Examination of Witnesses (Questions 480-499)
MS PENNY
COATES, MR
IAN MERTON
AND MS
LUCY NEVILLE-ROLFE
WEDNESDAY 27 FEBRUARY 2002
480. You have put a lot of emphasis, all three
of you, on the leadership role that you take. Turn it round the
other way, what have you observed as good practice in farmer or
grower led activity that produces the type of result that we have
just been discussing? Can you give us any examples, any of you?
(Ms Coates) I think it is when farmers
are prepared to co-operate with each other and work together towards
a common goal, so things like trying to encourage them to maybe
buy and share resources.
481. Can you give some examples of something
tangible? If we want to go and look at something after we have
heard from you, where should we go and look at something where
farmers have said, "Yes, we can do this because we want to
get all these messages up and down the supply chain. Take advice
from the opportunities you are presenting." What is a good
example?
(Ms Coates) Shared veterinary bills.
Take a group of farmers producing similar types of animals with
feed stuffs and chemicals and veterinary bills and actually sharing
those as a co-operative and increasing their buying power.
(Mr Merton) Certainly we would be happy
to take you to some of the farming communities we talked about
and take you right through the system.
(Ms Coates) Absolutely.
(Ms Neville-Rolfe) A couple of examples
from me. One would be the producer clubs for meat where we have
a club which feeds into a slaughter house and there is a whole
process of meetings on improving quality which is good. The second
thing is on the produce side, what I call the iceberg lettuce
example, I cannot remember the name of the man. It led to a huge
increase in production of UK iceberg lettuces and one of the great
things is they are linked into our IT system—so they know
when the lettuces in Elephant and Castle are walking off the shelves
and they therefore know when to harvest the lettuces so they do
not waste. That is cutting out waste through shared electronic
systems. It seems to me those are the sort of things, if we can
spread them through, which actually help the farmers to get value
if they are not throwing stuff away.
482. I take it those are the same electronic
systems which left your store in Kennington denuded of bananas
and kiwi fruit on Monday night. We use the term shortness in the
supply chain a lot and in the livestock sector during foot and
mouth we missed out the livestock markets, new shorter supply
chains became the norm. Talk to us a bit about that? What are
the implications that has for British farming? What do we finally
mean by shortening the supply chain and what do you think the
implications are for livestock in any other sector that you might
care to refer to?
(Mr Merton) Who do you want to answer
first?
483. Let us start with Lucy.
(Ms Neville-Rolfe) Let us talk a little
bit about produce and a little bit about meat. On meat I think
probably the answer is we have already shortened the supply chain
because we do have producer clubs. The producer sells direct to
the slaughter houses and the slaughter houses then sell on to
us. Except where we have a problem of supply we have not usually
used the livestock markets that much and, of course, there were
problems during foot and mouth. On the produce side, again we
use consolidators to some extent and they bring things together
for us. We have some direct contact. The advantage of that is
you often end up with a stronger supplier. That may seem odd but
we like to deal with a strong supplier with a sense of a business
and marketing strategy. We can then work together to try and make
sure that the kiwi fruit and the bananas are on the shelves, for
which I can only apologise.
Chairman: Right. That is enough of kiwi fruit
and bananas.
Mr Drew
484. Can I clarify something. You are all members
of IGD?
(Mr Merton) Yes.
(Ms Neville-Rolfe) Yes.
(Ms Coates) Yes.
485. In the Curry Report they made the recommendation
that IGD should lead on the fact that there should be greater
integration in the food chain. I heard recently that IGD is getting
cold feet about that, is that true or not?
(Mr Merton) Not to my knowledge. I think
the scope is still being discussed but I am not aware that anybody
is saying no to it.
486. You are aware also of the concept of food
miles. One of the ways in which you could compensate localised
production is by paying people for not transporting their produce
over great distances and give them the margin of that benefit.
Is that something you are actively considering?
(Mr Merton) Clearly any costs in the
supply chain, our ambition is always to keep the haulage of those
products down to the minimum. In the discussions with the local
community or the supplier, we would reflect that obviously. If
there are extra transport costs involved then clearly we would
want them to not incur other costs they would otherwise need to
share. I think we are all looking to be as efficient but also
cost effective throughout the supply chain. That is what we need
to do and we need to share that understanding together to make
sure we all understand how we go about our business and to make
sure it is as efficient as possible.
(Ms Coates) I agree with that. Where
possible we would not be asking local suppliers to go through
central distribution depots, so not taking from the locality into
a central distribution depot and back out. We try to find ways
of delivering to stores, directly within the locality which obviously
saves costs.
487. Is it fair to say that you would therefore
look at paying a premium for not using those food miles?
(Ms Coates) I think by default if you
equate paying them a premium to them having a better price because
it costs us less to handle it then yes.
(Ms Neville-Rolfe) Where I would agree
with you is if you had the best possible distribution system then
in the difficult circumstances we described, you would get a better
result. I think we do have to remember we do have quite a good
distribution system for food in this country. I think it is world
leading on the benchmarking. Certainly we operate, as you probably
know, in Central Europe and South East Asia and we have found
it is much worse there, that you have direct distribution to stores.
