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

Examination of Witnesses (Questions 540-559)



Mr Todd

  540. Would your attitude to genetic modification differ because we have here a range of retailers with rather different target audiences? Do you feel that genetic modification offers the potential for consumer gain and particularly consumer gain in value terms which is worth monitoring and delivering in your shops?

  (Mr Hawkins) Yes I do. I was interested in Ian Merton's response to a question towards the end of the last session on this because we were also selling genetically modified tomato purée at the same time Sainsbury's were and there was no problem from the consumers, and in fact we offered a better deal through this. Frankly, what changed the consumer view was not so much a campaign by the Daily Mail but they jumped on a particular piece of research by some obscure professor from Aberdeen University which claimed to show there was a threat to health from genetically modified potatoes. At that point the whole media circus leapt onto the issue of threats to people's health and we have never recovered from that. I have to say neither the food retailers nor the food manufacturers played a particularly distinguished role in the panic that followed. It was near hysteria, it was led by the media and actually the number of customers who complained or registered their concern was only quite a small minority. Yes, it created a lot of noise fanned by a lot of NGO activity and the media, but I think the broad mass of customers at that time were relatively unmoved, although stories about Frankenstein foods and so on are bound to get through to a lot of people.

  541. Does this perhaps suggest that you might be considering reviewing your policy? I do not know what your policy is.

  (Mr Hawkins) We basically take the same view as the other three that were here, which is not to sell GM food as long as there is this prevailing uncertainty. What we need is for some clear scientific evidence to come before us and say this product is safe. When we get that I think you will find that retailers change their view. A lead from government, too, would be very helpful because there is no doubt that the momentum against GM on the part of the NGOs is undiminished, although all our research tells us that as a public consumer issue it has dropped down the hierarchy quite significantly in the last year or two. We need some reassurance from the scientific community if that is possible.

  542. Netto's experience might be a little different. Is it?

  (Mr Hughes) It is quite interesting that of all the food scares which have happened over the last ten years GM has caused the most discomfort with our customers. We had the most calls to our call centre, the most enquiries about what our stance was on GM. We said, "Right, we have got a GM-free policy", and that is our policy on our own label foods.

  543. Obviously you stock other items as well.

  (Mr Hughes) We do and if they have GMs in them, so be it. We are not going to change Heinz's recipe on beans, for example.

  544. Fair enough.

  (Ms Walters) Very much a similar experience. We do have one product that springs to mind and that is vegetarian cheese. It does not contain a GM organism but contains an ingredient produced with the help of GM technology.

  545. It is the rennet in it.

  (Ms Walters) It is the rennet. It is a way of producing vegan rennet. Where there is a very clear consumer benefit for using that product we will continue to do so and we will label fully. On this issue, most retailers are agreed—the policy is constantly under review and it will be an issue which is looked at again and again and again. It is evidence of our market responsiveness and the fact that we do respond to signals quite quickly.

Mr Borrow

  546. Earlier on you all indicated that you adopted the same approach to health and safety issues around food, irrespective of whether they were UK produced or produced overseas. I can understand in terms of fresh produce that can be operated fairly simply. There is, of course, a problem with processed foods and the extent to which you can have an influence or have the knowledge to make a decision. Perhaps a classic situation would be the situation where poultry farmers in my constituency will distinguish between the animal welfare regime they have got to operate under and animal welfare schemes that may operate overseas. There is a problem in importing poultry from overseas which is produced to much lower animal welfare standards than UK poultry. I assume you still stock those products on your shelves because you would not know where it was produced or where part of the food was originally sourced. Would you ask those questions, raise those issues in terms of processed foods?

