Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witness (Questions 180 - 199)



  180. There are more people living by themselves. I think there is a majority of single households. We have had a significant occurrence of immigration. You talk a lot about multicultural and multiethnic society. What are the implications of all this on the nature of the market?
  (Professor Hughes) It is increasingly differentiated by lifestyle, by demographics and, as you say, by ethnic group. Frankly, I think that brings opportunities. The more differentiation there is in the marketplace, the less focus there is on raw commodities. My general line on that is that in northern Europe we are not the lowest cost producer of anything. We want to look to more interesting, value segments that are appearing in most commodity markets and focus on those. We should be in a better position to take opportunities that arise from these value segments because we are living right amongst our consumers, and there are 60 million of them around us. So in agriculture and food we should be able to identify the trends rather sooner than our competition.

Mrs Shephard

  181. Professor Hughes, that is an extremely interesting point because one of the areas that the Committee found puzzling is the fact that there self-evidently has been an enormous explosion of interest in food, if you judge it from media coverage: television, radio and magazines. At the same time, those who produce food - not those who process it but who produce it - have been going out of business to the extent of there being half the number of farming businesses now than there were when I was Minister of Agriculture. What does the farmer do to increase the saleability of his products in the context of what you have just said; that is to say, that there is an expanding market for added value food products? The flip panacea usually produced by Ministers and others is, "Oh, there is niche marketing; there are farmers' markets" and all this stuff. The reality is that the farmers produce and the processors process. The processors and retailers have power over what is required. It is difficult for farmers to react quickly enough. How can one concertina the players so that farmers have more input and more security in planning their future? It is difficult within the overall context but they are producing food that most people eat.
  (Professor Hughes) Yes, of course it is not easy. There is no switch, otherwise somebody would have pressed it. Of course it differs by sector. Let us take fresh produce, where probably there are shorter supply chains, particular for fruit and vegetables, in the UK, much shorter than the supply chains there would be for, say, red meat, yet prices have not been wonderful. In general, in fresh produce there has been over-supply and that explains the low prices to producers. Of course it varies within the sector but whenever there is over-supply and you get a line of would-be producers or providers lining up outside supermarkets saying, "I can produce it for a penny less", you are going to get pressure on prices. We have gone through, in the last two or three years in particular, a depressed price scene in fresh produce. I think it is recovering to a degree. What can individual producers do to get closer to the market in fresh produce? Let us do it sector by sector. I am a director of KG Fruits. That is a farmer-co-operative of 75 farmers. We turn over £55 million; five years ago we turned over £15 million. We have a majority of our fresh soft fruit in the market in our season. We have genuine market power, even when dealing with large supermarkets. The net price to the farmers is double from supermarkets than we get from low-price and unstable wholesale markets, and so that is one solution. It does not work everywhere. As we all know around the table here, we do have not a wonderful track record of co-operation in United Kingdom. Do not mention the "C" word (co-operation). If you become organised, it can work. That is in fresh produce. If we move on to red meat where you have supply chains which are ridiculously long in many cases, where the market signals just do not move up and down as they might, what does that reflect? Again, as we all know, it is complicated. In part, that is subsidy. In history, if a fair proportion of the farmers' income has come from the market, which is Brussels rather than the market which is the consumer, then it is not unnatural that farmers will focus on those who provide the most predictable income. So that does not help. At the same time, we have in red meat an industry in transition with way too much capacity in, say, slaughtering. I am always interested in why the market does not actually take account of that; why are beef processors not going out of business hand over foot, but it does not seem to happen that way. If an abattoir goes out of business, it is picked up by another private group who then operate at an even lower cost, perpetuating this over-capacity utilisation in the sector. So with red meat I think it is difficult for a whole combination of factors. Also, in many cases the livestock enterprise might not be the main line, the secondary enterprise, from a dairy herd, for example. Red meat is more complicated. Let us move on to cereals. When I worked with cereal farmers, I challenged them to get closer to the market. I found something depressing. I have just been working down at Wye with 20 farmers between the ages of 30 and 40 in the 52nd Worshipful Company of Farmers course. We have 20 entrepreneurs, if you will, of an age where you think they would be thinking ahead about where the opportunities are. When I challenged them on cereals, they said, "It's hopeless. It is a commodity market. We can do nothing to add any value whatsoever". I just do not believe that. I think there are genuine opportunities. They do not know what happens to their grain. We know they sell it to a merchant but then, as far as they are concerned, the supply chain stops. It strikes me that even in cereals, which is probably the most difficult sector, there is an opportunity to select who is buying my grain, what they want from it, is there anything I can do in terms of additional service, in terms of changing the variety to even add the smallest amount of value, whether it be just pence per tonne. I think we working at that level. We just have to look for opportunities. It is more difficult.

