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

Memorandum submitted by Tesco Stores plc (A 59)


  Tesco welcomes the EFRA Committee's investigation into the future of UK agriculture. The farming industry in Britain is suffering for a variety of complex reasons. As the largest indirect customer of UK agriculture Tesco recognises that ensuring the future includes a viable agricultural sector with strong supplier relationships is in all our interests.

  The customer is at the heart of everything we do at Tesco. Our strategy evolves in response to their diverse and changing needs. However, these market signals are not getting through to farmers and farmers are understandably driven by output-orientated subsidies from Brussels.

  British agriculture exists in a global commodity market where the price of each commodity is dependent on a number of factors, including the relative currency exchange rate.

  Tesco continues to source fresh produce from Britain in preference to other countries wherever it is available and of sufficient quality to meet customer demands. Thus, nearly 100 per cent of our fresh beef is from the UK, 100 per cent of our fresh pork, 100 per cent of our fresh and organic milk, and 100 per cent of our eggs are sourced from this country and these are just a few examples.

  We know from experience that there is scope for retailers and suppliers to work better together for mutual benefit. We are trying to help things improve by:

    —  Tesco funding and encouragement of university research in development of farming practices as well as sharing knowledge and experience with other sectors of the supply chain. (Detail on these examples is included later).

    —  Tesco has signalled strongly to the farming sector that it intends boosting organic sales to £1 billion over the next five years. We have shown our commitment and there is a clear challenge here for British farmers to grow more. With around 80 per cent of our organic ranger still being imported to meet increasing demand from customers, the opportunities are huge.

  We think things will improve if there is:

    —  Greater communication of customers needs and desires between the elements of the supply chain. There needs to be less concentration on output-based subsidies and a greater focus on market opportunities.

    —  Increasing contact through the supply chain to create greater transparency. More dialogue and constructive co-operation to develop an understanding of the different components of the supply chain.

    —  Improved opportunities for on-going sharing of knowledge with farmers to keep up to speed with what customers desire and the latest developments in the retail sector.

    —  The structure and operation of co-operatives in countries such as Denmark, Holland and France may well merit study and provide a course of good practice.

  It is worth noting that changes in eating habits have seen an enormous growth in eating out. Over one third of all meals are now eaten outside the home. The catering sector is now nearly as large as the retail sector in terms of its contribution to the UK economy. However, the same transparency and legal framework on the origin of products does not exist for the catering sector as it does in the retail sector so customers are unaware and so unable to exercise the same level of choice.


  1.  Tesco is the leading retailer in the UK and Ireland and a strong entrant into many non-food markets. Tesco has the fastest organic growth rate of any international retailer with stores in Europe and Asia, including four of the EU accession countries. We serve over 12 million customers a week in the UK and Ireland as well as millions overseas.

  2.  Tesco is the UK's largest private sector employee and the first to create a working partnership with USDAW. As a business, we survive and succeed in a highly competitive environment by listening to our customers and providing them with what they want. This has led us into new areas like banking with Tesco Personal Finance. Tesco is also now the world's largest on-line grocer.

  3.  We continue to source fresh produce from Britain in preference to other countries whenever it is available and of sufficient quality to meet customer demands. Thus, nearly 100 per cent of our fresh beef is from the UK, 100 per cent of our fresh pork, 100 per cent of our fresh and organic milk, and 100 per cent of our eggs are sourced from this country; these are just a few examples.

  4.  We work continuously with our produce suppliers to improve the quality of British produce and to look for opportunities to extend the British growing season wherever possible (see Annexes 1 and 2 for examples). A viable agricultural sector with strong supplier relationships is in all our interests.


  5.  There are many excellent innovative and market orientated practices in farming. Where retailers and suppliers have worked together to understand and communicate consumers' needs. There are success stories in farming.

  6.  Unfortunately this is not always the case. Market signals are not getting through to some farmers partly because much of the industry is too fragmented and messages do not filter up the supply chain. This fragmentation and lack of transparency means that many farmers are unaware of what customers want and are slow to innovate.

  7.  Lack of innovation and market focus is also a result of the output-orientated subsidies from Brussels. The CAP has not helped over the years. Some farmers have understandably focussed heavily on how to increase income from the output-based subsidies from the EU. This has caused farming to divert its energies from consumer focused activities.


  8.  UK farmers have faced a difficult economic situation over the last six years which is not of their own making. However, nor is this situation caused by retailers. Farmers are exposed to volatility in their incomes, largely because they are more exposed to export markets and are reliant on Euro denominated subsidies.

  9.  Over the last six years, farm incomes have decreased by 36 per cent in real terms. The reason for this decline is primarily the increasing strength of sterling, which has impacted farming for two main reasons. Firstly, the high pound makes imported food cheaper and exported food more expensive, and secondly, CAP support prices are set in Euros and hence fall as sterling increases.


10.  Another factor that has affected farm incomes is the decline in world commodity prices, which have been falling for a number of years. Also, the price of farm inputs, such as maintenance, repair and veterinary costs, has risen, while the price of outputs, has fallen.

  11.  Also important is the economic impact on the UK livestock farming and on export markets of the necessary disease control measures that have followed BSE, swine fever and FMD. Retailers can offer specific support and assistance, such as the sale of lighter lambs, but this is small scale compared with the advance economic impact.