  (Mr Hawkins) Absolutely. Poultry, which you take as an example, is a relatively concentrated part of the meat and livestock industry. There is a relatively small number of processors/suppliers in the UK and most of the retailers will have a long-term relationships with one or more of those processors. Certainly we know exactly where they are sourcing it from. Most of them source it from the United Kingdom. Where is all this Thai chicken, or whatever it may be, coming from? I would suggest it is mainly going into the food service sector. We are reasonably confident about the product. I think the real issue that you pointed to is where you have a processed product which comes from a branded manufacturer, for example Argentinian corned beef which I mentioned as an example, again, one deals with the suppliers over a period of time. Usually they are well-known branded suppliers. You have to take what they say on trust, I am afraid, there is no way other than that we can operate our business.

  547. I will move on to the next chunk, Chairman. You touched earlier on on the problems of signalling down the food chain what the requirements of the market are. We have touched on that but there are a number of specific points I wish to raise. The submission from the Co-operative Group mentioned the Farmcare scheme. Would you like to explain whether you think the produce through that scheme is better as far as the Co-operative end is concerned than produce bought from farmers outside the Farmcare scheme?

  (Ms Walters) Yes, Farmcare is our wholly-owned farming business and it currently is farming just over 90,000 acres of land in England and Scotland. Certainly in terms of the relationship between us as a farmer and us as a retailer I think it is fair to say that in past years it was an arm's length relationship and they were managed as totally separate businesses with totally different commercial goals and objectives. More recently we have come to recognise that there is in fact a food chain synergy between us as farmers and retailers. Just this week at a conference attended by our 200 farm managers, the chief buyer of the retail division spoke about the importance of maintaining and developing the relationship between us as farmers and us as retailers. In terms of the Committee's inquiry and looking at the future of farming in the UK without subsidies, our farms group has a very clear strategy of having to become more market responsive and thinking very carefully about its customers. It aims in the next few years to grow nothing that has not been pre-sold to a known customer. In some cases that will be Co-op Retail, the customer, in other cases, it will not. So it is not a straitjacket relationship but is becoming much more developed.

  548. One of the things that was mentioned in the Committee earlier this month was that farmers should take more of an initiative in terms of the supply chain and starting the communication rather than waiting to be told what to produce. Have you any experience of that actually taking place with your supply chain and farmers taking the initiative rather than it being a supermarket-led initiative to improve?

  (Ms Walters) I think it depends on the scale at which people are farming. If you are a single farmer in a fairly geographically isolated part of the country, you are not necessarily going to have the time to find those contacts and go out and yourself establish that relationship. For us as a large commercial farmer we of course have the management that is not involved in the day-to-day custodianship of the land which can go out and itself forge those relationships. We have dedicated marketing people who are employed by the farming business, so it is a question of scale and resources really.

  (Mr Hawkins) I cannot think of one example where farmers have taken the initiative but certainly I can think of several where farmers have responded quite positively to initiatives taken not necessarily by ourselves but one or two of our processors/suppliers. It is very important when we talk about information back to the farmer to recognise how just important a role the processor plays. Very often the processor has more direct contact with the farmer than we do. Particularly in livestock, where the processor will be supplied by a number of known assured farms, he will know who they are and the relationship is necessarily closer in that case, and the most successful initiatives we have taken in those areas have been those we have taken jointly with our processors, and very often at the initiative of the processor. That really is the most effective way in which it works. It does underline Curry's point about more collaboration among farmers organised on a more formal basis, as indeed so often on the Continent you find it. Perhaps someone mentioned this earlier this morning—UK competition law has frowned on and actively prevented the emergence of large concentrations of processing capacity which you would find in certain EU countries, which again Curry observes. I keep saying Curry, Chairman.

  Chairman: My distinction has already been noted!

Mr Borrow

  549. I wanted to touch finally on how you see the role of wholesale and livestock markets affecting the supply chain in the future. I can remember where I live in Preston at a time when the growers in my constituency and Michael Jack's constituency would have trundled down into Preston to sell their produce through a wholesale market. Very little of that now happens. In the livestock area I remember visiting what was originally a small abattoir two or three years ago and is now a huge abattoir where they contract direct with farmers in North Wales or Cumbria. The live sheep go in one end and go out in little packets at the other end. This market has taken out a lot of the livestock market capacity. Do you see that trend continuing? Do you think the wholesale and livestock markets will increasingly have very little effect?