  182. With cereals, for example, groups could be encouraged, as it were, to unbundle the process and see where the grain goes and what is useful. That is something where your institution could perhaps help.
  (Professor Hughes) Yes, but you would think the initiative would come from the farm: let us get close to the marketplace. That does not necessarily mean that the farmer has to add value by becoming a processor. We should not fall into the trap of thinking that the only way of adding value is for farmers to become not only farmers but also processors by looking for that next step in the supply chain.

  183. That is what I am implying. I am implying, for example, that our wheat goes to make pizza bases, for example, that kind of thing, or our barley goes to making real ale or whatever it might be.
  (Professor Hughes) The start is: what is the use of my grain? What is the highest value and best use of my grain and how can I take some advantage of that?

Mr Mitchell

  184. For the red meat, does that mean local branding "Yorkshire beef for beefy Yorkshiremen" and southern tastes for Londoners? Is there a market in that?
  (Professor Hughes) Clearly there is. If you look at market developments, then there is an increasing interest in local, regional, what is the provenance, tell me the story. Again, it is not simplistic. The line I can do in my talks is: Monday to Friday we get by; food is fuel, if you will. I do not want any hassle. Just eat it. I hope you enjoy it but we have not got the time, for God's sake. That is the challenge for British agriculture because we do not ask those difficult questions about the ingredients in, say, the processed food that we are eating Monday to Friday. I refer to it as the drudge period; it is drudge shopping; it is drudge cooking, if we even do it; it is drudge eating to a degree. Then on Saturday and Sunday we move into leisure mode and, halleluiah! That in part explains the interest in cookery programmes. At a time when cooking skills are going down, the number of hours of television coverage of cooking programmes is going up. As for those two days, and let us be old-fashioned and call it the weekend still, where we might cook a meal from ingredients and then we want Yorkshire beef, then give me the story, give me the romance, the provenance, there is a genuine opportunity there. We are much less price-sensitive when we are in that mode.

  185. I hope this new world gives the farmer the signal. He has signals now from subsidies to produce this, that or the other. The new signals are going to be much more complex and sophisticated, are they not? How are you going to get them and respond to them?
  (Professor Hughes) He or she can either take the initiative and look out there and just observe what is happening in the marketplace, or they will be told by supermarkets. I talked to Tesco last year and a fair proportion of the consumer not complaints but inquiries were about "Why can't we get that local— We used to be able to get that special regional— What's the season for—" Consumers are starting to be interested in the what we refer to as niche products, which I think does a disservice because increasingly people associate niche with very small or hardly commercial. I do not think that is the case. That commodity market increasingly has a value segment which includes a whole variety of niche or special segments. That is expanding whereas the commodity part is contracting, which is putting more and more pressure on price in the commodity market. The question was: where do you go for the signals? The signals are out there and your supply chain partners should pass the signals to you.