You have long, long queues going to our store in Prague, great
queues of lorries sitting there using up fuel whereas the system
we operate in the UK of centralised distribution is actually more
efficient on a miles basis because there is a win/win with cost.
The other key point is how full the lorries are. It is not only
the miles, it is how much food you have got in the lorries. It
is quite a complex issue what the best form of distribution is.
(Ms Coates) It is going to vary a lot
by size of the local supplier. Again, is it the one to three store
local supplier or is it a whole region?
488. The last point is that given you all operate
internationally now, are you interested in this concept of inter-regional
trade rather than just sell produce from a foreign country that
you concentrate on what the region in that country does and prioritise
that in your store here and vice versa because that seems to be
something that the consumer is particularly interested in or you
could make something of?
(Ms Neville-Rolfe) Shall I answer that.
We have large overseas operations. I think retailing is still
essentially local and where we operate our operations we try to
be local. We employ local people and on the whole most of the
food and non food that is sold in the stores, a lot of that is
from the country in question. There is not huge scope for trade
between Hungary and the UK around food in Tesco. You are right
that there is scope for some promotion sometimes, from Ireland,
for example, and both ways. I think it would be wrong to give
you the impression that globalisation has led to that being an
enormous opportunity.
Patrick Hall
489. You have all said that you would find it
helpful if the British farmer co-operated more. The facts are
that the British farmer does not co-operate. There are no strong
co-operatives amongst producers in this country, nothing like
the rest of the EU and many other countries. You are saying there
would be advantages if it was structured in that way so the messages
could be conveyed more clearly about customer needs or your needs
or both. Is not the reality a situation where you have a fragmented
producer base with individuals isolated from each other, and that
is the history, that is the tradition, and farmers still do not
trust each other to co-operate properly? Does the reality mean
that because you are in such a strong position dealing with weak
individuals who will not co-operate with each other that gives
you an absolute advantage in terms of bargaining power and does
that not suit you down to the ground?
(Mr Merton) Not at all.
490. I am not asking you necessarily, all of
you.
(Mr Merton) I think we are trying to
work in the spirit of co-operation and we all do it slightly differently.
The spirit of it is that we are all trying to work in the spirit
of co-operation. If people do not want to work with us then, fine,
that is their choice. I think what we are saying is we are now
reaching out, trying to explain and get people to understand the
market place and the consumer. We do have some large groups that
work very well with us who are committed farmers and very progressive
farmers and we would like to see more of it. We may take time
to convince some people.
(Ms Coates) Yes. I think just adding
to that, one of the points on our supply base is that all of them
are very important to us, and it is not just for the short term.
I think a disproportionately hard core relationship is not helpful
to anybody because actually we are in this for long term relationships
and putting British farmers out of business certainly is not in
the interests of the UK supermarket.
491. Nonetheless, the facts are that they are
weak and you are strong and that must suit you. If they were stronger
they would be able to get a higher price and your customers, you
say, want to pay the absolute minimum.
(Mr Merton) This is not about power,
this is about understanding between us.
492. It is not about power. That is one of the
most outstanding comments I have ever heard in a discussion on
this subject.
(Mr Merton) I said I would try to give
you an explanation. It is not about power. Why are we trying to
do it? Why have we been working with partnerships for ten years?
We have been doing it because we want to go out and embrace and
try and get the understanding there to move us forward together.
Why have I sat on a number of the industry committees? Because
I am passionate about wanting to make British farming strong and
to have a great future. There are issues that we all want to face
up to and it is the spirit of partnership we need, it is not about
power.
Mr Borrow
493. The title of our inquiry is the Future
of UK agriculture: farming without subsidies?. One of the
perceptions that is often made is that British agriculture is
not as market orientated or as innovative because of the level
of subsidy. That is mentioned in the paper that has been submitted
by Tesco. Is an opening question what benefits will there be for
supermarkets and consumers if subsidies to British agriculture
are ever removed?
(Ms Neville-Rolfe) It is part of a wider
question about reform of the CAP. I think there is a fair measure
of agreement in the UK that the CAP is very expensive and has
not been terribly effective in terms of delivering good incomes
to farmers or a good result for consumers. To that extent we are
fully behind the efforts to reform it. We think by having lower
levels of subsidies, obviously on a level playing field across
Europe, you will get better signals because instead of having
the supply chain looking for subsidy type answers when they get
into difficulties, they will be working towards the market. That
is the basic simple point. Does that answer your question?
494. Yes. If I can follow that on. There are
two examples I want to give to see if you in your position as
purchasers from the agricultural sector have noticed this. CAP
reform in the 1990s did lead to a lot of subsidies for certain
agricultural products and, therefore, in theory that ought to
have affected the responsiveness of the agriculture sector to
the markets if the level of subsidy was reduced. Also, there are
some parts of British agriculture which are not subsidised at
all and in my own constituency most of the agriculture sector
is the vegetables and horticulture sector which are not subsidised
and, therefore, you ought to see in your dealings with those sectors
as against in livestock sectors, differences in their ability
to respond to the markets. I wonder if you could demonstrate or
give examples of how those differences do exist, if they do exist?