  (Mr Hawkins) They are growing in the pig markets, but they are declining in both sheep and cattle, more significant in sheep than cattle. If you look at it from the farmers' point of view, if they go in for direct supply and assured contracts to supermarkets via processors, then they are getting a much more predictable business than they would have had by relying on the vagaries of the livestock market or export trade. While that may mean in terms of shortages that they forego a short-term price advantage (because, as we have seen in lamb in the last few months, suddenly from 1.40/kg it has shot up to 2.20/kg-2.30/kg and that is largely because the export market opened rather earlier than we thought) I think the long-term development is clearly for assured direct supply which I think will improve the overall quality of the product. To me if the red meat livestock chain is going to survive in this country, quality and reliability and especially predictably are important because without that predictability you will not get farmers to invest. Predictability means confidence. Long-term contracts would guarantee minimum prices which also helps to build confidence. The critical need is to help rebuild farmers' confidence.

Mr Martlew

  550. Can I come in on that point. How are you going to set a price? If I talk to my local farmers one thing they are frightened of is being completely dependent on the supermarkets. The auction man gives them an alternative. You are saying that alternative will disappear?

  (Mr Hawkins) It will fade out, yes.

  551. How do you guarantee that you will get a fair price from the system that you are saying will come in?

  (Mr Hawkins) In a market-dominated system you cannot guarantee anybody a "fair price forever". What you can do is look at what is happening in markets in relation to the balance between supply and demand because with red meat produce and cereals, no crop is ever the same two years running, so you are going to have a glut one year and a shortage another. You can have quality variations which certainly impact on price. What you can do if you are a retailer and processor together is say, "What has happened over the last few years? What have been the fluctuation between highs and lows in terms of price? Where do we think the prospects are going to lead for the next year or two or the next season? Can we offer a guaranteed minimum price that the farmer will not get less than for that period of time?" It is a judgment. But we have done it with Welsh mountain lamb and if we can do it for that, I think we can spread that principle.

Mr Todd

  552. I am grateful for Eric chipping in as there was an opportunity to tell me I was asking this next question! The Policy Commission, or Curry as we have said more abruptly in this process, have suggested that a Food Chain Centre should be established to review data relating to the efficiencies of the food chain and food chain activity as a way of benchmarking performance in the food chain. Firstly, do you think that is a reasonable idea and, secondly, it will not work unless people provide information to it from the retail sector, information which may be commercially sensitive and therefore there may be some requirement for certainty of confidentiality of the individual corporate information provided. What is your perception of that?

  (Mr Hawkins) Safeway is very much in favour of the Food Chain Centre, for fairly obvious reasons, but I think the point about information is that it will, as you know, be facilitated by the IGD. Retailers, along with the manufacturers, are IGD members and they regularly supply the IGD with fairly confidential information because they issue some quite detailed trade briefings on a regular basis covering the operations of major retailers to the trade, to the suppliers in the industry. We have run seminars. There are certain things that will remain confidential because they are very sensitive but, nonetheless, there is an awful lot of information that, frankly, is not. There is certainly enough information to allow the Food Chain Centre to proceed. I do not see that as a problem.

  (Mr Hughes) I think the information exists anyway with IGD. I am not sure the Food Chain Centre is going to do any good because there will not be any confidential information so, again, it is going to be another forum to pontificate about trade and not produce anything substantial and beneficial.

  (Ms Walters) We the Co-op certainly welcome the suggestion that the Centre be established. I think the success with which it will work will depend on the integrity of those people who are part of the discussions and their determination to work together. The proof of the pudding is very much going to be in the eating in terms of whether it delivers or goes some way to delivering this new vision.