Mr Martlew

  186. It seems to me as though we were all shopping at supermarkets, but the reality is that more and more people are eating out, not just at the weekend but totally. How do you add value to a product that comes to a restaurant?
  (Professor Hughes) You are right; actually it is rather early to get this unfortunate phrase "share of stomach", which is what you look at in terms of the overall food market. Clearly supermarkets, as we move through this decade, if they do not watch it, will lose shares per stomach. They tend to measure their success in how they are doing in the grocery market. That is a static, even declining, market and it does a disservice to them. They should be looking at something much wider. In terms of the food eaten outside the home, if you will, what is the statistic? Close to one-third of food expenditure is outside the home; that does increase but very slowly. Interestingly, look at the supermarket response. I follow Taylor Neilson, which is a market research company working on when we eat out - how much we eat in and how much we eat out. If you take the last four or five years, the number of meals eaten outside the home actually is flat; it is not increasing. However, if you then get into the segments, fast food is going up but the white table cloths and the more formal dining is going down. Why is that? I believe it reflects the supermarkets' response to competitive pressure and also the restaurant quality chilled meals that you see. Tesco Finest, Sainsbury Taste the Difference, Waitrose Bistro are starting to claw back market share that they were losing to the food service folk. That is the first point. The second point is that of course one-third of our food expenditure is outside the home but that one-third expenditure is two-thirds service and only one-third product. Going back to an area where I am very comfortable, which is in the fresh produce sector, the amount of fresh fruit and vegetables that we eat outside the home is a miserable amount. You think about it. Go to any fast food outlet and what can you get that is fresh fruit and vegetables? You get a little bit of lettuce and a slice of tomato. We under-consume fresh produce when we are outside the home. Going back to your question, which is "Are there opportunities there?", there are genuine opportunities in a very competitive restaurant marketplace. Restaurateurs are looking at ways they can differentiate themselves. Getting back to the regional brand or the special brand, they want a story. When we go out we want a story. They are in a position to provide that story through the food that they put on offer. However - there is always a flip side - we are not in that mode if we do not know the story; it is a threat because we do not ask where the service food typically, particularly in that Monday to Friday drudge period, comes from; we just eat it. That is where the chicken goes to. What proportion of our total chicken consumption would be non-UK stuff? That figure is probably 40 per cent. Five or seven years ago it would have been 5 per cent for imported chicken. Now, that Brazilian or Thai chicken, which is commodity chicken, is going straight into the processed foods and into the food service business. It is the same with red meat.

Diana Organ

  187. I have to say that as a slogan for either advertising or marketing "share of stomach" is not a good tag.
  (Professor Hughes) Let us keep that between ourselves.

  188. It is being used only for academic purposes. You have described, I think quite aptly, and I see a certain resonance, drudge eating and preparation of food Monday to Friday and then the weekend comes and you either eat out or you actually do have a go at doing something that Delia has done a couple of weeks before. In your memorandum you have actually highlighted the four consumer megatrends to do with the size of the household, taste, convenience, these issues that are driving consumers now. I wonder if you could just outline the key elements of those and also how you see the trend going over maybe the next decade. You have already pointed out that convenience is something that perhaps 30 years ago was not an issue but it is very much at the top of the bill now.
  (Professor Hughes) Again, if I look out to 2010 and I try to get my audience to participate with me and ask them, "What are the key factors that will have an impact on the nature of food products we see on the retail shelves?" I come very quickly back to income. Household income and what happens to that is absolutely key. We all have to take a view on this and make some assumptions. My assumption is that, fingers crossed now, we will manage to squeeze two or three per cent real GDP income growth points out of the year, as we have done in the past. If we all believe that, then we will see a continuation of current trends. If we were into cataclysmic recession, God forbid, then it is something else. You have got to take a view on what is going to happen to income. I think income will continue to increase and that the relative importance of the expenditure on food in disposable income will continue to decline. It is 12 per cent now, or whatever it is; by 2010 it may well be 8 per cent. In my parents' generation it was 30 per cent. So by February 2002 there is a constant decline. That goes back to my point about the relative importance of price decline. This focus on convenience of course is largely linked to one or two people households where both are working outside the home. I just think that is going to continue. At the margin there may be some lifestyle things - "hang on, our lives are out of control; we do not see our children; maybe one of the partners should be back in the household" - but that will only be at the margin because most of the women will not want to give up that financial independence. If you look at the divorce statistics, increasingly those women will say, "I may have to do this on my own and, if I am going to do it on my own, then I need a career and I need that income". I think we will see a range of convenience food products in 2010 which will then astonish us by current standards. That is why also you will see a huge leap in the way that we procure food. I cannot believe that we will be shopping in supermarkets in 2010 as we do now. It just seems to me so unlikely.

