have to work if it is going to survive. That is where I think
the Government should have a strategy as to what it wants out
of its agriculture. Do you want small scale farming which is landscape
managed, environmentally friendly in some areas, and in other
areas you are going to have to accept that it is global market
forces which dictate the size of farms and the way they operate?
We should be looking at those regions and helping the infrastructure
to develop either way, whether it be for commodity products or
whether it be for organics. That seems quite sensible as a way
to develop, but you cannot ignore the fact that other people,
other than supermarkets, are changing the market place.
430. The Chairman tells me that I have had enough
fun and it is time to go to the designated questions. Sainsbury's
are predicting that the market will peak by 2010. I just wonder
what percentage of market share you expect organics to reach by
that time, when it peaks?
(Mr Merton) It is very difficult to predict at this
point. Mainly, we have been using industry estimates and best
ideas to try and come up with that. Certainly, we have always
said publicly that we see organic being up to 10 per cent of this
market in the United Kingdom. As to how it achieves that, I think,
whether a lot of that can be produced in the United Kingdom and
Britain, it is up for us to consider how we can do that. That
seems to be the direction and from all the industry estimates
that we see, that appears to be a possibility.
431. What effect do you expect that to have
on consumer prices?
(Mr Merton) The challenge, as I said before, is that
as scale increases we believe we can reduce premiums in line with
the efficiency.
432. But there will always be a margin, will
there not?
(Mr Merton) There is likely to be a margin because
we believe, apart from some crops where we might be able to sell
them, it looks as though organic production is likely to be more
expensive than conventional production, hence there will be a
premium, whatever it may be, to produce
(Mr Wadsworth) In terms of the margins of cost of
production, they will come down significantly for the farmer too,
partly because of the availability of other inputs that are required,
and partly because of the soil management systems. We already
have broccoli being grown in Guatemala, for example, where after
25 years of developing their organic systems they have a fantastic
compost system using cocoa mass which allows them to increase
the fertility of the soil so that they have a higher yield of
their broccoli with a lower input. So the cost price is reduced.
In Canada there are programmes where after eight years of rotation
the land has actually recovered so much after the leaching of
all materials using artificial fertilisers to the level where
they can grow the same yield of organic wheat as conventional
agriculture. It is large scale. The fact that we have converted
the whole of our frozen range has allowed us to build a facility
in Africa, where we put a full freezer plant in, which is actually
from Doncaster, and are processing vegetables five days a week
organically. I think for us and our market share development,
we would love to move one of our main ranges into being organic,
which is 60 per cent of what we sell with a business of £2.2
billion. The time-frame for that is the issue. I cannot tell you
that it is one year, two years or five years. It is when it becomes
available at a price the customers will pay for it. The other
thing that will decide the market is the PR campaigns that are
led by certain people, Advisory Committees, and also by the bio-tech
industry. They are galvanising themselves in America, they have
a $50 million campaign where they are attacking non-GM and also
organic because they want to have their products launched into
the market again. I am sure you have seen academics, rather than
bio-tech representatives, now publishing articles in the United
Kingdom supporting genetic modification and questioning the validity
of organic. If that debate goes forward consumers may well be
put off organic and then we have a problem. There are other issues
with the market's future. Some of the changes within the inspection
bodies of the United Kingdom could drive the actual requirements
for organic standards so high so nobody could achieve them, which
keeps it as a niche market. There are people with a vested interest
in that. There could be a situation where inspection bodies fight
it out amongst themselves so much that they discredit each other
and that nobody trusts them.
433. I do not believe you that you are not making
more profit on organic food. You must be making more profit on
organic food. It is a guaranteed market, you have all the food-fussy
fanatics out there waiting to gobble it up, and you are importing
more of it, thus getting the benefit of an over valued exchange
rate. You must, overall, make a profit.
(Mr Merton) I do not know what else I have to have
say to you if I say, we are not.
Mr Todd
434. Do you see a threat from the increasing
fragmentation of the organic market place? It has often struck
me, as I go into a Sainsbury's or a Tesco, that you see an organic
pizza, heavily packaged, highly processed, almost certainly consuming
substantial transport costs to assemble the various components.
How does that fit with an organic vision, which is what people
are being sold? When they see the word "organic" they
think of cows out in the fields and beautiful scenery and everything
else, it does not sit with the key goals that many people who
are choosing organic actually have in their own mind-sets. Do
you see that as a problem? What it does is sticks an organic label
on it, but does not buy into much of the philosophy that founds
much of the organic movement.
(Mr Merton) I understand the question. Yes, we are
aware of it, again, through working with our customers. We are
asking them what they are concerned about, as well as our issues,
and we have been able to make good progress with packaging. We
even have trials now in some of our stores with loose organics.
