Memorandum submitted by Tesco Stores plc
(A 59)
EXECUTIVE SUMMARY
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.
INTRODUCTION
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.
A MARKET FOCUSED
INDUSTRY
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.
THE ECONOMICS
OF UK FARMING
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.
WHAT HAVE
OUR CUSTOMERS
BEEN TELLING
US?
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.
WHAT IS
TESCO DOING?
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.
NATURE'S
CHOICE
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.
ANIMAL WELFARE
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.
SHARING KNOWLEDGE
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.
HELPING FARMERS
THROUGH FOOT
AND MOUTH
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.
OUR ORGANICS
CHALLENGE
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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