(Mr Merton) I think some of the issues
you refer to are where they are not subsidised they tend to be
more fully integrated into the whole supply chain so the processors
and farmers tend to be more integrated together. That is a general
statement but it is a background to what we are talking about
here. I think at the end of the day if subsidies had been given
over the years, we are not going to be able to make huge differences,
we are looking for a level playing field that British agriculture
can work from whatever that might be and obviously to get to a
sustainability issue. We have very good examples of where non
subsidised areas work very well and tend to be market focussed.
There are other areas where subsidies may have been involved which
might encourage the wrong practices to try and be more in tune
with the demands of both customers and the market. I do not think
we can generalise but I just feel from our perspective at Sainsbury's
we want to see the level playing field, sustainability and people
able to respond. It is for Government, obviously, and Europe to
decide how best to encourage if there are going to be subsidies
or encouragements to do certain things and that is fine providing
it is the same for everybody.
(Ms Neville-Rolfe) If I could add. I
would agree that where the areas are less subsidised, like produce,
you do get better market signals coming through. I have some examples
of good practice there and where we would be glad to see some
reforms that went in that direction. I think we have seen also
lower prices in the shops over the last five or six years so that
may have been partly followed from CAP reform. As you will have
seen from the graph in my submission, in a sense the impact on
farmers has been distorted because of the strong pound and the
weak euro and the relationship between those two which has had
this huge impact which almost dwarfs some of the other things
which you may want to take into account, I would have thought,
in your work going forward.
(Ms Coates) I think an example, just
related to the question that you asked, of something which may
encourage practice which is not meeting consumer demands is the
second beef subsidy. In the second beef subsidy farmers will hang
on to the cattle for long enough to achieve the subsidy and they
become over fat as a result of that and maybe not ideal in terms
of their make up for the consumer. I think that is maybe an example
of something where we are encouraging what is not necessarily
the right practice.
495. I would be interested—and this is
my last question—in your perception of the industry's ability
to move quickly from a highly subsidised regime to one where it
operates without subsidy. In New Zealand that happened fairly
quickly, to my understanding, where subsidies were removed. I
just wonder in terms of your very close links with the industry
whether you have any views on were we to go to a regime without
subsidy how quickly that would be achieved without seriously damaging
the industry and damaging your ability to give consumers the range
of British products that they wish to have?
(Mr Merton) It is very difficult because
of the different natures and cyclical natures of some of the industries
we are talking about. Clearly some would have a much longer lead
time in effect. Any sudden removal without proper planning and
understanding would cause disruption to an industry we feel cannot
stand that. I think we need to be very focused and get the message
across if we are to face this. We could see a number of issues
in some of the longer cycle products, and beef is a good example,
two years, you need to be thinking like that in terms of the effect
on the supply chain and short term action which might come if
something suddenly was removed. It might leave farmers or other
people with an issue that they did not expect. I do think it depends
on the product area and it depends on the sort of lead times.
As a generality, anything that is done needs to be flagged up
well in advance and understood in the supply chain to ensure all
the issues that will affect the supply, especially if it was to
take supply down in the short term and leave us with a British
product which we are all wanting to sell not available. It has
happened in some of the shorter term things. We have had problems
in getting supplies right when we have had some problems in the
industry. That is a concern because quite often we might want
a British product and we cannot get it. I would be very concerned
both from the customer perspective and obviously from the farming
and industry perspective if we got into those sorts of situations.
(Ms Neville-Rolfe) Could I just add.
I think it does help if you can give some clear directions so
that people can plan. I have actually been very impressed by how
flexible the supply chain has been in times like foot and mouth
where it has been very difficult and everything has been all over
the place and yet we have kept the shelves filled, largely speaking.
I think there is some optimism there that people can change if
they see the opportunity. I think it is going to take quite long
time because, as I understand it, most reform will have to be
on an EU basis and I suspect the EU will not be particularly fast,
and it may be that our producers are able to go at the sort of
pace the EU are able to go at. I think the more difficult issue
is getting reform through at an EU level.
Paddy Tipping
496. We talked earlier on about consumer demand
and how you measure consumer demand and ideas. I think you said
that consumers were interested in health and safety, animal welfare
and "locality produced" was far lower down. What about
the environment? What are your customers saying to you about a
more sustainable kind of environment?
(Ms Neville-Rolfe) This is particular
research we did on attitudes to food and farming last year and
health and safety, animal welfare, farmer welfare was the order.
497. What about the environment and sustainable
lower output?
(Ms Neville-Rolfe) I think environment
came after animal welfare. It is still there. It did not come
out top but it is there.
498. You have got a product called Nature's
Choice.
(Ms Neville-Rolfe) We have.
499. What is it?
(Ms Neville-Rolfe) Nature's Choice is
a scheme we have been running for nearly ten years. Again it is
in produce. We asked our produce producers to observe minimum
environmental standards. They keep records on their pesticide
usage, on how much water they are using, and as part of our audit
and work with those producers we make sure that the system is
as environmentally sound as possible, without the more demanding
standards of organics. Over the last ten years we have extended
that to virtually all our producers in the United Kingdom, probably
all of them.
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