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

Examination of Witnesses (Questions 480-499)



  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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