  553. We are tremendously good in this country at setting up talking shops, Mr Hughes has said that. I would have thought the test of this is going to be a very, very precise set of objectives and data sets that they might seek to add some value to the process. I can remember that the IGD used to produce quite a lot of comparative data on retail and performance. I do not remember it trickling right the way back to the supply chain. I remember it was largely about market share and aspirations on a regional basis not so much on the relative efficiencies of the different parts of the supply chain. I am out-of-date—it is a good ten years ago.

  (Mr Hawkins) That is an area where the Food Chain Centre will make a real contribution because one of the points that the Curry Commission made was that some of our supply chains are too long with too many people in the middle adding too much cost and too little value. One of the most hackneyed clichés in the whole industry is "taking costs out of the supply chain" and yet here we are in 2002 and we have still got a major problem. The IGD benchmarking surveys comparing our livestock and dairy industries with seven other countries, which we published a year or two ago, show that we are virtually bottom of the table on about seven major performance indicators. That is quite serious if you think about the implication of CAP reform and the lowering of tariff barriers and what that will do to our food processing sector. There is an awful lot of valuable work that the IGD could do.

  554. Can we draw that out. I think the general view expressed, anecdotally and there is some data, is that our food processing sector is not internationally competitive in some respects and there is work to be done on tightening the food chain and looking at efficiencies of the sector which this process might assist. I note the comment that it sounds like an opportunity for people to get together and talk about familiar subjects. On a specific point, the Code of Practice on supermarket dealings with suppliers, which has been signed up by the biggest of the major retailers. Have the Co-op and Netto signed?

  (Ms Walters) No. We would have liked to have been consulted about the Code of Practice when it was being discussed. We will abide by its recommendations and we hope that if there is a review in two years, as I think the Curry Report suggests, that we would then be involved at a proper level.

  555. A typically robust comment from Netto?

  (Mr Hughes) We were missed out from the consultative net, yes!

  556. On that basis, you are not going to be necessarily governed by its content?

  (Mr Hughes) I would not say that. Anything like this that can help is useful. We are not going to say carte blanche no, but we would like to review it.

Mr Jack

  557. I was interested, Katharine Walters, in the opening sentence of your evidence: "The Co-operative Group, of which Farmcare is a part, has a significant interest in the Common Agricultural Policy and proposals for reform ..." So what benefits would a process of reform, for example removing subsidies, visit on the supermarket side of your business's customers? If the current subsidies were actually removed, how would you perceive that?

  (Ms Walters) If you look at our profit level, within the last three or four years we have seen a steady decline. Over the last three years we have made losses in the farm business with slightly better results for the year which we have not yet reported on. It is clear that even with the fairly generous subsidy regime as currently stands, farming is in crisis, so we need to think again about how farmers farm and what is the role of farmers. Certainly we have a very clear view that we have to accept that production based subsidy will go. We do not know when, we do not know how quick that process will be, but it will happen and we have to start thinking through how we operate in the market-place without that guaranteed subsidy.

  558. Given the point you made at the beginning that you are trading at a loss at the moment, that is almost like having subsidies taken away from what might have been deemed to be a normal profitable year. What are you doing now to survive because taking subsidy away from farming enterprise means an even worse balance sheet. If it all happened big bang, overnight, tomorrow you would be in serious trouble and if you are in serious trouble, goodness knows where the rest of farming would be.

  (Ms Walters) They are in serious trouble, too. What we have to do and what we have done is begin to look at what we are doing and why we are doing it. Our clear view is that if we cannot produce food better than our competitors we should not be doing it. If there are things that we are doing okay in, we should look to see how we can produce that food even better. And there are some things we need to get out of.

  559. Have you actually played the scenario through as to five per cent, ten per cent? In a way the Curry Report, with its comments on modulation, starts incrementally the process within the envelope of funding that we do have for the CAP for the UK at the present time. Are you going through a process saying what should we be in, what might we get out of? Have you played that scenario through?

  (Ms Walters) Yes.

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