  189. Where will we shop then?
  (Professor Hughes) It will be delivered to us or there will be a point closer to home. Going back to this notion of drudge shopping, and I do not want to trivialise this discussion, you just have to go to a supermarket on Thursday night at 6 o'clock, aisle 12, and what do you see? What is the ambience? There is stress. People do not want to be there. In 2010 we will look back on that and say, "Why on earth did we do that?"

  190. Not being flippant about it, men have never liked doing that and they have always left that drudgery to women! On the point that you made there about increased convenience, different methods of shopping, will there not be a huge differential in income levels? We are talking about the growth of single households. Many of those single households will be poorer households, either because they are elderly households or because they are single parent households. Our farmers are saying to us all the time, "People buy on price. How can I get my return?" I am just a little concerned about the implications for UK farming if the scenario you paint is that we will not be going through the supermarket chain; we will be buying absolutely against taste and convenience and experience, but I am not so sure. I wonder if you could put into place where the price element comes in, particularly for that section that is poorer and the single households. The farmers tell us people buy on price; they do not buy British chicken because it is more expensive than the Thai chicken.
  (Professor Hughes) They buy it on price if they see there is no difference versus whatever the item is. If they are comparing items and they look identical, they will buy on price. If there is a criticism about our British food on offer that I would make, it is that we have added attributes that we believe consumers want—animal welfare or special taste—and then we do not communicate that to the consumer. If we do that, then they will buy on price. Getting back to your question, if we get one-person households or lower income households, of course what they want is the same food as everybody else; they will be buying convenience products which will be of lower quality and at a lower price but they will not eat different food. The farming challenge as we move to an even wider convenience food offer is that the farmer increasingly becomes the producer of low priced raw materials to which others add value. That is the challenge.

  191. The other issue you have just touched on there is about increasing groups of wealthy consumers who are concerned about animal welfare, about the method of production, whether it is GM or not and whether it is organic or not. You are saying that it is not often recognised. That may be a way for our producers, our farmers who are operating in those esoteric fields, to get the pay-back and the recognition of better animal welfare standards, organic produce, local produce and regional variety.
  (Professor Hughes) We have to be careful to make sure that what we perceive to be market signals, like more animal welfare and being more environmentally friendly, are actual market signals and not signals from very well organised and very powerful lobby groups who, if we do not watch it, can get ahead of the market. I am not discounting that in the very least but if we establish a cost of production as we respond to this which is higher than world terms, although we have a more attractive and quality product, if the market is not ready for that yet, then they will not pay for it.

  192. Is the market ready for it now?
  (Professor Hughes) A proportion of it is, but just a proportion. For example, on pork products I would suggest we have got ahead of the market with sow tethering, et cetera. In principle that is: yes, we are interested in animal welfare. Most people do not understand it and we have put in a cost of production for pig farmers in the United Kingdom which is to our disadvantage. I think by 2010, again without trivialising it, the consumer will be nearer the citizen on these matters. By 2010 we may be out of business.