There are issues attached to that in making sure that integrity
is maintained and customers and children do not swap things around.
We are actually hoping to launch a new type of packaging which
takes another step in the organic products department, in being
fully biodegradable and getting into some more of the key issues
that you are driving at. Inevitably we have to sell our product
in a supermarket environment.
435. I am more questioning whether the supermarket
environment is entirely consistent with the organic philosophy,
that if you are buying in the organic world, what you are probably
concerned about is locally sourced food from a farmer with a coherent
philosophy like your own, without a great load of packaging around
it, without the huge transport costs involved in sourcing from
all parts of the UK and the rest of the world, to produce this
perfect thing that sits on your shelf. I am just questioning whether
someone is not going to start pressing you on that and whether
that will not knock both of your businesses away from the organic
stream at some stage in the future?
(Mr Merton) We are sourcing locally and we are getting
as much local sourcing as some of the people that you have had
in before, who have obviously been getting involved in that with
us. We have some new operations, such as the one in the West Midlands
which we announced a year ago. We are working on a local processing
plant which will absorb all the local supplies of organic produce
and do it in one spot to avoid too much transportation. I think
the key to this is that we should never stop looking for improvements,
and through the work we do in our partnership groups those are
the sort of challenges we are giving ourselves in trying keep
the thing moving forward in the right way, and at the same time
getting something that is cost effective, otherwise you can go
the other way and drive costs up.
436. Can we put the same question to Iceland
who made a considerable play of sourcing organic produce from
all round the world, and also, to add an additional slightly non-organic
feature, sell a very large proportion of their product through
the frozen medium, which, again, does not quite fit the concept
that most people have? When they think of organic, they do not
think of a block of something you put in the freezer, they think
of something natural that you can put straight on your plate.
(Mr Wadsworth) That is an historic misnomer that fresh
food is automatically better for you.
437. Putting the dream against your reality.
(Mr Wadsworth) It is one reason why it is particularly
useful to demonstrate that frozen organic vegetables are even
more beneficial in that you are not having to waste material,
you are not having to fly material in from different parts of
the world because it is fresh. We can put it onto a boat, which
saves fuel. That is one example. In terms of buying from abroad
and using transport from the suppliers, people often talk about
food miles. If you take animal production, a lot of animal production
in the United Kingdom imports the animal feed, and the animal
feed to meat ratio is usually 2 to 1 conversion. We shift far
more feed to the United Kingdom, and if I wanted to save food
miles, perhaps I should move my meat production to where the feed
is, for example. Where we do buy from abroad, such as in Africa,
we try and link it to other social economic projects. When we
have grown brussels sprouts in Lesotho, what we have actually
done is work with an organisation in Johannesburg which runs the
gold mines and they were making a lot of people redundant. Those
people would go into shanty towns locally. The Lesotho Development
Corporation is working with us to relocate those people into their
homeland to regenerate a farm which is derelict to produce a product
for us.[3]
438. This does prompt one more question on the
coherence of this vision and the reality. For many people, what
they have in mind when they buy organic, and certainly when I
buy organic what I have in my mind, is fair trade. If you are
sourcing from overseas I am expecting that you are not just treating
the plants right and the creatures right but you are treating
the people and the farmers right as well. To what extent are you
buying into that part of the vision as well?
(Mr Merton) We are buying in very much. We have a
number of fair trade products—
439. A number of them.
(Mr Merton) I can give you an example of how we are
buying in. We have an issue in terms of the corporate environmental
policy which covers social responsibility of working in other
countries and trying to improve it. A good example of how we passionately
follow that is the issue with organic bananas when we went to
the Windward Isles, not actually looking for organic production
but looking to find a way to help the Windward Isles maintain
their production into the UK in the light of the WTO ruling. It
was there that we came across the organic issue and obviously
developed the opportunity to a big production of bananas there.
What came from that was an issue about fair trade and how we looked
at all the small farmers and treated them in the right way. We
have obviously got that under our belts now and we are trying
to get the whole of the Windward Islands built into that approach
in total. I think there are a number of things you can do: you
need to work in partnership; you need to work with the people;
you need to be clear about the reasons for doing it from all aspects.
I think we can demonstrate through those sorts of approaches that
we are taking that very much on board.
(Mr Duxbury) That is one of the reasons why we are
supporting IFOAM. IFOAM standards also include social welfare
standards and many other organic standards, particularly the EC
regulations, do not even touch on welfare issues.
3 Note by Witness: The project has allowed for
the development of 25 family homes with running water, a chilled
processing plant on the farm and a local freezing plant. This
infrastructure will enable a local market to be developed to sustain
the farm when we are able to move our production requirements
closer to home. Back
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