Examination of Witnesses (Questions 540-559)
MS KATHARINE
WALTERS, MR
SIMON HUGHES
AND MR
KEVIN HAWKINS
WEDNESDAY 27 FEBRUARY 2002
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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