  12.  Our business is built on listening to customers and providing them with variety and choice. We learn about consumers through extensive research from a range of sources. We look at what consumers say and what they do, how they behave and why. We use a range of survey techniques and we benefit greatly from seeing what customers actually do through our loyalty card data (around 80 per cent of the purchases at Tesco are through customers with loyalty cards).

  13.  Customer behaviour shows that tastes vary and there is no such thing as the "average" customer, however it is clear that lifestyles are changing. Customers are spending an ever-decreasing share of their income on food, as convenience is increasingly driving food choice and people are eating out more.

  14.  There are an increasing number of smaller and single-parent households and the population is ageing. This results in changes in spending and eating habits, and in changing consumer concerns. For example, we have seen an increase in health concerns and awareness that is leading to an increase in demand for healthy food and for organic food which although no safer than conventional British Food is perceived to be better in various ways.

  15.  All consumers seek "value for money" whether they are price sensitive or more affluent in their shopping spend. Retailers like Tesco, Asda and Morrisons who have invested in price and value have grown more strongly than their competitors in recent years.

  16.  We have undertaken large amount of research specifically into food and farming issues using various methods and target audiences to try and understand customer attitudes in light of recent crises in the industry. This research used a wide range of quantitative research techniques, varying from independent customer research, in-store panels, telephone interviews, analysis of Clubcard and sales data.

  17.  The results showed that consumers want safe and healthy food and a "common sense" approach to food production. Even though awareness of issues is high among consumers, our research shows that there is a lack of knowledge on many issues concerning food and food production. Many customers do not understand how food is produced and the processes that take produce from the farm to the plate.

  18.  Customers' attitudes are sensitive to the latest food scare and they feel that they do not really understand food safety issues. Consumers feel that BSE has shown that food can be dangerous and that FMD indicates that no one is in control. The large supermarkets are however seen as credible and trusted with regard to food safety.

  19.  British food is still in demand. However actual buying habits show that whilst British food is requested, the majority of consumers will not pay a premium for British food products.


  20.  As we have said, it is important to Tesco to work with our suppliers to ensure that together we are able to provide customers with what they want.


  21.  Ten years ago we introduced Nature's Choice to ensure that our produce is grown with minimal environmental impact whilst helping to regenerate the countryside and help reduce the use of pesticides.


  22.  We aim to set the highest standards of animal welfare in the industry. Meat and Livestock products sold through our stores come only from animals reared with care and regard to their dignity. Tesco also sponsor the Food Animal Initiative at Oxford University Farm, which is a new initiative to demonstrate to farmers the benefits of animal welfare in farming.


  23.  We are investing in the future of farming methods. We are supporting a £2.5 million centre for research into organic farming at Newcastle University.

  24.  We hold Masterclasses at Harper Adams University College, to educate Agricultural students on retail and marketing, with emphasis on consumer needs. We hold a series of seminars to share learnings with students and farmers, with speakers from various parts of the supply chain, including representatives from the BFU and Tesco.

  25.  We hold regular Producer Club meetings with our suppliers. Our agricultural managers and buyers attend quarterly meetings with suppliers and farmers to maintain close links and discuss any issues that farmers may have.

  26.  As well as policy to buy British as we have stated earlier, we also stock over 7,000 local products. We aim to stock locally produced food whenever it is available and of the right quality. We are committed to supporting local sourcing where there is a traditional industry and where customers clearly demand local products. Flags and rosettes depicting country or country of origin, and in some cases farm of origin, help to identify these products.


  27.  We expressed our sympathies for the plight of UK farmers publicly during the recent foot and mouth epidemic and were a leading voice in the establishment of the Industry fund for farmers under the auspices of the Institute of Grocery Distribution. This helped to provide some immediate relief and going forward will help UK farming get back on its feet by sponsoring communication, training and educational initiatives.

  28.  During the height of the outbreak, retailers were able to provide practical support by taking light lambs when the closure of the sheep export market left Scottish and Welsh hill farmers with a glut of lamb produced for the continental market. We sold light lamb in promotional packs and lowered the weight specification to allow more light lamb into our normal supply. Together with the MLC and celebrity chef, Brian Turner, we marketed light lamb with a new recipe collection.

  29.  With the export markets closed to pig farmers, Tesco worked closely with key fresh pork suppliers to find a market for those pork cuts what would normally have been exported. By doing special promotion packs we were able to market these to our customers. This and the fact that many suppliers reduced payments time to 48 hours for farmers were very positive practical ways we could help.

  30.  These examples show that by listening to customers and understanding their requirement, we can work together to help to protect the countryside and improve the farming and the food sector. Further details of good practice are attached in the Annexes.


  31.  Throughout our research, there was a strong commitment to organics from customers and a return to "common-sense" food production. This has been reinforced by analysis of our sales figures, which has shown that organic sales are strong in all categories of food. People from all walks of life now want to buy more organics. It also has shown that increasing availability of organics in our stores has led to increased consumption. The main barriers to consumption growth are availability and affordability.

  32.  Therefore on 1 November, Tesco announced a bold new target to grow its organic market to £1 billion within five years, which would mean organics accounting for at least 5 per cent of all food sold at Tesco. We have also improved choice by extending our organic range to over 1,000 lines. This target is a challenge for Tesco, but it is also a challenge for British Farmers to help us by growing more organics. We have long been frustrated that around 80 per cent of our organic range has had to be imported. We hope that our commitment to expand the organic market of alongside DEFRA's plans to triple land dedicated to organics by the year 2006 will help give farmers the confidence to invest in the future.

Tesco Stores plc

14 December 2001

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