Mr Lepper

  193. I am interested in the point you have just made about the extent to which demand for organic, environmentally sustainable food, et cetera, might be a result in part of campaigning by pressure groups. It is an area that we explored a little bit last week. Other than what is actually sold over the counter, are you aware of any ways of measuring that demand for those additional factors, other than price?
  (Professor Hughes) If I may dwell on that, and while I do so, I was up at Harrogate the other day at the Soil Association conference and there was an interesting paper, again by Taylor Neilson Market Research, on "The Market for Organic Food". So much is said about organic food and it is great stuff, all good stuff. Their statistic is that between 6 per cent of households purchase 60 per cent of the organic food; that means that 94 per cent of us, the rest of us, are purchasing 40 per cent. That 6 per cent of households that is purchasing 60 per cent of organic food I would characterise as the Waitrose shopper: older women, better educated, higher income. Yet, as I read the press, apparently there are great swathes of interest in organic. There may well be but they are smaller segments than you imagine, although that is not to say that they will not grow. Your question was how can you measure how much people are willing to pay for animal welfare. It is very difficult. To my mind, you have to put it on the shelf, but in doing so you have to communicate the benefits. I have not seen that. So when farmers shriek with rage because consumers quote "Only buy on price", I think they have missed the point. The consumer has failed to work out what the benefit is. Consumers do not shop on price; they shop on value and value is the relationship between price and quality. If we elect not to tell them about the quality attributes, then they just shop on price.

  194. We come back to the point you have made several times about communicating.
  (Professor Hughes) Yes, and I think that is absolutely critical. Put yourself in the place of the shopper. You are in that store on Thursday night, aisle 12. You are going to be there once a week for 40 minutes. There are 30,000 products here and you want to get away. The last thing you are going to do is take products off the shelf and spend five minutes exploring the ingredient mix and what have you. Even if you ask the difficult question: actually what is quality assurance in British pork, or whatever the little label is, then it is most unlikely that anybody in the store will be able to tell you.

  195. You have suggested, I think, that farmers could do more perhaps to put pressure on the next stage in the food chain, the supermarkets or whatever, in terms of the communication challenge.
  (Professor Hughes) The little red tractor was a start perhaps in the right direction. What we need is some shorthand mechanism for explaining to consumers and others in the food chain what quality attributes we are bringing to our products.

Mr Todd

  196. You are a Sainsbury's professor, I think.
  (Professor Hughes) I was.

  197. Your description still is that on one of our sheets. You have emphasised the issue of information. For those of us who have store cards - and I would be surprised if anyone around this table has not got a store card - the supermarket we go to has a great deal of data as to what we purchase or they can access that data. What they do with it, I do not know.
  (Professor Hughes) That is a good point.

  198. Surely it should be possible to provide better tailored information to consumers on exactly the sort of issues we have been talking about. If I go into Sainsbury's I can swipe my card now and be told that I can get 20 per cent off nappies which, sadly, is a bit irrelevant to me as a consumer. What it does not do is introduce me to an offer which may be relevant and related to my buying habits. What really ought to be there is something which allows people to make those sorts of choices which says, "OK, I am interested in organics, press this button. I am interested in locally produced products, press this button" and it will actually produce for me a list of items that I may be interested in with appropriate offers on them. I do not know whether that is available but it should be.
  (Professor Hughes) That is a very good point. They now have that capacity but they are not utilising it. They are largely sitting on the data. They are not stupid; they recognise that it has enormous value. The sort of thing you are describing is analogous to, say,, for those of us who use that, where they say, "We notice you bought this book. You would probably like this book and the other one". We are coming that way. Within two or three years, there will be an individually-tailored offer and, as you say, when you swipe the card it will say, "Thank you, David and Susan, for coming into Waitrose" or wherever it is, "and your special offer is a bottle of olive oil, which we are going to give you. We know you like it". It will be micro-marketing, which they will do electronically. Yes, we will have a much better opportunity to communicate directly.

  199. Linking that back to the farmer, that will be a way in which you can give many of the core messages which you need to communicate.
  (Professor Hughes) Yes.

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