Select Committee on Agriculture Second Report



Direct marketing schemes

33. The consumer demand for organics has been fed in part by the growth in distribution systems dedicated to or geared towards the organic sector, such as farmers' markets and box schemes. These methods adhere to the traditional ethos of organic production with its emphasis on local production and unprocessed, unpackaged products. Together with farm shops and internet services, such farmer-run direct marketing schemes are seen to deliver benefits to the farmer in terms of increased profit margins, to the local community in terms of employment opportunities and to the consumer in terms of fresh organic food and immediate traceability.[71] In 1998/99 £58 million worth of organic food was sold at the farmgate, through box schemes or from farmers' markets,[72] and the figures are likely to be much higher this year. Farmers' markets are now established in many major towns and cities, bringing largely local produce within the reach of more consumers. Moreover, it is clear that there is room for this sector to expand as box schemes are often oversubscribed. The Government has been enthusiastic about these developments in marketing by producers. We too believe that they should be encouraged, perhaps through the schemes available under the England Rural Development Programme. We recommend that the Government encourage the further development of local marketing schemes, such as farmers' markets and box schemes, through the provision of advice and ERDP funding.

Supermarkets and organics

34. The greatest growth in organic sales has been through the main supermarkets. More customers will have access to these outlets on a national basis than can be reached by other distribution methods. The multiple retailers have a 69 per cent share of the organic retail market with sales of £269 million in 1998/99[73] and given their stated commitment to organic produce, their dominant position seems assured. The supermarkets have been accused of overstating the claims for organic food, particularly in terms of food safety and animal welfare, but they have put huge efforts into marketing organic produce and into meeting the demands of their customers for expanded ranges and organic versions of conventional products. However, these efforts have not removed all suspicions within the organic sector of the motives of the multiple retailers and of their ultimate impact upon the development of organic production in the UK. The basis of these concerns is both specific to the organic sector, in that the whole concept of multiple retailers sits uneasily with the "purist" organic ethos of local food for local people, and general in the perception of many in the farming industry - organic and conventional - that the power of the supermarkets is detrimental to the interests of producers.

35. The organic industry as it is currently constituted causes significant distribution problems when set against the demands of supermarket customers. For example, it is often small-scale, leading to increased costs in processing and transport; production is often erratic or has accentuated seasonality; and the products cannot be guaranteed to meet tight specifications or to be cosmetically perfect, leading to considerable waste.[74] Research into technical issues may help overcome some of these difficulties but it is hard for supermarkets to plan their supplies on this basis. It is not surprising, therefore, that Iceland, for example, was encouraging "large players to enter the market and achieve the necessary economies of scale".[75] At the moment, and for the foreseeable future, Iceland is achieving its objective of selling organic food at conventional prices by importing a large percentage of its supplies. However, it is also understandable if many organic farmers see this as a threat to their livelihood in terms of the prices offered for their produce and of competition from much larger concerns with lower overheads. There are also fears that the "unseemly scramble" by retailers for available supplies in the current situation will have a detrimental impact on standards as producers rush to meet the demand, putting in jeopardy the high values on which the appeal of the organic sector rests.[76]

36. The supermarkets have worked hard to counter these concerns in a variety of ways, including funding for research and development as well as direct assistance for conversion.[77] In evidence to us they were keen to emphasise their commitment to long term partnerships with suppliers. For example, Sainsbury's is working closely with the Organic Milk Suppliers Co-operative (OMSCo) with which it has a five-year deal guaranteeing prices and volumes.[78] ASDA has similar arrangements with farmers who have signed up to its organic meat conversion scheme,[79] while Iceland assured us that "Our relationships with our organic producers are totally different to our producers and suppliers of other products, simply because of what we are trying to do together".[80] There are also efforts being made to respond to the organic ethos by sourcing locally, perhaps to sell at a higher price, and by addressing issues such as excess packaging.[81]

Nevertheless, suspicions persist that the supermarkets will try to impose their conventional trading practices upon organic suppliers, a concern fed by remarks such as that of Tesco that "supermarkets' traditional methods of sourcing and selling products will promote organic food".[82]

37. At the moment, the supermarkets must fight for scarce supplies of organic produce to meet the demands of customers. It is, therefore, not surprising that they are responding to this pressure by setting up special arrangements with the organic sector and that there are fears that such willingness to adapt to the traditional patterns of organic production will not last once supplies are more in balance with demand. The organic sector itself can react to this situation either by turning away from the supermarkets, in which case it will lose much of its potential market, or by working with them to ensure that its needs and special qualities are recognised. The Soil Association took the view that "it is very important to build a dialogue with the supermarkets in parallel with their customers who are increasingly asking for more organic food".[83] To achieve this, the Association had established a multiple retailers' working group which provided a forum in which issues could be raised. We applaud this initiative and agree that "It is better to influence [the supermarkets'] practices in a better direction", than to be negative about the role of the multiples.[84] There will always be a niche market for organic producers who want to sell their output through local or direct marketing but the large scale expansion of organic production depends upon the supermarkets. Their need to respond to customer demand should ensure that they pay more than lip service to maintaining their contracts with organic suppliers and to the need to keep standards high and prices realistic. Moreover, we expect to see them developing the factors which make organic produce unique, such as variations in size and specifications, into an advantage as consumers continue to express a desire for more "wholesome" foodstuffs for which certain segments of the market are willing to pay a premium. Supermarkets will be the main, although not the only, distribution channel for organic produce. It is critical that they are involved in the design of and encouraged to co-fund future initiatives to further organic conversion.

Supplier partnerships

38. An obvious answer to the difficulty of the mismatch between the need for economies of scale in dealing with supermarkets and the small-scale nature of much of the organic production sector is the development of supplier partnerships or co-operatives. These arrangements strengthen the hand of the farmer, who is no longer working in isolation and can make use of common facilities and combined negotiating power, and are also welcomed by the supermarkets who find it easier to contract with a group of farmers than with individuals. There have been notable successes in creating such co-operatives within the organic sector. OMSCo was originally set up by a groups of organic farmers in response to the lack of processing capacity for organic milk.[85] It is now the major player in the organic milk sector, acting as a link between the processor or retailer to the farmer both for contracts and for development. For example, Yeo Valley Organic Company is working with OMSCo to encourage farmers to convert.[86] Similarly, in the livestock sector, the Organic Livestock Marketing Co-operative was set up some five years ago by the Soil Association, Organic Farmers and Growers Ltd and Eastbrook Farm Organic Meats "to create an orderly marketing environment for primary producers, with ex-farm prices fixed for long periods".[87] It may be harder for other sectors to develop such partnerships but we agree with the NFU that "there are many opportunities for co-operatives and other farmer-controlled businesses to flourish in the marketplace".[88] The Minister for Agriculture, Fisheries and Food has often expressed the view that such co-operatives should be encouraged in agriculture more generally. We believe that there is an opportunity here for the Government to assist the development of farmers' co-operatives in the organic sector through the ERDP and other funds aimed at rural development. We recommend that the Government work with the bodies responsible for the promotion of organic production to ensure that rural development funds are channelled into the development of supplier partnerships and farmer-controlled co-operatives in the organic sector.


39. A particular obstacle to the expansion of organic livestock farming has been the availability of local abattoirs. Processing capacity for organic livestock is limited by organic protocols which require that animals are slaughtered at an abattoir registered and checked by a certification body. The closure of many small abattoirs over the last few years has left organic farmers in the position that the nearest available facilities may be many miles away. This is unacceptable in terms of cost (organic livestock farmers tend to operate on a small scale) and in terms of animal welfare.[89] Moreover, it could have a knock-on effect on consumer choice as the lack of locally-slaughtered organic meat could lead to the loss of independent butchers, farm shops, farmers' markets and other speciality outlets.[90] We know of at least one case where a farmer was forced to forgo his organic status because of the loss of a local organic abattoir and the importance of such facilities was stressed to us in informal discussions with others.[91] The NFU described the "lack of a local slaughtering facility" as "the top of the list" of problems faced by organic farmers.[92]

40. The recent spate of closures or threatened closures of small, local abattoirs has been attributed to the charging regime for Meat Hygiene Service inspectors.[93] The Government has tried to address this problem in the Rural White Paper, published in late November 2000, by promising to "target help for small and medium-sized abattoirs".[94] It announced "new, additional aid (worth £8.7m in 2001-02) in respect of meat inspection costs to help secure the future of small and medium-sized abattoirs".[95] We welcome this additional aid and await with interest details of the package and we urge the Government to stimulate the development of new small abattoirs, including mobile abattoirs.

71  Qq 303-4; Ev. p. 162, section 5; SA (1999), p. 23. Back

72  SA (1999), p. 22. Back

73  IbidBack

74  Ev. pp. 35-36; Ev. p. 85; Ev. p. 236. Back

75  Ev. p. 78, para 5.4. Back

76  Ev. p. 236, para 22-4; Ev. pp. 152-3.  Back

77  Ev. p. 35. Back

78  Ev. p. 72, para 2.6. Back

79  Ev. p. 224. Back

80  Q 454. Back

81  Qq 435, 410, 434. Back

82  Ev. p. 213. Back

83  Q 540. Back

84  Q 540. Back

85  Q 312. Back

86  Q 343. Back

87  Ev. p. 235, para 19. Back

88  Ev. p. 36. Back

89  Ev. p. 155, para 11. Back

90  Ev. p. 163, para 6.2. Back

91  Ev. p. 250, annex; private information. Back

92  Q 226. Back

93  Ev. p. 155, para 11. Back

94  Rural White Paper, Our Countryside:the Future, Cm 4909, p. 92. Back

95  IbidBack

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